Can a law firm provide or subcontract lien-search services for its clients, and what can it charge?
NY State Bar Ethics Opinion 896: Lien-Search Services and Rule 5.7
Short answer: A firm may subcontract lien searches but cannot bill clients more than its actual cost; when it performs searches through its own employees or an affiliated entity, the conduct rules apply to the nonlegal service unless the firm gives written notice that it is not legal services, and the firm's financial interest creates a Rule 1.7 conflict that must be addressed either way.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
A lien search, the committee explained, is a ministerial review of public records to identify encumbrances on property and their priority; it is not the practice of law and may be done by nonlawyers. Firms handle it three ways: through their own employees, through an unaffiliated third party, or through a search company the firm or its lawyers own. The committee answered a question for each (paragraphs 1 through 4).
For an unaffiliated third party (Question A), the firm may subcontract and bill the client, but may not mark up the third party's charge except for additional costs the firm actually incurs, and must accurately disclose that a third party did the work. The committee grounded this in Rule 1.5 (Comment [1A] treats knowingly charging more than actual cost for pass-through services as fraudulent billing) and in ABA 93-379 (paragraphs 5 through 6).
For the firm's own employees (Question B), Rule 5.7 governs. Under Rule 5.7(a)(1), when nonlegal services are "not distinct" from the legal services, as when the firm does both the legal work and the lien search in one transaction, all the conduct rules apply to both. That pulls in Rule 1.5 on fees, Rule 1.7 on conflicts (the firm's financial interest in the nonlegal service is a personal-interest conflict under Rule 1.7(a)(2), curable only by informed written consent under Rule 1.7(b)), and Rule 1.8(a) on business transactions, which requires fair and reasonable terms, full written disclosure, advice to seek independent counsel, and signed informed consent. Market-rate pricing ordinarily satisfies the "fair and reasonable" requirement; above-market pricing may not (paragraphs 7 through 11).
For an affiliated search company (Question C), Rule 5.7(a)(3) and (4) apply: the firm is subject to the conduct rules for the nonlegal service if the client could reasonably believe it is part of the lawyer-client relationship, and a more-than-de-minimis ownership interest creates a presumption of that belief unless the firm advises the client in writing that the services are not legal services and lack the protection of a lawyer-client relationship. Even with that written notice (which means Rule 1.8(a) does not apply, per N.Y. State 755), Rule 5.7(b) still bars letting the nonlegal entity override the lawyer's judgment or compromise confidentiality, and the firm must still obtain Rule 1.7(b) informed consent because the firm's financial interest in the affiliate is a personal conflict (paragraphs 12 through 14).
In practice
The opinion holds that, under New York Rules 1.5, 5.7, 1.7, and 1.8 as they stood at the time, the answer turns on which of three arrangements the firm uses. For an unaffiliated subcontractor, the firm passes cost through at cost (plus any genuine additional expense) and discloses the third party's role. For in-house searches not distinct from the legal work, the full conduct rules attach, including the Rule 1.8(a) business-transaction safeguards and a Rule 1.7(b) cure for the firm's financial-interest conflict. For an affiliated company, the firm is subject to the rules unless it gives the Rule 5.7(a)(4) written notice that the work is not legal services and lacks lawyer-client protection; that notice removes Rule 1.8(a) but not the Rule 1.7(b) consent requirement, and Rule 5.7(b)'s independence and confidentiality protections apply regardless. The committee identified the live risk in these arrangements as a financial incentive to cut corners, for example performing a less than exhaustive search when fees depend on a closing.
Common questions
Q: Can I mark up a lien search I order from an outside company?
A: No. The committee said a firm may bill the client only its actual cost for an unaffiliated third party's search, except to the extent the firm incurs genuine additional costs, and must disclose that a third party did the work (paragraphs 5 through 6).
Q: My firm does lien searches in-house as part of the same deal. Which rules apply?
A: All of them, to both the legal and nonlegal work. Rule 5.7(a)(1) makes the conduct rules apply when the services are "not distinct," so Rule 1.5 (fees), Rule 1.7 (the firm's financial-interest conflict), and Rule 1.8(a) (business transactions) all govern (paragraphs 7 through 11).
Q: We refer clients to a search company our partners own. Is that a business transaction with the client?
A: Not if you give the Rule 5.7(a)(4) written notice that the search is not a legal service and lacks lawyer-client protection. That notice means Rule 1.8(a) does not apply (per N.Y. State 755), but you still need Rule 1.7(b) informed consent for the financial-interest conflict (paragraph 14).
Q: What conflict does owning the search company create?
A: A personal-interest conflict under Rule 1.7(a)(2): the firm's stake in the nonlegal service can create a significant risk to its professional judgment, for example an incentive not to disclose information that would stop a closing on which fees depend (paragraphs 9 through 10).
Background and rules framework
The opinion interprets New York Rule 5.7 (responsibilities regarding nonlegal services, including the (a)(1) "not distinct" test and the (a)(3)/(a)(4) affiliated-entity rules and the (b) independence and confidentiality protections), Rule 1.5 (fees and the bar on fraudulent billing), Rule 1.7(a)(2) and (b) (personal-interest conflicts and their cure), and Rule 1.8(a) (business transactions with clients). These correspond to ABA Model Rules 5.7, 1.5, 1.7, and 1.8. The committee read these rules together with the comments to Rule 5.7 that map the nonlegal service onto the conflict and business-transaction rules.
Citations and references
Rules of Professional Conduct:
- MR 5.7 / NY Rule 5.7(a)(1), (a)(3), (a)(4), (b): nonlegal services; "not distinct" test; affiliated entities; independence and confidentiality
- MR 1.5 / NY Rule 1.5(b), (d)(3) and Comment [1A]: fees; fraudulent billing; charging more than actual cost
- MR 1.7 / NY Rule 1.7(a)(2), (b): personal-interest conflict and its cure
- MR 1.8 / NY Rule 1.8(a): business transactions with clients
Other opinions cited:
- ABA 93-379 (1993): a lawyer may not charge more than actual disbursements for third-party services absent additional cost
- N.Y. State 755 (2002): written notice that a nonlegal business lacks lawyer-client protection allows referral without the business-transaction rule
See also
- NY State Bar Ethics Op. 976: A Law Firm's Arrangement With a Nonlegal Service Provider
- NY State Bar Ethics Op. 1101: Linking a Law Website to a Real Estate Brokerage
- NY State Bar Ethics Op. 1155: Dual Practice as Lawyer and Financial Planner
Source
- Landing page: https://nysba.org/ethics-opinion-896/