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Is It An Unauthorized Practice of Law?
By: Stuart D. Liebman (2000)
Should a Real Estate Professional Prepare a Contract?
Can a licensed real estate salesperson or broker prepare contracts and leases relating to commercial properties in New Jersey without violating the general proscriptions against non-lawyers engaging in the practice of law? The New Jersey Real Estate Commission has asked the New Jersey Supreme Court Committee on the unauthorized practice of law to consider this question.
For many years, licensed real estate professionals have been at odds with attorneys in the state on this issue. The real estate professionals are of the opinion that they, as a group, are qualified, and should be permitted, to prepare leases and contracts in connection with all New Jersey real estate transactions. In 1982, the current law was established in a case entitled New Jersey State Bar Association v. New Jersey Association of Realtor Boards, a case which was affirmed and then later modified by the New Jersey Supreme Court. The existing law provides that real estate professionals, referred to as "licensees", are permitted to prepare real estate agreements only where: 1) The property being conveyed fits an express definition of residential property; and 2) The agreement contains an "attorney review clause" under which either party's attorney could disapprove the agreement within three days.
Thus, under the existing law, licensed real estate salespersons and brokers are permitted to prepare real estate contracts and leases for certain residential properties. Recently, the New Jersey Real Estate Commission has asked to broaden the category of real estate for which licensees are allowed to prepare leases and contracts. They seek to include commercial properties.
The Committee on the Unauthorized Practice of Law had recently issued Opinion 35. In that Opinion, the Committee finds that the preparation of a commercial real estate sales contract or lease by a real estate licensee constitutes the unauthorized practice of law. The Committee considered and acknowledged the fact that certain residential real estate transactions, for which real estate licensees are allowed to prepare contracts and leases, can be more complex or involved than a lease for a small store or office space. The Committee made it clear that part of the settlement reached between the State Bar Association and the State Association of Realtor Boards back in 1982 included a bright line distinction between commercial and certain residential properties, with commercial properties being off limits.
In New Jersey, most any real estate transaction can become complex with certain legal issues and pitfalls which arise and frequently need careful legal analysis. Traditionally, residential real estate transactions involving one to four family residential dwellings have been considered less complex than other transactions involving a greater number of residential units, or any commercial properties or uses. The New Jersey Supreme Court Committee on the Unauthorized Practice of Law, in Opinion 35, has determined that it is not in the public interest for non-lawyers to engage in the preparation of commercial real estate sales contracts and leases.
Stuart D. Liebman is the Managing Partner of WJ&L, LLP who practices in the Land Use, Real Estate and Business areas.