An attorney representing the buyer in a residential real estate closing cannot charge a separately represented seller for services that primarily benefit the buyer unless certain conditions are met.
But the closing attorney may charge the seller for services that primarily benefit the seller, provided the seller is notified in advance of the charge and has a reasonable opportunity to object to it.
Those are two key provisions of Proposed 2021 Formal Ethics Opinion 3, published by the NC State Bar in October 2021.
Key takeaways from Proposed 2021 FEO 3 are below.
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Proposed 2021 Formal Ethics Opinion 3
The scenario: Buyer retained Lawyer A to represent Buyer in a residential real estate transaction. Seller declined to retain Lawyer A and instead retained separate counsel for the transaction, Lawyer B. Leading up to the closing, rather than using her standard documents for the transaction, Lawyer A received documents prepared by Lawyer B to be used at closing, which differed substantially from the documents Lawyer A planned to use at closing. As a result, Lawyer A was required to review Lawyer B’s work and make changes to the proposed documents for the benefit of her client, Buyer. At closing, Lawyer A charged a $100 fee to Seller for the work Lawyer A completed in reviewing and responding to Lawyer B’s proposed documents. Lawyer B and Seller objected to the fee charged by Lawyer A to Seller.
Inquiry #1: May Lawyer A charge a fee to Seller for the work completed in reviewing and responding to Lawyer B’s proposed documents?
Opinion #1: No, unless a) Seller agrees to pay the fee, b) Buyer consents to Seller’s payment of Lawyer A’s fee, and c) the fee charged is not illegal or clearly excessive.
Rule 1.8(f) prohibits a lawyer from receiving compensation for representing a client from a person other than the client unless these three requirements are met: “(1) the client gives informed consent; (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and (3) information relating to the representation of a client is protected as required by Rule 1.6.” Additionally, Rule 1.5(a) states that “[a] lawyer shall not make an agreement for, charge, or collect an illegal or clearly excessive fee[.]”
Lawyer A has been retained by Buyer to represent Buyer (and presumably Buyer’s lender, if applicable) in the acquisition of real property from Seller. Although representation of multiple parties to a real property transaction is possible without violating Rule 1.7’s prohibition on engaging in a concurrent conflict of interest during a representation (see, e.g., CPR 100, RPC 210, 2006 FEO 3, and 2013 FEO 4), Seller has elected to obtain separate counsel for the transaction. Accordingly, Lawyer A’s representation is limited to Buyer, and all work completed in the transaction by Lawyer A is for the benefit of her client, Buyer. Under these circumstances, the only way Lawyer A could collect a fee for the legal services provided to Buyer from anyone other than Buyer would be through compliance with Rule 1.8(f). Specifically, Lawyer A must a) obtain Buyer’s informed consent to Seller paying all or a portion of Lawyer A’s fee for completing her representation of Buyer in the transaction, b) ensure that Seller’s payment of Lawyer A’s fee does not interfere with lawyer’s independence of professional judgment or with the client-lawyer relationship; and c) ensure that all information deemed confidential pursuant to Rule 1.6 remains appropriately protected in accordance with that Rule. Furthermore, any fee collected by Lawyer A from Seller or a third party for the benefit of Buyer must not be illegal or excessive pursuant to Rule 1.5(a). See 2006 FEO 3 and 2013 FEO 4…. [read Proposed 2021 FEO 3 for the full opinion]
Inquiry #2: May Lawyer A charge an additional fee to Buyer for the work completed in reviewing and responding to Lawyer B’s proposed documents?
Opinion #2: Yes, provided the fee charged is not illegal or excessive. See Rule 1.5(a).
Read Proposed 2021 FEO 3 for additional factual inquiries and opinions.
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