Your Law Firm Should NOT Own Real Estate

Lawyers often want to own their offices. Rent payments add up over time, and once that rent money is spent, there is little or nothing to show for it. Instead of paying rent, lawyers may decide to use those funds to build equity in a real asset that is independent of their law firm.

We won’t discuss the risks/benefits of owning versus renting here and will just assume you are considering buying a office space, instead of renting. If that’s the case, you should think twice about using your law firm to buy or own it. Rather, a separate single purpose entity probably makes more sense. Some of the reasons include:

Asset Protection

Owning real estate separately from your law firm protects both your law firm and the entity that owns the property. Typically, any creditors of your law firm would not be entitled to obtain any interest in a property owned by another entity. Likewise, should the entity owning the real property ever become liable for an amount exceeding the value of the property, then your law firm’s assets would be protected.

Partners come and go

Today’s law firms are in constant change. Partners join and partners leave. If not adequately addressed, a departing partner could possibly force the law firm to sell any real property it owns and move its offices. Should a partner that is leaving have the power to hold the law firm hostage over the real estate? On the flip side, should a new partner immediately receive the benefit of owning real estate that has been owned for many years?

Non-lawyers can own property with you

In just about every jurisdiction in the U.S., non-lawyers are forbidden from being owners in law firms. That necessarily limits a law firm’s options in owning real estate. There may be scenarios where lawyers want to own part of a larger commercial property, but either do not want or cannot afford to own the entire property. They may need or want additional non-lawyer investors/owners. They may want their non-lawyer spouses or children to own part of the property. The only way to make that happen would be to own the real estate outside of the law firm.

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