Can a lawyer pay a real estate agency a monthly fee to be listed as a 'Preferred Closing Attorney' with access to agents and meetings?

Plain-English summary

A law firm was approached by a real estate agency about becoming a sponsor to be listed as one of three attorneys on the agency's Preferred Closing Attorney list. To do so, the firm would enter an "advertising agreement" requiring it to pay the agency $350 per month; the firm would provide and display business cards, a tri-fold pamphlet, and signage at the agency's office; the firm could attend the agency's team meetings, company events, and training functions; the firm could present to agents on real estate law topics; and the agency would introduce the firm to all new agents during orientation. The inquiry asked whether the lawyer may ethically participate.

The committee concluded the lawyer may not pay for Preferred Closing Attorney status. Rule 7.2(c) forbids a lawyer to give anything of value to a person for recommending the lawyer's services, with the core purpose (comment 7) of preventing lawyers from paying others to channel professional work; the committee treated "person" as including corporations and other entities. The committee distinguished its recent Opinion 13-03, which held that Rule 7.2(c) does not bar a transaction in which a lawyer pays a commercially reasonable price for a good or service, even when the third party conditions "preferred attorney" listing on the transaction, so long as the terms would justify the transaction irrespective of the referrals. In 13-03 the lawyer leased office space from the agency, paying for something of independent value.

Here, the committee found, all the advantages of Preferred Closing Attorney status (placement on the list, the right to place advertising in the agency office, and access to agency employees at meetings and training) are designed to generate referrals, with no distinct non-referral consideration flowing from the agency to the lawyer; the lawyer would be paying for access to a source of referrals and nothing more. The committee noted that although Rule 7.2(c)(1) lets a lawyer pay the reasonable costs of advertisements, the proposed status is not advertising but the agency's endorsement and privileged access to a referral source, so it cannot reasonably be characterized as payment for advertising. The committee advised against proceeding and expressly rejected the view that Opinion 13-03 would permit it.

In practice

The opinion holds that, under South Carolina Rule 7.2(c), a lawyer may not pay a real estate agency for "Preferred Closing Attorney" status, because the package purchased (list placement, in-office advertising placement, and access to agents and meetings) is entirely designed to generate referrals with no separate non-referral value. The opinion distinguishes Opinion 13-03, where the lawyer paid commercially reasonable rent for office space of independent value, and holds that the Rule 7.2(c)(1) advertising-cost exception does not apply because the arrangement is an endorsement and referral-access arrangement, not advertising. The opinion advises against proceeding and rejects reading 13-03 to permit it.

Common questions

Q: Can a lawyer pay a real estate agency a monthly fee to be a "Preferred Closing Attorney"?

A: No. The committee said paying for that status violates Rule 7.2(c) because everything bought is designed to generate referrals, with no distinct non-referral consideration.

Q: Isn't this just paying for advertising under Rule 7.2(c)(1)?

A: No. The committee said the status is the agency's endorsement and privileged access to a referral source, not advertising, so it cannot reasonably be characterized as payment for advertising.

Q: How is this different from Opinion 13-03, which allowed a "preferred attorney" arrangement?

A: The independent value. The committee said in 13-03 the lawyer paid commercially reasonable rent for office space (something of independent value), while here the lawyer pays only for access to referrals and nothing more.

Background and rules framework

The opinion interprets South Carolina Rule 7.2(c) (no giving anything of value for recommending the lawyer's services) and Rule 7.2(c)(1) (reasonable costs of advertisements), with comment 7, corresponding to the like-numbered Model Rule. The analysis turns on whether the lawyer's payment buys something of distinct non-referral value (permitted) or only access to referrals (prohibited).

Citations and references

Rules of Professional Conduct:

• MR 7.2 / SC Rule 7.2(c) and Comment 7 (no payment for channeling work), 7.2(c)(1) (reasonable costs of advertisements)

Other opinions cited:

• SC Ethics Advisory Opinion 13-03 (paying commercially reasonable rent for office space of independent value; distinguished)

See also

• SC Bar Ethics Op. 13-03: Title Agency With a Realtor
• SC Bar Ethics Op. 13-05: Co-op TV Ad Call Rotation
• SC Bar Ethics Op. 06-13: Referrals From a Trade Association

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-13-09/
• Original PDF: https://www.scbar.org/media/utdbfjyu/13-09.pdf

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 13-09

SC Rule of Professional Conduct: 7.2

Facts:

Law Firm has been approached by Real Estate Agency about becoming a sponsor in order to be listed as one of three attorneys on Real Estate Agency’s Preferred Closing Attorney list. In order to become a Preferred Closing Attorney with Real Estate Agency, Law Firm must enter in to an “advertising agreement.” The requirements of the agreement include:

• Law Firm will pay $350 per month to Real Estate Agency

• Business cards, tri-fold pamphlet and signage, all provided by Law Firm, will be displayed at Real Estate Agency’s office

• Law Firm may attend team meetings and company events held by Real Estate Agency

• Law Firm may attend all training functions

• Law Firm may provide presentations to agents concerning topics in real estate law

• Real Estate Agency will provide Law Firm an introduction to all new agents as part of such agents’ orientation

May lawyer ethically participate in the above-described scenario?

Summary:

The lawyer may not pay for Preferred Closing Attorney status, where such status entails being listed as a Preferred Closing Attorney, the right to place advertising materials in the Real Estate Agency’s office, and the right to participate in Real Estate Agency meetings and training sessions.

Opinion:

Rule 7.2(c) of the SCRPC forbids a lawyer to “give anything of value to a person for recommending the lawyer’s services. . . .” The core purpose of the rule is to prevent lawyers from competing for business by paying for referrals. Id., Cmt 7 (“Lawyers are not permitted to pay others for channeling professional work.”). For purposes of this opinion, we consider “person” to include corporations and other legal entities.

We recently concluded in EAC Opinion 13-03 that the limitation of Rule 7.2(c) does not prohibit a transaction in which a lawyer pays a “commercially reasonable” price to a third party for a good or service, even when the third party demands the transaction as a prerequisite to listing the lawyer as one of its “preferred attorneys.” In other words, it is permissible for lawyers to enter into transactions with third parties that are intended to result in referrals, provided such transactions are on “commercially reasonable” terms – terms that would justify such transactions irrespective of the referrals.

The specific context of our opinion in EAC Opinion 13-03 was a landlord-tenant relationship in which a real estate agency would treat a lawyer as a “preferred attorney” in exchange for the lawyer’s agreement to lease office space from the agency. Provided the lease terms were commercially reasonable, we opined, the lawyer was free to enjoy the referral stream that accompanied “preferred attorney” status.

The present scenario is distinct from that in EAC Opinion 13-03. Here, all the advantages the lawyer would enjoy as part of Preferred Closing Attorney status – placement on the Preferred Closing Attorney list, the right to place advertising in the Agency office, access to Agency employees at meetings and training functions – are designed to generate referrals. There is no distinct non-referral consideration flowing from the Real Estate Agency to the lawyer. While the inquirer in EAC Opinion 13-03 was paying for something of independent value (office space), the inquirer here would be paying for access to a source of referrals, and nothing more.

We note that although Rule 7.2(c)(1) permits a lawyer to “pay the reasonable costs of advertisements,” the proposed Preferred Closing Attorney status is not a matter of advertising but of the Agency’s endorsement and willingness to provide privileged access to a referral source. Thus, the contemplated arrangement cannot reasonably be characterized as payment for advertising.

We advise against proceeding with the arrangement described above, and expressly reject the view that EAC Opinion 13-03 would permit it.