Can a lawyer rent office space from a bank under a lease whose rent is a percentage of the lawyer's fees or net profits?

Plain-English summary

A lending institution offered an attorney space in a building it owned and did not otherwise rent to the public, with the lawyer's office the only space leased for a law practice. The proposed lease set a base rent plus additional rent measured by a percentage of the gross fees from the lawyer's whole practice or some part of it, or by a percentage of net profits. The lessor might, but was not required to, refer business to the lawyer. A nearby conference room would be available on a per-case basis (presumably for closing the lender's loans), with each use charged to the lawyer and passed on to the client as a separate charge.

The Committee concluded that the lease violated DR 3-102 whether the additional rent keyed to gross fees, a class of fees, or net profits, and that Ethical Consideration 3-8 required the same result. It cited opinions of the New York County Lawyers Association, the Association of the Bar of the City of New York, and the Philadelphia Bar Association holding that an attorney may not pay a layman a percentage of office income as rental. If the lender referred or was positioned to refer law practice to the attorney, the Committee found an additional violation of DR 3-103 and DR 2-103, quoting EC 2-8 that "a lawyer should not compensate another person for recommending him." It treated DR 3-101 as violated as a corollary, and said the conference-room charge passed on to clients would aggravate the violations. The Committee added that its conclusion would be the same for a conventional commercial percentage lease, and noted the arrangement could implicate other rules protecting the lawyer's independence and the attorney-client relationship.

Currency note

This opinion was issued in 1974, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. A lawyer's sharing of fees with a nonlawyer is now governed by Texas Rule 5.04, whose ABA analog is Model Rule 5.4, and compensation for referrals by Texas Rule 7.03 and Model Rule 7.2(b). 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.

Common questions

Q: Could the lawyer pay rent measured by a percentage of his fees or profits?

A: No. The Committee concluded that rent set as a percentage of the lawyer's gross fees, a class of fees, or net profits paid to a nonlawyer landlord violates DR 3-102.

Q: Did it matter whether the rent keyed to gross fees, net profits, or only part of the practice?

A: No. The Committee said the result was the same under DR 3-102 for any of those measures, and the same even for a conventional commercial percentage lease.

Q: What if the lender also referred clients to the lawyer?

A: The Committee found that a referral element would additionally violate DR 3-103 and DR 2-103, quoting EC 2-8 that a lawyer should not compensate another for recommending him.

Q: What did the Committee say about the conference-room charge?

A: It treated the per-use conference-room charge, passed on to clients in connection with the lender's loan closings, as an aggravation of the other violations.

Background and rules framework

The opinion interprets DR 3-102 of the former Texas Code of Professional Responsibility, which barred a lawyer from sharing legal fees with a nonlawyer, along with DR 3-103 and DR 2-103 (compensation for referrals and recommendations), DR 3-101 (aiding the unauthorized practice of law), and Ethical Considerations 3-8 and 2-8. The modern analogs are Texas Rule 5.04 (ABA Model Rule 5.4) on a lawyer's professional independence and fee-sharing with nonlawyers, and Texas Rule 7.03 (Model Rule 7.2(b)) on paying for referrals.

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence; sharing fees with nonlawyers), as the modern analog
• MR 7.2 (compensation for recommending a lawyer's services), as the modern analog
• DR 3-102, DR 3-103, DR 2-103, DR 3-101; EC 3-8, EC 2-8 (former Texas Code of Professional Responsibility)

Other opinions cited:

• New York County Lawyers Association Op. 2145; Association of the Bar of the City of New York Op. 2384; Philadelphia Bar Association Op. 4003 (as digested in the American Bar Foundation's 1970 compilation): an attorney may not pay a layman a percentage of office income as rental

See also

• TX Ethics Op. 446: Referrals and Fee Payment From a Financial Planning Organization
• TX Ethics Op. 458: Contingent-Fee Agreement With a Medical-Legal Consulting Firm
• TX Ethics Op. 410: Attorney Membership in a Barter Association

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-377/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_377.pdf

Original opinion text

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

QUESTION PRESENTED

Would such an arrangement be a violation of Disciplinary Rule 3-102?
Would the lawyer involved be in violation of Disciplinary Rule 2-103?
Would the lending institution be guilty of unauthorized practice of law?
Would the rule be different if a percentage of the net profits were paid as additional rent?
Would the rule be different if the additional rent is based on a percentage of a specified type of practice?
Would the proposed arrangement with reference to the conference room violate any provisions of the Code of Professional Ethics of the State Bar of Texas?

STATEMENT OF FACTS

An attorney is offered the opportunity to rent a space in a building owned and operated by a lending institution which does not rent space to the public, generally, and the space rented would be the only space rented in the building to any person for the purpose of conducting a law practice. The lease would provide for a base rental and an additional rental based upon and measured by a percentage of the gross fees collected from the total practice of from some sections of the practice, or by a percentage of the net profits of the practice. It is possible but not required that the lessor would refer some business to the attorney.
It further appears that the lessor would likewise have a conference room near the attorney's office for use by the attorney on a per case basis (presumably for closing loans of the lending institution), with a rental charge for each use by the lessor to the attorney involved with such charge to be passed on to the client as a separate charge in addition to the regular attorney's fees. There is no indication as to whether the attorney is required to use the conference room in connection with any particular business he handles or the amount of the proposed rental.

It is the opinion of the committee that the proposed lease arrangement would be in violation of Disciplinary Rule 3-102 regardless of whether the additional rental is based upon a percentage of the gross fees, a certain class of fees collected, or net profits from the practice of law. The same conclusion is required by Ethical Consideration 3-8. Opinions No. 2145, 2384, and 4003, respectively, by the New York County Lawyers Association, the Association of the Bar of the City of New York, and the Philadelphia Bar Association digested in Bar Association Ethics Opinions published by the American Bar Foundation in 1970 directly hold that an attorney may not pay a layman for use of his office a percent of his income earned in the office as rental.

If the lending institution lessor refers or is in a position to refer law practice to the attorney in conjunction with the suggested lease arrangement, it is the opinion of the committee that such would additionally be in violation of Disciplinary Rules 3-103 and 2-103. Ethical Consideration 2-8 is quite explicit in this regard:

". . . a lawyer should not compensate another person for recommending him, for influencing a prospective client to employ him, or to encourage future recommendations."

The committee is also of the opinion that such arrangement would be in violation of DR 3- 101 as a necessary corollary to such arrangement being in violation of Disciplinary Rules 3-102 and 3-103. It is the further opinion of the committee that the suggested arrangement relative to a conference room rental, which would presumably be charged in connection with loan closings handled by the attorney for the lending institution, would constitute an aggravation of the above violations.

The committee notes that the percentage of law practice earnings is by way of additional rent over and above a base rent, as distinguished from a percentage lease containing a base rental and a percentage rental with the tenant paying whichever would be the larger amount as is usual with mercantile establishments; however, the committee=s opinion would be the same with regard to such commercial type lease arrangements.

The committee also notes that the implementation of lease arrangements of this character could involve violations of other ethical considerations and disciplinary rules of the State Bar dealing with the independence of the attorney and the attorney-client relationship.

An exclusive lease for law practice in a building owned, operated, and occupied by a lending institution based on the percentage of gross or net income of the attorney would be in violation of Disciplinary Rule 3-102.

Tex. Comm. On Professional Ethics, Op. 377 (1974)