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Ethics Advisory Opinion 05-02

April 13, 2005

South Carolina Bar Ethics Advisory Opinion 05-02

RULE 1.8(a)

Date: January 14, 2005

Facts
Attorney is mainly involved in the practice of real estate law with a client who is a General Contractor and for whom Attorney frequently handles closings. These closings may be for the purchase of real estate or for construction loans.

Attorney has the opportunity to finance the purchase and construction of one of the homes that Contractor would like to build. The lender has full knowledge that Attorney would be providing the financing for the home through a construction loan with the lender and the use of Lawyer’s own funds (either through bank accounts or a home equity draw). Contractor will have his own attorney for the transaction. He will sign an affidavit acknowledging that Attorney does not represent him in this transaction. There will be a loan agreement as to the disbursement of funds and responsibility for costs.

Question
Is the proposed business transaction permissible under the South Carolina Rules of Professional Conduct?

Summary of Opinion
Attorney may enter into a contract to finance the purchase and construction of a home with his client, Contractor, provided Attorney complies with the requirements of Rule 1.8(a).

Opinion
Rule 1.8(a) of the South Carolina Rules of Professional Conduct generally prohibits entering into business relationships with clients. Nevertheless, an attorney is not prohibited from entering into a business transaction with a client if: (1) the transaction is fair and reasonable; (2) the transaction and terms are fully disclosed and transmitted in writing to the client in a manner which can reasonably be understood by the client; (3) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and (4) the client consents thereto in writing. Rule 1.8(a)(1) – (3), S.C. App. Ct. R. 407.

Under the facts presented, it appears that Attorney has fulfilled all the requirements delineated in Rule 1.8(a). First, assuming the loan agreement is fair and reasonable, the loan agreement will govern the disbursement of funds and the responsibility for costs. Second, Contractor will have independent counsel for the transaction. Finally, Contractor will sign an affidavit acknowledging that Attorney does not represent him in this transaction. While the facts do not expressly say so, the Committee also assumes that Contractor’s affidavit will provide overall consent for this transaction. Therefore, the proposed business transaction appears to comply with Rule 1.8(a). See also Ethics Advisory Opinion 97-34 (opining that an attorney could permissibly enter into a contract with a residential contractor to build a home for the attorney where the attorney currently represented the contractor in a divorce, so long as the attorney complied with Rule 1.8(a)).

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