by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
BROKERS; UNAUTHORIZED PRACTICE: Texas court holds that drafting and negotiating real estate leases, sales contracts and mortgages constitute "exclusive province" of brokers under Texas Real Estate Practices Act, and lawyers cannot perform these activities except as licensed brokers. Bigger v. Fool, 666 S.W.2d 1 (Tex. App. 1996).
Law firm represented commercial tenant in leasing of space in major office building in Houston. Soon after moving in, the tenant/client discovered that equivalent space in other buildings in the area was available at half the price. It brought malpractice action against law firm, arguing that firm, in undertaking to negotiate and draft lease, had responsibility to ascertain value of property that its client was acquiring - in this case a commercial office lease. Trial court granted summary judgment to defendant law firm, commenting that the alleged duties were duties of brokers, not of lawyers. Tenant appealed, arguing that lawyers implicitly represent that they have expertise in all areas of real estate investment, and should be held accountable.
Held: Reversed. But with a surprising twist.
The Texas Court of Appeals agreed with tenant that clients expect that their lawyers have expertise in all areas of real estate investment, and that consequently the lawyers duties ought to include the acquisition of such expertise, including knowledge of relevant real estate markets.
But in an unexpected turn, the court then concluded that it was the intent of the Texas Legislature, in enacting the Real Estate Practices Act, that the provision of comprehensive real estate services be regulated comprehensively by the Texas Real Estate Commissioner. The Act, and the regulations thereunder adopted by the Commissioner, require that no "person . . . advise, negotiate, or transact on behalf of another regarding interests in . . . real estate" except if such person is licensed as a broker or agent by the Commissioner. Agents can perform such services only under the supervision of brokers.
The court saw no reason to read the Act as providing for an exception for licensed attornies. It pointed out that the Texas Bar Association had no educational or training requirement as a prerequisite to the receipt of a law license other than a law degree and passage of a bar exam. It noted that an examination of the curriculum of several leading law schools indicated that law schools made no effort to insure that students were educated in the fundamentals of real estate transactions. As to the bar exam, the court characterized the exam as "so diffuse in coverage as to permit satisfactory completion with little or no understanding of real estate transactions." Consequently, the court observed, possession of a license to practice law is not likely to indicate any real expertise in real estate transactions.
In a statement that ought to be regarded as dicta in the present case, the court indicated that any effort by the Texas legislature to reverse its conclusion likely would founder due to Constitutional objections. Any legislative effort to treat lawyers and brokers differently, the court stated, likely would run afoul of the Equal Protection Clause of the U.S. and Texas Constitutions. So long as Texas regulated real estate brokerage services, it would be "nonsensical" to permit real estate lawyers to go unregulated under the same standards.
In response to the argument that the court's conclusion would disenfranchise thousands of real estate practitioners throughout the state, the court noted that the Act apparently did not cover the introduction of prospective parties to a real estate transaction. Therefore, until real estate lawyers qualify for real estate licenses, they would be able to "show property," and otherwise act as "finders" so long as they did so under the supervision of a licensed real estate broker. For instance, a real estate lawyer would be permitted to run an "open house" so long as the lawyer restricted negotiation activities to the delivery of a brochure describing the terms of sale prepared by the broker.
Initial comment from the Texans concerning the decision has been mixed. "I'm delighted that the courts have recognized where the real expertise lies in real estate transactions," commented Charles "J. O." Buss, a spokesperson for broker groups. "Most of this lawyer stuff is just pushing forms around anyway. And, our quality of life will improve. We won't have to work so hard, since we'll be working 'lawyer's hours.'"
Leading Texas real estate lawyer John Field O'Holley was philosophical. "I'm looking forward to getting a broker's license. It will be nice to finally earn the big bucks that the brokers get with their commissions. But, in the meantime, punching those little "open house" signs into the ground is hell on my wing tips."
Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. This item, however, has not been. It is an April Fool story. But no one ever reads this fine print anyway. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Laprica Mims at the ABA. (312) 988 5260.
Items reported here and in the ABA publications are for general information (and, in this case disinformation) purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.