Commercial Real Estate Broker Lien Act

Elizabeth H. Feather, Esq.

Is filing a commercial broker lien a viable option for brokers seeking to protect their commissions? The challenge with filing a lien is twofold: (1) recognizing when to file a lien; and (2) following the rules governing that process.

First, are you providing licensed services for a commercial deal? While this may seem self-evident (after all, it is called the Commercial Real Estate Broker Lien Act), many licensees know that there is a lien law available to protect commissions, but are not necessarily aware that it is limited to commercial transactions in which licensed services are provided. Adding to the confusion is the fact that "commercial real estate" is defined in the negative - commercial real estate is not:

(1) real estate containing 1- 4 residential units;

(2) real estate that is zoned agricultural;

(3) single-family units; and

(4) condominiums, townhouses or homes in a subdivision when they are sold on a unit-by-unit basis, even though they are part of a larger building or parcel of real estate containing more than 4 residential units.

Importantly, it is the nature of the property and not the purpose of the transaction that determines when the commercial broker's lien is available. For example, a buyer purchasing a single-family home as a rental property is not buying "commercial real estate" falling within the protections offered by the lien law.

Now that you determined you are selling "commercial real estate," who, when and how is a lien filed? Only the broker of record can file a lien, and the lien is limited to the amount of compensation agreed upon between the consumer and the broker. Second, there must be a written agreement between the consumer and the broker; whether you are representing the landlord/seller or the buyer, the services you are providing and the fee you are charging have to be in writing. Circumstances are a bit different when you represent a tenant; if your fee is to be paid by the current owner, then you have to have a written agreement from the owner stating they will pay your fee. Quite simply, no written agreement, no lien. Third, there has to be a written agreement between the parties to the real estate transaction to convey an interest in the commercial real estate.

Once you have the written agreements covered, the broker needs to follow the correct procedure. Before the actual lien is filed, the broker must file a notice of the lien in the county clerk's office before any interest in the property is transferred. If you represent a buyer/tenant and seek to enforce payment pursuant to your written agreement, then your notice of the lien may be filed within ninety (90) days following the purchase or conveyance of interest in the real estate. To be effective, the notice must include the name of the broker making the claim, the name of the owner, an accurate description of the property upon which the lien is being asserted, the amount for which the lien is claimed, and the real estate license number of the broker making the claim. The notice must be signed and verified by the broker or by someone who has the authority to sign for the broker.

It is critical that you give both the owner and prospective buyer written notice of your intention to file a claim at least three (3) days before settlement. The notice must be served by registered or certified mail, and, if there is more than one owner, each owner must be served. When a claim for a lien that would prevent the closing or conveyance is filed with the court, money sufficient to release the lien must be escrowed. Once the money is escrowed, the broker must release the lien. As an aside, the parties (including the broker) are free to agree to an alternative procedure for securing the money in question such that the transaction can close or the conveyance can be completed.

You're almost there... After all of the parties are notified of your intention to file a lien, you then have to file the lien with the court. The lien will be a cloud on the title and impede conveying the property without first satisfying the lien. Last, the lien will survive for two years, during which time you (the broker) must initiate the proper steps to enforce the lien.

Or, you could hire an attorney to help you...