An Overview of Commercial Real Estate Broker Lien Laws
Many states have adopted, or explored the adoption of, commercial real estate broker lien laws. Such laws allow a commercial real estate broker to obtain and foreclose upon a lien as a legal remedy against a commercial property when a client (whether seller, buyer, lessor, or lessee) fails to pay the broker their earned commission, as long as the client has a legal interest in the property.
A commercial real estate broker lien is similar to a mechanic's lien. In fact, some states even grant a broker lien rights under the state's mechanic's lien laws. In either case, it serves as an effective tool in enforcing payment of brokerage commissions. In states where commercial lien laws have been adopted, there has been a dramatic drop in commission collection efforts through litigation and arbitration. This is predictable since such liens can be useful in enforcing commission payments and also helps to deter any efforts by clients to refuse or reduce commission payments.
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Litigation is a slow process and judgment collection efforts can be difficult. Adding to such difficulties, efforts to recover unpaid commissions often exceeds the total commission a broker earns. Broker lien laws help avoid such legal hassles and provide a quicker, more effective remedy and deterrent.
Although state laws vary in their approach, most laws require that the lien language be placed in a written brokerage agreement signed by both the client, the broker, and the brokerage firm. Additionally, lien rights can typically only be exercised by the primary broker. In other words, those working under the broker have no authority to file or enforce a commission lien. This means that salespeople must rely on the broker to enforce any lien rights.
As more states adopt commercial real estate broker lien laws, brokers will have a greater degree of protection when brokering transactions. Ultimately, this not only protects the broker, but also provides benefits to the general marketplace since it ensures the broker can invest heavily in marketing and in time spent with the client, without the risk of non-payment.
Although state laws vary in their approach, most laws require that the lien language be placed in a written brokerage agreement signed by both the client, the broker, and the brokerage firm. Additionally, lien rights can typically only be exercised by the primary broker. In other words, those working under the broker have no authority to file or enforce a commission lien. This means that salespeople must rely on the broker to enforce any lien rights.
As more states adopt commercial real estate broker lien laws, brokers will have a greater degree of protection when brokering transactions. Ultimately, this not only protects the broker, but also provides benefits to the general marketplace since it ensures the broker can invest heavily in marketing and in time spent with the client, without the risk of non-payment.
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