Can a developer's attorney use a sale contract that makes the buyer reimburse a flat fee for the developer's legal work, including title review and closing documents?

Plain-English summary

An attorney asked whether he would violate a disciplinary rule by representing a residential developer whose standard contract of sale recited that the seller had prepaid all legal fees for obtaining governmental approvals, reviewing title, arranging financing and the related title work, and the procurement, closing, and preparation of closing documents, and required the buyer to reimburse $500 of that cost at closing. The developer's attorney would not prepare or review any documents for the individual lot buyers and would not prepare any mortgage documents; the clause's sole purpose was to pass the developer's legal costs on to buyers.

The inquirer was concerned about how the $500 fee was set, its relationship to services for each buyer, and the possibility that it was excessive enough to evidence overreaching under DR 2-106(D). The Committee preferred to dispose of the inquiry on a different basis. It found that the clause's broad references to "reviewing the title" and "the preparation of any and all closing documents and incidental legal review fees" were likely to lead buyers to presume, incorrectly, that any necessary title work was being done on their behalf and that they would be represented at closing by the developer's attorney.

On that ground the Committee found the challenged provision improper, citing its Opinion 13.

Currency note

This opinion was issued in 1980, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and predates the 1984 replacement of the Disciplinary Rules by the RPCs. The fee rule it referenced (DR 2-106) and the concern about dealings with unrepresented persons now correspond broadly to RPC 1.5 and RPC 4.3. Treat this page as historical context, not current guidance.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: Could the developer bill buyers a flat fee for its own legal work?

A: Not with this clause. The opinion found the provision improper because it was likely to mislead buyers about whether the work was done for them and who represented them.

Q: Did the Committee decide whether the $500 fee was excessive?

A: No. It expressly chose to resolve the inquiry on the misleading-clause ground rather than on the fee-amount or overreaching question.

Background and rules framework

The opinion turned on the risk that the clause would mislead unrepresented buyers about representation and title work, with the fee question (DR 2-106) noted but not decided. In current New Jersey terms the analysis maps onto RPC 1.5 (fees) and RPC 4.3 (dealing with an unrepresented person). The controlling defect was the clause's tendency to create a false impression that the developer's lawyer served the buyer.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NJ RPC 1.5 (fees); the opinion referenced former DR 2-106(D) but did not decide on that basis
• MR 4.3 / NJ RPC 4.3 (dealing with an unrepresented person)

Other opinions cited:

• NJ ACPE Opinion 13, 87 N.J.L.J. 1 (1963)

See also

• NJ ACPE Op. 465: A Municipality Billing Its Attorney's Fees to a Developer
• NJ ACPE Op. 702: Developer Rule and Municipal Attorney Conflict

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp456-1.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.

105 N.J.L.J. 521, June 5, 1980

OPINION 456

Developer's Set Legal Fees Passed on to Lot Purchaser Under Contract of Sale

An attorney has asked whether he would be violating any disciplinary rule by representing the owner of a real estate tract being developed for residential housing who uses the following clause in his standard contract of sale: SELLER has prepaid all legal fees for the obtaining of governmental approvals to build the project, reviewing the title, arranging for financing of the development and the necessary title work incident thereto, procurement and closing of the permanent mortgage and including the preparation of any and all closing documents and incidental legal review fees. BUYER agrees to reimburse the SELLER for this legal cost in the amount of $500 at closing.

The inquirer states that the developer's attorney would not prepare or review any documents relative to the individual lot buyers, nor would he prepare any documents relative to any mortgage. The sole purpose of the above-quote language would be to pass along the developer's legal costs to the ultimate buyers.

Although the inquirer is specifically concerned with the manner in which the $500 fee is set, the relationship of the fee to the services performed for each individual buyer and the possibility that the fee is excessive to the extent that it "evidences an intent to overreach" under DR 2-106(D), we prefer to dispose of the inquiry on a different basis. The broad references in the above-quoted provision in the contract of sale to "reviewing the title" and "the preparation of any and all closing documents and incidental legal review fees" are likely to lead buyers to presume, incorrectly, that any necessary title work is being done on their behalf and that they will be represented at closing by the developer's attorney. Accordingly, we find the challenged provision to be improper. See our Opinion 13, 87 N.J.L.J. 1 (1963).