Ethics Advisory Opinion 11-08
November 15, 2011
Inquirer is a member of the South Carolina Bar whose firm handles residential real estate closings and has been asked by a real estate agency to enter into a “Work Share Agreement.” The agreement would include recitals that the Real Estate Agency is engaged in the business of marketing and selling real estate, and the Law Firm is engaged in the business of providing title and ancillary legal services in connection with the closing of the purchase and sale of real estate.
The proposed agreement states that the Real Estate Agency would provide the following to the law firm: An executed Purchase/Sale contract; contact information for buyer’s real estate agent and seller’s real estate agent; parties’ names, addresses, social security numbers, and contact information; and copies of invoices for appraisals, surveys, home inspections, and insurance.
The Law Firm would pay the Real Estate Agency $225.00 for every real estate transaction where the Real Estate Agency was either the buyer or seller’s agent. The services to be provided by the Real Estate Agency and the Law Firm, however, are the usual and customary services that each already perform in connection with residential real estate closings. Additionally, several of the services to be provided by the Real Estate Agency are performed by the other party’s agents or providers.
Does the “Work Share Agreement” between the Law Firm and the Real Estate Agency violate Rule 5.4(a), which prohibits sharing of legal fees with a non-lawyer, or Rule 7.2(c), which prohibits a lawyer from giving something of value for recommending the lawyer’s services, where the services to be performed by the parties are services that the parties would customarily perform in the absence of an agreement and where many of the services will not actually be performed directly by the Real Estate
It is the Committee’s opinion that the ‘Work Share Agreement’ described above violates Rules 5.4(a) (fee sharing) and Rule 7.2(c) (payment for referral). The Committee does not, however, rule out the possibility that a work-share agreement could be drafted that would comply with the Rules of Professional Conduct.
Rule 5.4(a) prohibits a lawyer or law firm from sharing legal fees with a nonlawyer except under very limited circumstances. Rule 5.4(b) further prohibits a lawyer from entering into a partnership with a nonlawyer if any of the partnership’s business constitutes the practice of law.
Under Rule 7.2(c), Advertising, a lawyer is prohibited from giving anything of value to a person in exchange for recommending the lawyer’s services. The only applicable exception to this general rule, out of only three narrow exceptions, permits a lawyer to pay the reasonable cost of advertising and other communications permitted under the rule.
In order for such an agreement to avoid ethical violations, the services provided to a law firm by a real estate agency must be in addition to those services that the real estate agency already provides, and $225 must be a reasonable charge for the additional services.
In this case, the “Work Share Agreement” provides that the Law Firm will pay the Real Estate Agency $225.00 for each transaction. However, the transaction does not include any additional services that the real estate agency would otherwise provide the law firm. This is a direct violation of Rules 5.4(a) and 7.2(c).
South Carolina has expressly rejected adopting ABA Model Rule 7.2(b)(4), which permits lawyers to enter into nonexclusive reciprocal referral agreements. Therefore, it can be inferred that South Carolina considers it to be an ethical violation to enter into nonexclusive reciprocal referral agreements, such as the “Work Share Agreement” discussed here. See Rule 7.2, Annotations, 341 (2010).
Based on the discussion above, the Committee is of the opinion that the “Work Share Agreement” is in violation of the applicable ethical rules.