Malaysian Bar Bans Virtual Office Rentals, Solos Frustrated

In a decision that runs contrary to current trends in legal ethics, the Malaysian Bar Council banned attorneys’ use of a virtual office rental, frustrating solo attorneys.

In August 2015, the Malaysian Bar Council confirmed its March ban of the use of a virtual office rental by lawyers. It’s a perplexing decision that’s a substantial departure from recent trends in legal ethics, and has left Malaysian solos frustrated.

The Bar Council’s ban specifically prohibits the use of a virtual law office, which is an unbundled office rental arrangement where firms get the business presence of a traditional bricks and mortar office and have access to its resources. Lawyers pay on an as-needed, as-used basis to gain access to an address to receive mail, a physical location to meet clients, conference rooms, admin services and office space.

According to the Bar Council, the use of a virtual office rental violates Ruling 7.03 of the Rules and Rulings of the Bar Council Malaysia, which requires attorneys who share office space to have partitioned offices with separate and distinct entrances with no connecting door between offices used by other professionals.

The ruling does not apply to partners in the same firm, and would not seem to affect attorneys whose primary office is located within their home.

Although the Bar Council did not specifically ban the use of a virtual law firm (a law firm that exists entirely online with no bricks and mortar presence), presumably it would also be banned by Ruling 7.03 unless the attorney uses his or her home as the firm’s registered office.

Malaysia is Out of Step with Current Trends in Law Office Regulation

The ban on virtual office space is one of several sources of frustration for Malaysian attorneys, who complain that the Bar Council has been slow in keeping pace with the rapid changes in the practice, rendering Malaysian lawyers less competitive than their international peers.

In a recent article critical to the Bar Council’s ban, Malay IP attorney Foong Cheng Leong asserted “with the advent of broadband, cloud services and other new technological features, a traditional law practice has changed.”

Leong is one of many Malay lawyers who stores client files digitally and acknowledges that lawyers no longer need physical files to work. Says Leong, “traditional physical offices may one day be redundant to some lawyers and could even be reduced to an electronic device.”

Recently, bar regulators around the world have been forced to reconcile outdated rules regarding attorney office space with the realities of modern day law practice. Several jurisdictions have come under fire from attorneys, forcing changes in the law.

Two notable and highly-public examples include the relaxation of the “bona fide” office requirement in New Jersey permitting the use of virtual offices, and the very public federal court battle about New York Judiciary Law §470 and its office requirements for non-residents.

The Malaysian Bar Council’s ban is out of step with current trends.

Changes to the Traditional Law Office

There are obvious advantages to opening a virtual law office, particularly for small firm practitioners. Virtual office rentals give attorneys a professional appearance while materially reducing overhead. Reduced costs enable attorneys to take on work at lower rates and provide greater access to justice for lower income clients.

There is also some evidence certain clients actually prefer working with attorneys who have opted out of the traditional law office, particularly where lower overhead translates into reduced fees.
The fact is, the traditional law practice has changed. Technology enabling lawyers to operate a law practice completely in the cloud is readily available and reasonably affordable.

But technological advances have also brought new, formidable competitors into the legal services marketplace. Most notably, non-lawyer online legal services companies, such as LegalZoom and RocketLawyer, have eaten up a considerable share of legal services that were once performed exclusively by attorneys.

Attorneys can stay ahead of this new threat by focusing on more specialized work and expanding into new geographic markets. Virtual office rentals make this easily accomplishable, and at a very low cost.

A lawyer’s choice to not be constrained to traditional law office space can give them the flexibility needed to remain relevant in a rapidly changing market.

Unfounded Concerns About Accessibility, Confidentiality and Privilege

In defending its position on virtual law offices, the Bar Council expressed concerns about the maintenance of privilege, the storage of physical documents, and the accessibility and traceability of lawyers being compromised.

In a recent interview, Malaysian Bar Council’s vice-president George Varughese, who also heads its small firms committee, expressed concerns about confidentiality.

According to Varughese, because virtual office staff members are not employees of the law firm, there is a possibility that client confidentiality can be breached. Varughese further asserts that law firm employees can be made to sign confidentiality agreements.

“There could be a mix-up of files at virtual offices used by other people besides a lawyer, or a legal document could be accidentally sent to another user of the virtual office whose receptionist may inadvertently open it,” says Varughese.

But all of these arguments are baseless and, in fact, demonstrate a lack of understanding about the way lawyers use virtual office rentals.

The reality is, even in a multi-professional virtual office space, there is very little threat that confidentiality or privilege gets compromised. What little threat that exists can easily be eliminated with simple measures as opposed to a complete ban on the usage of virtual office rentals by attorneys.

Virtual Office Attorneys Do Not Store Documents at Their Virtual Office Rental

Attorneys using virtual office rentals rarely store physical documents at a virtual office site.

As described by Mr. Leong, the vast majority of virtual office attorneys store client documents digitally, either on their computers or by using cloud-based, secure software-as-a-service applications.

The attorney simply carries his or her laptop or tablet to the virtual office site when meeting with clients where they can access client files.

In the event that the virtual attorney has physical documents to store, they do so at the their home or, in the case of law firms using a virtual office to expand into a new city, at the law firm’s main bricks and mortar office. Both options would comply with the the Bar Council’s rules.

Though it is highly unusual, attorneys wishing to keep physical documents at the virtual office site could do so by using a secure file storage unit. At Law Firm Suites, we offer this service as an option for our virtual office clients, but it is rarely used.

The Bar Council could require attorneys using a virtual office to disclose to the Bar (and clients) where files are stored, and certify that they are doing so in compliance with the Bar Council’s rules.

Virtual Office Staff are No More Likely to Violate Confidentiality Than the Mailman

Varughese argues that, because virtual office staff members are not employees of the attorney, they put clients at a greater risk for confidentiality breaches. This argument is wholly baseless.

Virtual office staff are no more likely to violate confidentiality than a postal carrier, internet service provider, document storage vendor or telephone utility company.

Furthermore, virtual office services are typically provided at professionally managed executive office suites with highly trained staff. An attorney can rent a physical office space at one of these executive suites that would comply with Ruling 7.03. That attorney would be permitted to have the operator’s staff greet guests, deliver mail, forward calls and provide administrative services.

Yet, the Bar Council contends that these same services, performed by the same staff for in-office attorneys, puts clients at greater risk for confidentiality breaches. The argument is illogical.

An easy remedy would be to require virtual office attorneys to get the operator, and its staff, to sign confidentiality agreements as a condition to lawyers using virtual office services.

Attorneys make up approximately one-quarter to one-third of all virtual office clientele globally. It’s a lucrative market segment and, in this regard, the Bar Council would get considerable cooperation from virtual office operators.

Operators who do not wish to sign confidentiality agreements will simply lose out on this market.

Easy Remedies to Preserve Privilege

In terms of preserving privilege, virtual office attorneys are at no greater risk than their shared office rental colleagues. Like lawyers in shared office rentals, virtual office lawyers use shared conference rooms and private offices on an as-needed basis.

To reduce any perceived risk, the Bar Council could require that attorneys only use virtual office sites that meet certain conditions. The New York City Bar Association made similar recommendations in a recent ethics opinion on the subject.

For example, the Bar Council could require that virtual office sites have private areas to meet with clients, and private or locked mail storage.

They could require that lawyers provide appropriate training for virtual office staff about privilege, confidentiality and client communications.

The Bar Council could also require attorneys to opt out of virtual office services that may be more likely to put attorneys at risk for violating confidentiality or privilege.

Standard services, such as mail and call forwarding, are not high-risk activities; however, the Bar Council could require attorneys to opt out of more enhanced services, such as mail opening and telephone screening.

Ultimately, it’s the attorney’s license, reputation and personal assets that are on the line for privilege violations, all highly motivating reasons to ensure privilege is preserved. Given the high risk for non-compliance, the Bar Council’s parochial ban on virtual office is excessive.

In a Digital World, Office Space is No Measure of Accessibility.

In today’s digital world, an office space is no measure of the accessibility or traceability of lawyers. In no other time have lawyers been more accessible or more traceable.

In today’s modern practice, even high-volume, high-touch practices are foregoing in-person meetings for video chat consultations. It’s more convenient for clients to meet online than to travel to their attorney’s office, making traditional office space much less relevant for certain attorneys.

Some attorneys may find that it’s more productive to work from a traditional office. But for many attorneys office space has become a choice, it’s no longer a requirement for practice.

Having an office does not necessarily mean that the attorney will be any more traceable or more accessible to regulators or clients.

At the end of the day, the Bar Council regulates who will continue to have a license to practice. To the extent it’s not already, prompt reply to Bar Council inquiries could easily be a condition of maintaining that license.

Clients are Not Safer, But Ethically Compliant Lawyers are Unnecessarily Penalized.

In the same way that gun regulations will not stop criminals who are intent on using a firearm to commit a crime, if a lawyer is bent on violating ethics rules, a complete ban on virtual office rentals will not prevent that lawyer from doing so; nor will the ban afford clients any additional protection.

What the Bar Council’s ban does, however, is pose an increased burden on ethically compliant lawyers who could benefit from the use virtual office rentals.

Regulatory bodies around the world are generally looking for ways to liberalize the practice of law, not make it more restrictive.

It is my opinion that the Malaysian Bar Council is on the wrong side of history here. I wish Malay attorneys like Mr. Leong good luck with their fight against the ban.