back to Screen-Friendly page

Ethics Opinions from the Bar Association of San Francisco

INFORMAL OPINION 1973-23

A lawyer may form a partnership with a real estate broker if his sole involvement is as an inactive investor and he accepts no law work referred by his broker-partner, but the appearance of professional impropriety enjoined by ABA Canon 9 would be difficult to avoid.

QUESTION:
May a lawyer form a partnership with a real estate broker, and, if so, may they share fees 50/50?

OPINION:

Technically, such a partnership could be formed if the lawyer's sole involvement is that of an investor who plays no active role whatsoever in the real estate brokerage and accepts no referral business from his broker-partner. Any breach of these restrictions would constitute a violation of state law and legal ethics. It would be highly inadvisable for a lawyer to engage in such a partnership, for the situation invites the "appearance of professional impropriety", which the Bar is enjoined to avoid by Canon 9 of the Code of Professional Responsibility of the American Bar Association.

An attorney at law may perform acts of real estate brokerage arising out of his legal practice, but not otherwise. The Real Estate Law provides, in Business and Professions Code, §10130 through 10132, that only licensed persons may perform acts of real estate brokerage. There is an exception in §10133 for "services rendered by an attorney at law in performing his duties as such attorney at law".

Business and Professions Code, §10137 prohibits a broker from sharing fees other than with another broker or employed salesman. This has been interpreted to prevent sharing real estate brokerage commission with an attorney, except to the extent of compensation solely for the value of legal services rendered by the attorney for the broker's client. Provisor v. Hans Realty, Inc. (1967) 256 CA 2d 850, 64 Cal Rptr 509.

Certain partnerships, however, fall within an exception to the prohibition against sharing commissions with an attorney. Business and Professions Code, §10137.1, states:

§10137.1: Nothing contained in this division shall preclude a partnership from performing acts for which a real estate broker license is required, provided every partner whom the partnership so acts is a licensed real estate broker. (Emphasis added)

Therefore, it appears that the Real Estate Law permits an attorney to be a member of a partnership engaged in real estate brokerage and share in its overall profits or losses provided he performs no acts requiring a real estate license.

The State Bar Act, on the other hand, absolutely precludes an attorney frorn paying any agent (partner or otherwise) to solicit legal business, and the Canons of Ethics prohibit the sharing of legal fees with any person who is not licensed to practice law.

Business and Professions Code, §§6151 through 6154 prohibit the use of runners, cappers, or other agents to solicit legal business for an attorney, make all such solicitations a misdemeanor, and void any resulting contracts for the attorney's compensation.

Rule 3 of the Rules of Professional Conduct of the State Bar of California states:

A member of the State Bar shall not employ another to solicit or obtain, or remunerate another for soliciting or obtaining professional employment for him; nor, except with a person licensed to practice law, shall he directly or indirectly share compensation arising out of or incidental to professional employment; nor shall he directly or indirectly aid or abet any person not so licensed, or any association or corporation, to practice law or to receive compensation therefrom. A member of the State Bar shall not knowingly accept professional employment offered to him as a result of or as an incident to the activities of any person not so licensed or of any association or corporation that for compensation controls, directs or influences such employment . . .

It is clear that Rule 3 would prohibit a lawyer-partner of a real estate broker from accepting any business referred by his partner.

The conclusions drawn above are reinforced by Canon 9 of the Code of Professional Responsibility of the American Bar Association, which states that "A lawyer should assist in preventing the unauthorized practice of law". These canons are "commended" to California by Rule I of the Rules of Conduct of the State Bar of California.

Associated with ABA Canon 3 is Ethical Consideration EC 3-8, which provides in part:

Since a lawyer should not aid or encourage a layman to practice law, he should not practice law in association with a layman or otherwise share legal fees with a layman.

ABA Disciplinary Rules enforce this principle:

Rule DR 3-102. A lawyer or law firm shall not share legal fees with a nonlawyer . . . (exceptions inapplicable).

Rule DR-103A. A lawyer shall not form a partnership with a nonlawyer is any of the activities of the partnership consist of the practice of law.

It is difficult indeed to conceive how a practicing lawyer could function in partnership with a real estate broker, except as a completely silent investor, sharing overall profits and losses of the real estate brokerage business. Facts should not be presumed, however, so this opinion draws no conclusion about the propriety of a lawyer-broker real estate brokerage partnership that falls within the narrow limits of permissibility outlined above.

All opinions of the Committee are subject to the following disclaimer:
Opinions rendered by the Ethics Committee are an uncompensated service of The Bar Association of San Francisco. Opinions are advisory only, and no liability whatsoever is assumed by the Committee or The Bar Association of San Francisco in rendering such opinions, and the opinions are relied upon at the risk of the user thereof. Opinions of the Committee are not binding in any manner upon the State Bar of California, the Board of Governors, any disciplinary committee, The Bar Association of San Francisco, or the individual members of the Ethics Committee.

In using these opinions you should be aware that subsequent judicial opinions and revised rules of professional conduct may have dealt with the areas covered by these ethics opinions.

Our partners at BASF Ahern Insurance Brokerage