Can I buy a piece of real estate directly from my own clients, and what do I have to do first to make it ethical?

Plain-English summary

The inquiring attorney represented the co-guardians of two wards, a mother and her son, who jointly owned a parcel of real estate. The attorney wanted to purchase that parcel and asked whether the Rules permitted a purchase from the clients.

The panel concluded that Rule 1.8(a), governing business transactions with a client, applied and permitted the purchase if its conditions were met. The attorney could buy the property provided he gave the co-guardians written disclosure of the transaction, advised them to obtain independent legal counsel about all aspects of the sale, and obtained their written consent to the terms.

The panel stated that a written purchase and sale agreement containing the terms of the conveyance would satisfy the rule's written-consent requirement, and that the transaction had to be objectively fair to the co-guardians on behalf of the wards. The panel noted that its guidance was limited to the Rules of Professional Conduct and did not reach other rules, regulations, or laws bearing on the transaction.

Currency note

This opinion was issued in October 1999, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rule 1.8(a) as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Could the attorney buy property directly from a client?

A: Yes, subject to conditions. The opinion concluded that under Rule 1.8(a) the attorney could purchase the real estate from the co-guardian clients if the transaction was fair and reasonable, fully disclosed in writing, the clients were advised to seek independent counsel, and the clients consented in writing.

Q: What satisfied the written-consent requirement?

A: The opinion stated that a written purchase and sale agreement containing the terms of the conveyance would satisfy the consent requirement of Rule 1.8(a).

Q: Did the fact that the clients were guardians of wards change the analysis?

A: The opinion required that the transaction be objectively fair to the co-guardians on behalf of the wards, in addition to the disclosure, independent-counsel, and written-consent conditions of Rule 1.8(a).

Background and rules framework

The opinion applied Rhode Island Rule of Professional Conduct 1.8(a) (Model Rule 1.8(a)) as originally adopted, which bars a lawyer from entering a business transaction with a client or acquiring an interest adverse to a client unless the transaction and its terms are fair and reasonable and fully disclosed in writing in a manner the client can reasonably understand, the client is given a reasonable opportunity to seek independent counsel, and the client consents in writing.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8(a) / RI RPC 1.8(a) (business transactions with a client; disclosure, independent counsel, written consent)

See also

• ABA Formal Op. 00-416: Purchase of accounts receivable from a client
• Arizona Op. 99-09: Conflicts of interest in business transactions with clients
• RI EAP Op. 2023-2: Firm may take a lien on a client's property for fees if Rule 1.8(a) is met

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2099-16.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Final

                             RHODE ISLAND SUPREME COURT
                                ETHICS ADVISORY PANEL
                              Opinion No. 99-16, Request No. 786
                                   Issued October 14, 1999

Facts:

    The inquiring attorney represents the co-guardians of two wards, a mother and her son. The

wards are joint owners of a parcel of real estate. The inquiring attorney would like to purchase the real
estate.

Issue Presented:

   The inquiring attorney asks whether the Rules of Professional Conduct permit him/her to

purchase the real estate from his/her clients.

Opinion:

    The inquiring attorney may purchase the real estate from his/her clients, the co-guardians,

provided that (a) he/she gives them written disclosure of the transaction; (b) he/she advises them to
obtain independent counsel regarding the transaction; and (c) the co-guardians consent in writing to the
terms of the transaction.

Reasoning:

     Rule 1.8(a) is pertinent to this inquiry. It states:

                  Rule 1.8. Conflict of Interest: Prohibited Transactions . - (a) A lawyer
   shall not enter into a business transaction with a client or knowingly acquire an

ownership, possessory, security or other pecuniary interest adverse to a client unless:

             (1) the transaction and terms on which the lawyer acquires
             the interest are fair and reasonable to the client and are fully
             disclosed and transmitted in writing to the client in a manner
             which can be reasonably understood by the client;

             (2) the client is given a reasonable opportunity to seek the
             advice of independent counsel in the transaction; and

             (3)    the client consents in writing thereto.

Final 99-16
Page 2

      The inquiring attorney may purchase the real estate provided that he/she gives the

co-guardians written disclosure of the transaction, and advises them to obtain independent legal counsel
regarding all aspects of the sale of the real estate. Pursuant to Rule 1.8(a), the co-guardians must
consent in writing to the terms of the transaction. A written purchase and sale agreement containing the
terms of the conveyance would satisfy the consent requirement of the Rule. The transaction must be
objectively fair to the co-guardians on behalf of the wards.

       The Panel's guidance is limited to interpretations of the Rules of Professional Conduct and

does not extend to any other rules, regulations, or laws that may have a bearing on the issues presented
by this inquiry.