Ethics Opinon 1992-1
May a member of the State Bar act both as attorney for the personal representatives of a probate estate and as real estate broker for the sale of that estate's property, and receive fees from the estate in both capacities?
A member who acts as a lawyer for an estate and as real estate broker for sale of property of the estate has a pecuniary interest adverse to a client and may only act in this dual capacity after compliance with Rule 3-300 of the California State Bar Rules of Professional Conduct. The member may receive both legal fees and a real estate sales commission if full disclosure of the fees and transaction is made to the client and the client consents in writing in accordance with the terms of Rule 3-300.
STATEMENT OF FACTS
A law firm ("Law Firm") represents executors of probate estates and conservators of conservatorship estates. Two partners in Law Firm ("the lawyer-partners") are also licensed real estate brokers and own a full-service real estate brokerage company ("Brokerage Company"). Brokerage Company employs agents who service real estate clients, and it is the agents who receive the majority of real estate commissions. The lawyer-partners receive a share of the real estate commissions but do not actively perform real estate services for clients of the Brokerage Company.
On occasion, personal representatives of probate or conservator estates, represented by Law Firm, desire to sell real property owned by the estate. In such cases, Law Firm, and specifically the lawyer-partners, inform the client of their capacity as brokers and, after disclosure of the potential conflicts of interest, offer to sell the property through Brokerage Company. If the property is sold through Brokerage Company, the lawyer-partners, with disclosure to and consent by the client, receive both a share of legal fees and real estate commissions.
Transactions of this nature with clients are not prohibited but are carefully regulated both to protect the interest of the client and to document the actions of the lawyer. The equity and documentation requirements of Rule 3-300 are designed to prevent, inter alia, the possibility of a lawyer-broker recommending a sale of property which may not be in the best interest of the client/estate, opting instead to pursue the collection of a real estate commission. Therefore, the joint roles of the lawyer-partners in the facts at issue are maintainable, provided that they comply in full with the prescriptions of Rule 3-300.
That is, the terms of both the real estate sale and those of the real estate commission contract must be fair and reasonable to the client, and transmitted in writing to the client in words that the client may be reasonably expected to understand. Although the ultimate decision of whether to sell the property is one for the personal representative to make, a minimal "fair and reasonable" standard would prohibit the lawyer-broker from recommending a sale which would not be in the best interests of the estate, or which the lawyer would not recommend to a client who used a real estate brokerage firm with which the lawyer was not affiliated.
In addition, the lawyer also must advise the client in writing to seek advice of an independent lawyer of the client's choice, and the client must be given time and a reasonable opportunity to seek that advice. After compliance with these provisions, the lawyer must receive the written consent of the client to enter into the transaction with the lawyer. In the facts at issue, this Committee believes there are two transactions to which the client's consent must be obtained: the execution of the listing agreement and the sale of the property itself. As part of the pre-consent disclosures to the client, the lawyer must inform the client of the potential conflicts of interest in the lawyer serving both as attorney for the client and real estate broker and of the fact that the lawyer will be receiving fees for acting in both capacities. Since the client is an estate, the personal representative of the estate must receive the required disclosures and execute the written consent.
Dual practice as a lawyer and real estate broker is not prohibited, but the rules of both professions must be complied with (see California State Bar Opinion 1982-69). Further, care must be taken to safeguard against unethical solicitation of legal clients through the real estate brokerage, aiding the unauthorized practice of law by the brokerage firm, and sharing legal fees with non-lawyer real estate agents (see California Rules of Professional Conduct 1-300, 1-320, 1-400), as well as against conflicts of interest and other potential ethical pitfalls. This opinion is advisory only, and is not binding on the San Diego County Bar Association, its officers or agents, the State Bar of California or any court.
Disclaimer: This opinion was issued by the Legal Ethics Committee of the San Diego County Bar Association. It is advisory only and is not binding upon any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors, or any persons or tribunals charged with regulatory responsibilities. The SDCBA, its officers, directors, agents, and the Legal Ethics Committee members assume no responsibility or liability in rendering this opinion.