I am a lawyer and a licensed real estate broker. Can I operate a real estate business out of my law office?

Plain-English summary

The inquiring attorney is a licensed real estate broker and asked whether it is permissible to operate a real estate business from the law office. The opinion frames this as the issue of law firms' involvement in ancillary businesses that provide non-legal services, and notes that the topic was debated at the ABA's 1991 Annual Meeting, focused on confidentiality and conflict-of-interest concerns, resulting in the ABA House of Delegates' adoption of Model Rule 5.7 ("Provision of Ancillary Services"). The opinion observes that Rhode Island had not adopted Rule 5.7 at that time.

The opinion applies Rule 5.4(b), which provides that a lawyer shall not form a partnership with a non-lawyer if any of the partnership's activities consist of the practice of law. The opinion cautions that, although Rule 5.4 does not directly prohibit the described practice, the attorney's prospective action must comply with paragraph (b).

The opinion adds that Rule 1.8(a) applies, setting conditions for a lawyer entering a business transaction with a client or acquiring an interest adverse to a client -- fair and reasonable terms fully disclosed in writing, a reasonable opportunity to seek independent counsel, and the client's written consent. It further notes Rule 1.7(b), which lists the lawyer's own interests as a source of influence that could impair independent professional judgment, and directs the attorney to proceed only under the reasonable-belief and consent conditions of subsections (1) and (2). The opinion advises consulting Rhode Island Department of Business Regulation regulations and states its guidance is restricted to the Rules of Professional Conduct.

In practice

Under this opinion, operating an ancillary real estate business from a law office is not itself barred by the Rhode Island rules in force, but the opinion identifies three rules the conduct must satisfy: Rule 5.4(b) (no partnership with a non-lawyer in the practice of law), Rule 1.8(a) (the disclosure, independent-counsel, and written-consent conditions for business transactions with clients), and Rule 1.7(b) (conflicts arising from the lawyer's own interests). The opinion expressly limits itself to the Rules of Professional Conduct and points to the Department of Business Regulation for other applicable requirements.

Common questions

Q: Does Rhode Island's Rule 5.4 forbid a lawyer from running a real estate business?

A: The opinion says Rule 5.4 does not directly prohibit the described practice, but cautions that the arrangement must comply with Rule 5.4(b), which bars a partnership with a non-lawyer in the practice of law.

Q: Has Rhode Island adopted the ABA's ancillary-services rule (Model Rule 5.7)?

A: The opinion states that, as of its issuance, Rhode Island had not adopted Rule 5.7, and analyzes the question under Rules 5.4(b), 1.8(a), and 1.7(b) instead.

Q: What rules govern dealings with clients who use both services?

A: The opinion points to Rule 1.8(a) (business transactions with a client require fair terms, written disclosure, a chance to consult independent counsel, and written consent) and Rule 1.7(b) (the lawyer's own interests must not adversely affect the representation absent consent).

Background and rules framework

The opinion interprets Rhode Island Rules of Professional Conduct 5.4(b) (professional independence; no partnership with a non-lawyer in the practice of law), 1.8(a) (business transactions with clients), and 1.7(b) (conflict of interest arising from the lawyer's own interests), analogs of the corresponding Model Rules. It discusses ABA Model Rule 5.7 (provision of ancillary services) as background, noting Rhode Island had not adopted it.

Citations and references

Rules of Professional Conduct:

• MR 5.4 / RI RPC 5.4(b) (no partnership with a non-lawyer in the practice of law)
• MR 1.8 / RI RPC 1.8(a) (business transactions with a client)
• MR 1.7 / RI RPC 1.7(b) (conflict from the lawyer's own interests)
• MR 5.7 (provision of ancillary services; noted as not adopted in Rhode Island)

Other authorities cited:

• Annotated Model Rules of Professional Conduct, at 483 (2nd ed. 1992)

See also

• RI EAP Opinion 93-54: an adviser's referral fee under Rules 5.4 and 1.8

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2093-59.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

(FINAL)
ETHICS ADVISORY PANEL
OPINION #93-59, REQUEST #392
Issued August 25, 1993

An attorney is a licensed real estate broker and seeks Panel advice as to whether it is permissible for him/her to operate a real estate business from his/her office.

This inquiry raises the issue of law firms' involvement in ancillary businesses that provide non-legal services. The Panel notes that the propriety of these operations, and the necessity of addressing the same in the Model Rules of Professional Conduct, was debated at the 1991 Annual Meeting of the American Bar Association (ABA). The discussions of the debate focused on the inherent ethical dilemmas arising from this practice, including confidentiality and conflict of interest problems. The result was the adoption of Model Rule 5.7 by the ABA House of Delegates entitled "Provision of Ancillary Services."

Model Rule 5.7 prohibits law firms from providing non-legal services ancillary to the practice of law unless such services are provided by employees of the firm to clients of the firm in connection with the provision of legal services. Annotated Model Rules of Professional Conduct, at 483 (2nd ed. 1992).

As of this time, Rhode Island has not adopted Rule 5.7. However, the ancillary business topic is addressed by Rule 5.4(b) which provides that "[a] lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law." The Panel, therefore, cautions the inquiring attorney that although Rule 5.4 does not directly prohibit the practice he/she describes, his/her prospective action must comply with paragraph (b).

Rule 1.8(a) also applies to the inquiring attorney's ethical obligations in such a situation. The Rule states that:

(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;

(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

(3) the client consents in writing thereto.

Further, the Panel notes that Rule 1.7 is applicable to this inquiry which states in pertinent part as follows:

Rule 1.7. Conflict of Interest: General Rule.- (b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interest, unless:

(1) the lawyer reasonably believes the representation will not be adversely affected; and

(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of implications of the common representation and the advantages and risks involved.

Rule 1.7(b) lists the lawyer's own interests as a source of influence which could impair the lawyer's exercise of independent professional judgment on behalf of a client. In this vein, the inquiring attorney must be mindful of the potential conflict of interest situations which may arise and his/her duty to proceed only under the conditions delineated in subsections (1) and (2) of paragraph (b).

In addition, the inquiring attorney is advised to consult the applicable regulations promulgated by the Rhode Island Department of Business Regulation with respect to this matter.

The Panel's guidance is restricted to interpretations of the Model Rules of Professional Conduct and does not extend to issues under the State Ethics Code or any other rules, regulations or laws that may have bearing on the issue raised by this inquiry.