May a law firm enter into a lease of office space with a non-lawyer landlord under the terms of which rent equals the greater of a specified minimum rental or a percentage of the law firm's gross receipts?
A lease arrangement in which a non-lawyer landlord may receive as rent a percentage of a law firm's gross receipts constitutes an arrangement for the sharing of legal fees since normally a law firm's gross receipts are predominantly legal fees.
Rule 5.04(a) of the Texas Disciplinary Rules of Professional Conduct (the "Disciplinary Rules") states the general rule that "[a] lawyer or law firm shall not share or promise to share legal fees with a non-lawyer . . . ." Three specific exceptions to this general rule are set forth in Rule 5.04(a), but none of the exceptions applies to a commercial lease between a tenant law firm and a non-lawyer landlord.
Although percentage lease arrangements are common in leases of commercial property, the general prohibition on a lawyer's sharing legal fees with non-lawyers makes such arrangements impermissible for lawyers. A similar conclusion under the previously applicable Texas Code of Professional Responsibility was reached in Texas Professional Ethics Committee Opinion 377 (published in the January 1975 Texas Bar Journal). A percentage rental agreement is prohibited for lawyers because an arrangement under which a non-lawyer landlord could receive a percentage of legal fees earned by a law firm would create an incentive for the landlord to refer legal business to the law firm. Rule 5.04(a) is intended to prevent such a situation: "[T]he principal reasons for these limitations are to prevent solicitation by lay persons of clients for lawyers and to avoid encouraging or assisting non-lawyers in the practice of law." Comment 1 to Rule 5.04(a) of the Disciplinary Rules.
An office lease arrangement with a non-lawyer landlord in which a law firm agrees to pay rent that may be an agreed percentage of the law firm's gross receipts constitutes an agreement to share legal fees with a non-lawyer in violation of Rule 5.04(a) of the Disciplinary Rules.