Can a New Jersey lawyer accept a referral fee or commission from a real estate agency for sending it clients' listings?

Plain-English summary

An attorney received an unsolicited offer from a real estate company that would pay a referral fee (5% of the gross sales commission) to attorneys for signed listings obtained through their referrals. The attorney asked whether it is ethical to accept such a fee for real estate listings the agency obtained because of the attorney's referral.

The Committee treated the question as essentially the same as a lawyer receiving a commission or rebate from a title insurance company, bonding company, printer, court reporter, or other person to whom the lawyer refers client-oriented business. Assuming an attorney-client relationship existed, the Committee held that before a referral is made there must be full disclosure of the proposed referral, including the commission arrangement, and the client's express consent must be obtained. The client is entitled to the benefit of the commission by way of credit against the fee or refund.

Drawing on In re Genser and In re Carlsen, the Committee emphasized that a lawyer who acts as a businessman must do so with the high standards of the profession, and that the lawyer's fiduciary obligation extends to persons who, although not strictly clients, rely or should be expected to rely on the lawyer. Because of that fiduciary obligation, the Committee concluded that DR 5-107(A)(2) applies to all aspects of the inquiry, so the full-disclosure requirement holds even absent an attorney-client relationship. It would be improper for the attorney to represent any party (buyer, seller, or mortgagee) in a transaction where the attorney originated the referral to the realtor.

Currency note

This opinion was issued in 1979, before New Jersey's 1984 replacement of the Disciplinary Rules by the Rules of Professional Conduct and the later revisions to those rules. It applied DR 5-107(A)(2); in current New Jersey terms the analysis corresponds to the conflict and third-party-compensation provisions of RPC 1.7 and RPC 1.8. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer accept a referral fee from a realtor for sending it a client's listing?

A: Only after full disclosure of the referral and the commission arrangement and the client's express consent, and the client is entitled to the benefit of the commission by credit against the fee or refund.

Q: Does the rule apply if the referred person is not technically the lawyer's client?

A: Yes. The opinion held that the lawyer's fiduciary obligation, and the DR 5-107(A)(2) disclosure requirement, apply even absent an attorney-client relationship, because the referred party relies or should be expected to rely on the lawyer.

Q: Can the lawyer also represent a party in the same transaction?

A: No. The opinion concluded it would be improper for the attorney to represent any party (buyer, seller, or mortgagee) in a transaction where the attorney originated the referral to the realtor.

Background and rules framework

The opinion applied DR 5-107(A)(2), which governed a lawyer's acceptance of compensation connected to client-oriented business, and rested on the lawyer's fiduciary obligation as described in In re Rockoff, In re Genser, and In re Carlsen. In current New Jersey terms the analysis corresponds to the conflict-of-interest and third-party-payment provisions of RPC 1.7 and RPC 1.8.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / NJ RPC 1.7 (conflicts of interest)
• MR 1.8 / NJ RPC 1.8 (payment from a third party; business dealings)
• DR 5-107(A)(2) (as in effect 1979)

Cases:

• In re Rockoff, 66 N.J. 394 (1976)
• In re Genser, 16 N.J. 600, 606 (1964)
• In re Carlsen, 17 N.J. 338 (1955)

Other opinions cited:

• NJ ACPE Opinion 12, 86 N.J.L.J. 621 (1963); Opinion 312, 98 N.J.L.J. 646 (1975)
• ABA Comm. on Professional Ethics, Informal Decision C688 (1964)

See also

• NJ ACPE Op. 463: Referral Fee From a Soliciting Mortgage Broker
• NJ ACPE Op. 557: Mortgage-Broker Preferred-Placement Fees to Selected Attorneys
• NJ ACPE Op. 514: Broker's Commission to a Purchaser's Attorney

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp416-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

103 N.J.L.J. 109, February 8, 1979

OPINION 416

Referral Fee From Realtor

An attorney has received an unsolicited offer from a real estate company which reads in part:

Our company has recently adopted a policy of paying a referral fee (5% of the gross sales commission) to attorneys for signed listings obtained by us as a result of their referrals.

He now inquires:

Is it ethical for an attorney to accept a referral fee from a real estate sales agency for real estate listings obtained by the agency as a result of the attorney's referral?

We note that neither the unsolicited offer nor the inquiry indicates whether the party to be referred by the attorney is his client. We, therefore, assume the existence of an attorney-client relationship. The ethical consideration presented is essentially the same as the lawyer's receiving a commission or rebate from a title insurance company, a bonding company, a printer, a court reporter or any other person or organization to whom the lawyer refers client-oriented business. See In re Rockoff, 66 N.J. 394 (1976); our Opinion 12, 86 N.J.L.J. 621 (1963); ABA Comm. on Professional Ethics, Informal Decision C688 (1964).

Before a referral is made, there must be full disclosure of the proposed referral including the commission arrangement and the express consent of the client must be obtained. Furthermore, the client is entitled to the benefit of the commission by way of credit against the fee or refund as the case may be. Where there is no prior or assisting attorney-client relationship between the attorney and the party referred to the realtors, we direct the attention of the bar to In re Genser, 16 N.J. 600, 606 (1964), where our Supreme Court said:

If an attorney wishes to be a businessman as well as perform the precise functions of a lawyer, he must act in the transactions with the high standards of his profession and not with an 'arm's length' and lapsable attitude.

The fiduciary obligation of the lawyer applies to persons who, although not strictly clients, he has or should have reason to believe rely on him.

See also In re Carlsen, 17 N.J. 338 (1955).

In view of the "fiduciary obligation" imposed upon attorneys, it is our opinion that DR 5-107(A)(2) is applicable to all aspects of this inquiry. Thus, the requirement of full disclosure is applicable even in the absence of an attorney-client relationship. It would be improper for an attorney to represent any party (buyer, seller, mortgagee) in a transaction where the attorney originated the referral to the realtor. See our Opinion 312, 98 N.J.L.J. 646 (1975).