Commercial Broker Liens

Co-Author: David A. Farus, Esq.

Leasing Brokers may now lien property when the owner defaults on its obligation to pay leasing commissions for commercial properties.

At the closing of most real estate sales, the buyer brings new money to the table. Even in short sales, where the seller’s debt exceeds the purchase price, the amount of new money substantially exceeds the brokerage commissions. While it is not unheard of for commission disputes to break out between sellers and brokers, the new money brought by a buyer, and the ceremony of a closing, typically make it easier for a seller to pay commissions on a sale as compared to a landlord paying a commission on a lease.

In commercial leasing, the amount of the brokerage commission is frequently a percentage of the lease payments over the life of the lease. The commission amount almost always exceeds the tenant’s initial payments to the landlord. With leasing, the owners almost always must pay the broker before the owner has received the full benefit of the lease. In a lease, the owner almost always reaches into his pocket to pay the brokers. A lease enhances the income generated by a property and therefore enhances the value of the property. Typically a sale, all by itself, does not enhance the value of property. For these reasons, Colorado has given commercial leasing brokers lien rights against the leased property.

Establishing the Lien and Owner Protections

The statute recognizes that the mere claim by a broker to a lien doesn’t mean that the broker is entitled to be paid. The broker must jump through several hoops before recording a lien, and must bring judicial scrutiny of the lien shortly thereafter, otherwise the claim to a lien disappears. The following is a mere summary of some of the mechanics of establishing the lien and the protections for owners.

The broker must serve a Notice of Intent to Record a Notice of Lien 30 days prior to recording the Notice of Lien. Before serving the Notice of Intent to Record, the Broker must send a written notice to the owner requesting mediation and make a good faith effort to mediate. The broker must then record the Notice of the Lien on the real estate within a time window (a) at least 30 days after serving the Notice of Intent to Record Notice of Lien on the owner, but (b) not more than the later of 90 days after the tenant takes possession of the leased property or 90 days after the compensation is due under the agreement. Within 10 days after recording the Notice of Lien, the broker must serve a copy of the Notice on the owner or the owner’s agent. Within six months following recording of the Notice of Lien, the broker must bring judicial scrutiny of the lien by filing a lawsuit to judicially foreclose the lien. The broker must record a notice in the clerk and recorder’s office for the county in which the property is located that the law suit has been filed. If a broker records an invalid lien, the broker may be subject to penalties and damages under Colorado’s Spurious Lien Law. The statute only applies to listing agreements entered into on or after August 11, 2010.

Time Will Tell

The statute is new. The ramifications of the new law and its inevitable ambiguities will emerge over time. We anticipate further evolution in the following issues.

The law allows owners to post surety bonds to get the lien released. When the owner posts a bond, then the claimed lien is released from the property and attaches to the bond. With mechanics liens, title companies have evolved a custom where they will typically insure over a mechanic’s claimed lien if the owner escrows one-and-a-half times the amount of the claimed lien with the title company. Mechanics lien law enables title company escrows by identifying a specific deadline by which the lien evaporates after the lien is recorded, unless the lien claimant files a law suit bringing judicial scrutiny of the lien. The deadline allows for a specific duration of the escrow. The commercial broker’s lien statue also identifies a specific deadline for bringing judicial scrutiny of the claimed lien, which should enable title companies to implement similar protocols for escrowing and insuring over recorded broker liens.

The statute provides that the broker’s lien rights can’t be waived “without consideration acceptable to the parties to the waiver.” This seems to be a provision designed to inhibit boilerplate waivers of the lien rights in listing agreements. Is not the owner’s willingness, however, to execute a listing, and the other promises from the owner in the listing agreement, sufficient consideration to support the waiver of the lien rights? It remains to be seen whether owners will routinely seek a waiver of brokers’ lien rights and whether brokers will be willing to accept lease listings waiving the lien rights. It also remains to be seen how the courts will interpret the statutory requirement for consideration supporting the lien waiver.

 

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN