Conflict of Interest Broker's Commission to Purchaser's Attorney

111 N.J.L.J. 392
April 14, 1983

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
 
Appointed by the New Jersey Supreme Court
 

OPINION 514

Conflict of Interest
Broker's Commission to
Purchaser's Attorney

A member of a law firm has presented the following inquiry:
"May a law firm receive a broker's commission, to be paid by the seller, in the same transaction in which one of the firm's attorneys has acted as counsel to the purchaser and has brokered the property but has not acted in any way on behalf of the seller?"
 
The factual situation which led to this inquiry is that the attorney represented the purchaser in negotiations relating to the purchase of a building from a public agency which was represented in the transaction by its own counsel. The negotiations resulted in the preparation of an agreement of sale which was drafted by counsel for the agency. We are told that the public agency routine ly provides in its contract of sale for a brokerage commission to be paid by it. The contract of sale was finalized by all parties prior to raising any question pertaining to a broker's fee. Ap parently, after the agency attorney presented the contract of sale to the buyer's attorney, and the buyer's attorney became aware of the availability of a broker's commission, the contract of sale was changed to provide that the customary brokerage would be paid to the buyer's law firm.

It is clear from the inquiry that the inquirer and his law firm were engaged to represent the buyer in negotiating for the purchase of real estate from a public agency. The transaction was not initiated by them as a broker and they did not deal with either the buyer or the seller in that capacity.
It appears that the buyer's attorneys were not aware of the availability of the broker's commission until counsel for the agency presented them with the contract of sale. While we question the propriety of the agency's attorney including in the contract of the public agency an obligation to pay broker's commissions when that had not been the subject of negotiation, that issue is not before us. In any event when opportunity to receive a broker's commission was presented to buyer's attorney, he was agreeable to the windfall.
We have recognized in our Opinion 312, 98 N.J.L.J. 646 (1975), that there is an "inherent conflict" between acting as a lawyer for a purchaser and acting as a broker in a real estate transaction.
In our Opinion 411, 102 N.J.L.J. 451 (1978), we advised the inquiring attorney, who was also a licensed real estate salesman, that if he were to sell a house, he could not represent either the buyer or the seller in the transaction. We relied upon DR 5-101 in support of our conclusion.
In the present situation, we hold the converse to be true, namely, an attorney who represents a buyer or a seller in a real estate transaction may not act as broker in that transaction. The Committee recognizes that DR 5-101 permits a lawyer to accept em ployment where his personal interest may be involved if the lawyer obtains the consent of his client after full disclosure. The Committee previously expressed the view, in Opinion 312, supra, that the "better rule" in situations involving the dual role of attorney-real estate broker is that an attorney "not put himself in a position where the client might conclude that the attorney has not represented him with undivided loyalty." It is our conclusion, therefore, that the inherent conflict of interest in such situations is so overwhelming that, even with full disclosure, an attorney should never participate simultaneously as a broker and as a lawyer for either buyer or seller in a real estate transaction.
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