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(This article appeared in Journal 19,4, December 2014)

May a single lawyer represent both the borrower and the lender for the closing of a commercial loan secured by real property? That is the question currently being considered by the Ethics Committee.

What Do the Ethics Rules Say?

Rule 1.7 prohibits the representation of a client if the representation involves a concurrent conflict of interest unless certain conditions are met. A concurrent conflict of interest exists if the representation of one client will be directly adverse to another client or the representation of one client may be materially limited by the lawyer’s responsibilities to another client. Comment [8] to Rule 1.7 provides:

[A] conflict of interest exists if a lawyer’s ability to consider, recommend, or carry out an appropriate course of action for the client may be materially limited as a result of the lawyer’s other responsibilities or interests. For example, a lawyer asked to represent a seller of commercial real estate, a real estate developer, and a commercial lender is likely to be materially limited in the lawyer’s ability to recommend or advocate all possible positions that each might take because of the lawyer’s duty of loyalty to the others.

Rule 1.7(b) allows a lawyer to proceed with a representation burdened with a concurrent conflict of interest but only if the lawyer determines that the representation of all of the affected clients will be competent and diligent and each affected client gives informed consent. In other words, the lawyer must decide whether the conflict is “consentable.” Rule 1.7, cmt. [2]. If the lawyer’s exercise of independent professional judgment on behalf of any client will be compromised, the conflict is not consentable. As noted in the comments to Rule 1.7:

[S]ome conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client’s consent...Consentability is typically determined by considering whether the interests of the clients will be adequately protected if the clients are permitted to give their informed consent to representation burdened by a conflict of interest...[R]epresentation is prohibited if in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation.

Rule 1.7, cmts. [14] and [15].

Is common representation of the borrower and the lender for the closing of a commercial loan secured by real property a “consentable conflict”?

What Do the Ethics Opinions Say?

In RPC 210, the Ethics Committee held that a lawyer may represent the seller, borrower/buyer, and lender in a residential real estate closing with the informed consent of all of the parties. Even so, the opinion includes the following cautionary language:

A lawyer may reasonably believe that the common representation of multiple parties to a residential real estate closing will not be adverse to the interests of any one client if the parties have already agreed to the basic terms of the transaction and the lawyer’s role is limited to rendering an opinion on title, memorializing the transaction, and disbursing the proceeds. Before reaching this conclusion, however, the lawyer must determine whether there is any obstacle to the loyal representation of both parties. The lawyer should proceed with the common representation only if the lawyer is able to reach the following conclusions: he or she will be able to act impartially; there is little likelihood that an actual conflict will arise out of the common representation; and, should a conflict arise, the potential prejudice to the parties will be minimal.

As to commercial real estate closings, the Restatement of the Law Governing Lawyers takes the position that, notwithstanding the informed consent of each client, a lawyer would be unable to provide adequate representation to both a buyer and a seller where the parties are in sharp disagreement on several important terms of the transaction or where the parties should receive extensive counseling concerning their rights in the transaction and possible optional arrangements. Restatement of the Law Governing Lawyers §122 cmt. g(iv) (2000) (Illustrations 10, 11). The Restatement cites Baldasarre v. Butler, 625 A. 2d 458 (N.J. 1993), in which the court held that a lawyer may not represent both the buyer and seller in a complex commercial real estate transaction even if both clients give their informed consent. The Supreme Court of New Jersey observed:

This case graphically demonstrates the conflicts that arise when an attorney, even with both clients’ consent, undertakes the representation of the buyer and the seller in a complex commercial real estate transaction. The disastrous consequences of [the lawyer’s] dual representation convinces us that a new bright-line rule prohibiting dual representation is necessary in commercial real estate transactions where large sums of money are at stake, where contracts contain complex contingencies, or where options are numerous. The potential for conflict in that type of complex real estate transaction is too great to permit even consensual dual representation of buyer and seller.

635 A. 2d at 467. Other cases allow dual representation in commercial closings if the requirements of Rule 1.7 are satisfied.

What Does the Ethics Committee Say?

On one hand:

Approximately 50% of the committee members believe that common representation in a commercial real estate loan closing is a nonconsentable conflict under all circumstances. This group argues that the closing of a commercial loan secured by real estate is an “arm’s length” business transaction that may involve large sums of money, complex documentation, and numerous opportunities to negotiate on behalf of each party.

As expressed by some of these committee members:

  • Even when consent to dual representation is given, the borrower rightly expects representation from the attorney. While the attorney may believe that her role is merely to execute the tasks necessary to close the transaction, the client expects the attorney to inform her if there are ways that the documents could be made more favorable to the client. This disconnect may lead to grievances and dissatisfaction with North Carolina attorneys.
  • There is an inherent imbalance of power in these cases where the borrower receives form documents that were prepared for the lender by attorneys for the lender. The borrower may not understand that there is room for negotiation in the form documents, so there may not truly be an informed consent on the part of the borrower.
  • The eight-step process proposed by those wishing to allow dual representation (see below) is complicated and prone to abuse. For example, the first condition requires the terms to have been “finally negotiated” prior to commencement of the representation. If the attorney reviews the terms and knows from her experience that better terms have been obtained in other similar transactions, does the attorney have a duty to inquire about the negotiations that took place previously, or can the attorney remain silent and move forward with closing the loan?
  • If dual representation is disallowed, either the lender or the borrower still has the option of remaining unrepresented if it is more efficient and economical to only have one attorney involved.

In light of these concerns, a proposed opinion has been drafted that states that common representation in a real estate commercial loan closing is a nonconsentable conflict meaning that a lawyer may not ask the borrower and the lender to consent to common representation. See Ethics Opinions, page 45.

On the other hand:

The remaining 50% of the committee contend that there are scenarios where it is more efficient and economical to allow one lawyer to represent both the borrower and the lender.

As expressed by some of these committee members:

  • One lawyer should be permitted to close noncomplex transactions.
  • One lawyer should be permitted to close standardized transactions that are not negotiable.
  • The cost of multiple lawyers may be prohibitive to clients in some cases.
  • If the lawyer concludes that she can fulfill her duties to both clients and the clients consent, the clients should be entitled to the counsel of their choice.

In light of these concerns, a second proposed opinion under consideration provides that dual representation of the borrower and the lender for the closing of a commercial real estate loan is a nonconsentable conflict of interest unless the following conditions can be satisfied: (1) the contractual terms have been finally negotiated prior to the commencement of the representation; (2) the loan is secured only by the real property and any collateral identified in the contract; (3) the lender reserves no remedies other than the right of foreclosure under the deed of trust or repossession under the UCC; (4) there are no material contingencies to be resolved; (5) the lawyer reasonably concludes that he will be able to act impartially in the representation of both parties; (6) the lawyer explains to both parties that his role is limited to executing the tasks necessary to close the loan and that this limitation prohibits him from advocating for the specific interests of either party; (7) the lawyer discloses that he must withdraw from the representation of both parties if a conflict arises; and (8) both parties give informed consent confirmed in writing. However, this alternative proposed opinion provides that consent may never be sought to represent the lender, the borrower, and the seller of real property if the seller will provide secondary financing for the transaction and accept a secondary deed of trust, because the risks to the interests of the seller are too great to permit common representation. See Ethics Opinions, page 48.

What Do You Say?

Should there be a bright-line prohibition on common representation in closing commercial real estate loans? Should commercial and residential real estate transactions be treated the same for conflict purposes? Should common representation in commercial real estate transactions be permissible in certain delineated scenarios?

We want to hear from you. Really. The comments we receive will be considered at the January 2015 ethics meeting. Comments may be emailed to

Suzanne Lever is assistant ethics counsel for the North Carolina State Bar.

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