I'm opening a real estate referral company I'll co-own with another lawyer, in my law office. Can I do the legal work on transactions where my company or its agents earn a commission, and if not, can I refer that work to lawyers in my building?

Plain-English summary

The inquiring attorney was obtaining a Rhode Island real estate broker's license and establishing a real estate referral company he would own and operate with another lawyer, located in the same office as his law practice. "Inactive realtors" (license holders not affiliated with a broker) would display their licenses at the referral company and conduct business with an active realtor employed by an outside real estate company, with commissions divided among the referral company, the inactive realtor, the active realtor, and the outside company. The attorney asked three questions: (1) may he provide legal services in a real estate transaction in which the referral company shares the commission; (2) if he has a conflict, may he refer the matter to other attorneys in his building, which is owned by the referral company's co-owner; and (3) may he provide legal services where the referral company takes no commission but the affiliated realtors do.

The panel treated questions one and three together and concluded the answer to both was no. Lawyers may share office space with nonlawyers and engage in other businesses, but must make the separate nature of the businesses clear and adhere to the Rules, particularly on confidentiality, conflicts, advertising, solicitation, and independent judgment. Under Rule 1.7(b), the panel concluded the attorney could not provide legal services in a transaction in which the referral company shared the commission, and, even where the company waived its share, could not do so if the affiliated agents and brokers received a commission, because those agents were not independent of the company: their ability to do business depended on the attorney's referral company. That interrelationship presented a substantial risk that the attorney's independent professional judgment would be compromised and that his representation would be materially limited by his interests in the company. Because there could be no reasonable belief the representation would not be affected, the panel concluded consent should not be solicited.

On question two, the panel concluded the attorney could refer clients needing legal services to other attorneys in the same office building, provided he and those attorneys did not present themselves to the public as, or conduct themselves as, a firm (Comment to Rule 1.10; Rule 1.10(a)). The attorney to whom a referral is made must independently determine he has no conflict before undertaking the representation, and the inquiring attorney could not share the legal fees.

Currency note

This opinion was issued in April 1998, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rules 1.7 and 1.10 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Can a lawyer do the legal work on a real estate deal his own referral company profits from?

A: No. The opinion concluded Rule 1.7 barred the attorney from providing legal services in a transaction in which his referral company shared the realtor's commission, because his independent judgment would be compromised.

Q: What if the referral company waives its commission but its affiliated agents still get paid?

A: Still barred. The opinion concluded the affiliated agents were not independent of the company (their business depended on it), so the conflict remained even when the company itself took no share.

Q: Could consent cure the conflict?

A: No. The opinion concluded there could be no reasonable belief that the representation would not be affected, so consent should not be solicited, citing the Comment to Rule 1.7.

Q: Could the lawyer send the legal work to nearby attorneys instead?

A: Yes, with conditions. The opinion allowed referral to other attorneys in the building only if they and the inquiring attorney did not present as or act as a firm, each referred-to attorney checked for conflicts, and the inquiring attorney took no share of the legal fee.

Background and rules framework

The opinion applied Rhode Island Rules of Professional Conduct 1.7 (Model Rule 1.7) and 1.10 (Model Rule 1.10) as originally adopted. Rule 1.7(b) bars a representation that may be materially limited by the lawyer's own interests or responsibilities to a third person absent a reasonable belief of no adverse effect and client consent. Rule 1.10(a) bars lawyers associated in a firm from representing a client when one of them practicing alone would be barred by Rules 1.7, 1.8(c), 1.9, or 2.2, and the Comment addresses when separate lawyers do or do not constitute a firm. The panel relied on its prior Opinions 96-29 (attorney/real estate broker) and 96-26 (attorney/insurance broker).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 / RI RPC 1.7(b) (material-limitation conflict; independent judgment)
• Model Rule 1.10 / RI RPC 1.10(a) (imputed disqualification; "firm" in the Comment)

Other opinions cited:

• RI EAP Op. 96-29 (attorney may not serve as lawyer in a transaction where he is the real estate broker): the panel's controlling analogy
• RI EAP Op. 96-26 (estate-planning attorney who is also an insurance broker): cited as related
• RI EAP Op. 97-05: cited on dual practice

See also

• RI EAP Op. 99-08: Dual law and investment-advisory practice
• RI EAP Op. 99-16: Lawyer buying a client's land under Rule 1.8(a)
• RI EAP Op. 99-09: Of-counsel affiliation is not a firm for imputation

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%2098-08.pdf

Original opinion text

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

Final
RHODE ISLAND SUPREME COURT
ETHICS ADVISORY PANEL
Opinion 98-08 Request # 741
Issued April 9, 1998

Facts:

    The inquiring attorney states that he/she is in the process of obtaining a Rhode Island real

estate broker's license and establishing a real estate referral company which he/she will own and
operate with another lawyer. The real estate referral company will be located in the same office
as the inquiring attorney's law practice. Persons holding real estate licenses who are not affiliated
with a real estate broker, referred to by the inquiring attorney as "inactive realtors," will display
their licenses in the office of the real estate referral company and will conduct business with
an active realtor who is employed by an outside real estate company. Realtor's commissions will
be divided among the inquiring attorney's real estate referral company, the inactive realtor, the
active realtor employed by the outside real estate company, and the outside real estate company.

Issue Presented:

    The inquiring attorney asks the following questions: (1) May the inquiring attorney provide

legal services to persons or entities in a real estate transaction in which the referral company
shares the realtor's commission? (2) If the inquiring attorney has a conflict of interest, may
he/she refer the matter to other attorneys in his/her building which is owned by the co-owner of
the referral company? (3) May the inquiring attorney provide legal services in a real estate
transaction in which the real estate referral company does not receive any portion of the realtor's
commission which will be divided solely among the inactive realtor, the active realtor, and the
outside real estate company?

Opinion:

     (1) The Rules of Professional Conduct do not permit the inquiring attorney to provide

legal services relating to a real estate transaction in which the inquiring attorney's real estate referral
company shares the realtor's commission. (2) The inquiring attorney may refer those legal
services to other attorneys in the building owned by a co-owner of the referral company provided
that the other attorneys and the inquiring attorney do not present themselves as a firm and that
the inquiring attorney does not receive a share of the legal fee. (3) Even where the real estate referral
company does not receive a portion of the realtor's commission, the Rules do not permit
the inquiring attorney to provide legal services relating to a real estate transaction in which the
affiliated real estate agents and brokers receive a realtor's commission.
Final 98-08
Page 2

Reasoning:

    At the outset the Panel states that its guidance is restricted to interpretations of the Rules

of Professional Conduct and does not extend to issues under chapter 20.5 of title 5 of the Rhode
Island General Laws or to any other rules, regulations, or laws that may have a bearing on the issues
raised in this inquiry.

    Questions one and three present the same ethical considerations, and the Panel therefore

addresses them together. Attorneys may share office space with nonlawyers and may simultaneously
engage in other businesses or professions, but must make the separate nature of their businesses
clear to the public and must adhere to the Rules of Professional Conduct, particularly
those rules pertaining to client confidentiality, conflicts of interest, advertising, direct contact
with prospective clients, and the requirement that an attorney exercise independent judgment.
See R.I. Sup. Ct. Ethics Advisory Panel Op. 96-29; R.I. Sup. Ct. Ethics Advisory Panel Op. 97-
05.

     Rule 1.7(b) is pertinent to questions relating to the legal representation of parties to a real

estate transaction involving the inquiring attorney's real estate referral company or its affiliated
brokers. It states:

      (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 interests, 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 the implications
            of the common representation and the advantages and
            risks involved

     It is the opinion of the Panel that pursuant to Rule 1.7 the inquiring attorney may not

provide legal services relating to real estate transactions in which the real estate referral company
shares the realtor's commission. Even where the referral company waives or does not receive a
share of the realtor's commission, the inquiring attorney is not permitted to provide the related
legal services for a transaction if the referral company's affiliated real estate agents and brokers
Final 98-08
Page 3

receive a commission. This is so because the agents and brokers are not independent of the referral
company. Indeed, under the proposed arrangement, their ability to conduct business is dependent
on the existence of the inquiring attorney's referral company. The interrelationship between
the referral company and the agents and brokers presents a substantial risk that the inquiring
attorney's independent professional judgment will be compromised. There is also a significant
risk that his/her representation of parties to a real estate transaction will be materially limited
by his/her interests in the referral company or by his/her responsibilities to the company and
to the associated agents and brokers. In the opinion of the Panel there could not exist a reasonable
belief that the representation would not be affected. Therefore, consent should not be solicited.
See Comment to Rule 1.7.

     In Ethics Advisory Panel Op. 96-29 the Panel advised an attorney that the Rules of Professional

Conduct do not permit an attorney to serve as the attorney for an individual in a real
estate transaction in which he/she is the real estate broker on behalf of the individual. The reasoning
set forth in Ethics Advisory Panel Op. 96-29 and in Ethics Advisory Panel Op. 96-26, a
related opinion that addressed the ethical issues raised by an estate planning attorney who also is
an insurance broker, is applicable to the instant request, and the Panel refers the inquiring attorney
to those opinions.

      In real estate transactions in which the inquiring attorney's real estate referral company

or its affiliated agents and brokers receive a realtor's commission, the Rules of Professional Conduct
permit the inquiring attorney to refer individuals or entities in need of legal services related
to the transaction to other attorneys in the same office building, provided that the inquiring attorney
and the other attorneys do not "...present themselves to the public in a way suggesting that
they are a firm or conduct themselves as a firm ...." Comment to Rule 1.10; see Rule 1.10(A)
(lawyers practicing in same firm shall not knowingly represent a client when one of them would
be prohibited from doing so under Rules 1.7, 1.8(c), 1.9 or 2.2.) The attorney to whom the referral
is made must independently determine in each case that he/she does not have a conflict of
interest under the Rules of Professional Conduct before undertaking the representation. The inquiring
attorney may not share the legal fees.

      The Panel therefore concludes that the Rules of Professional Conduct do not permit the

inquiring attorney to provide legal services relating to real estate transactions when the inquiring
attorney's real estate referral company or its affiliated real estate agents and brokers receive a
realtor's commission or a portion thereof. The inquiring attorney may refer those services to
other attorneys in the building owned by a co-owner of the referral company provided that the
other attorneys and the inquiring attorney do not present themselves as a firm and provided further
that the inquiring attorney does not share the legal fees.