July 2, 2020

Time To Consider Percentage Rental Agreements For Lawyers

Peter R. Jarvis

Attorneys Peter Jarvis and Trisha Thompson co-wrote a Law360 article discussing percentage rental agreements and questioning whether the rules of professional conduct should completely prohibit lawyers from leasing office space under such agreements. Frequently used in the real estate industry, percentage rental agreements allow a retailer to pay a landlord a base rate plus a percentage of the revenue that the retailer receives — when revenue increases, rent increases, but when revenue decreases, rent also decreases. The goal of these agreements is to lessen the financial pressure on retailers, especially ones with variable income, so that they can focus more on their business as a whole and less on short-term cash flow issues.

Mr. Jarvis and Ms. Thompson argue that lawyers similarly have variable income and so could equally benefit from these agreements. However, the American Bar Association's Model Rule 5.4(a) and predecessor rules prohibit lawyers from using percentage rental agreements because doing so would entail sharing legal fees with nonlawyers, an impermissible action. With this framework in mind, the authors outline the arguments for and against allowing lawyers to use percentage rental agreements, ultimately concluding that there should be a reconsideration of the rules preventing lawyers from using these agreements and that they should not be altogether prohibited from doing so.

READ: Time To Consider Percentage Rental Agreements For Lawyers

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