This article was published on: 12/01/2002
FOCUS ON: COMMERCIAL LIEN LAWS
By Robert Freedman
Lien and mean
Brokers wage state-by-state fight for commission rights.
It happens all too frequently. After Fred Cantor, GRI, brings a commercial deal to the point of closing, the seller’s attorney takes him aside and gives him a choice. Either Cantor reduces his commission or he takes nothing—unless he wants to hire a lawyer to fight it out in court.
For Cantor, owner-broker of Century 21 Country Bumpkin in Fishkill, N.Y., it’s a tough decision. If he files a lawsuit, he’s sure to win the case: He has a signed contract stipulating the commission terms. But the battle will take years and require significant legal fees. What’s more, there’s no assurance that the seller will be around to pay up when the case closes. “In many cases, your best recourse is to agree to the reduced commission,” Cantor says. “The sellers know they have leverage.” In New York, a law protects brokers in lease transactions of less than three years but doesn’t apply to commercial sales.
Around the country, the battle commercial brokers often must wage for their commissions has fueled REALTOR® associations in at least half a dozen states to push legislators to enact commercial broker lien laws. Lien laws are currently in place in 21 states.
In states where laws have recently been enacted—Kentucky and New Hampshire are the latest—the change in the commission climate has been dramatic.
“There have been at least two cases where brokers have filed a notice of lien and received their payments promptly,” says Kipp Cooper, government affairs director for the New Hampshire Association of REALTORS®.
In New Hampshire, the law is based on filing a notice—rather than an actual lien, which is the way most broker lien laws are structured. The law, which was enacted in July, has proved to be an effective deterrent against commission challenges, says Cooper. Once sellers know brokers can file a lien notice, not paying the commission is risky.
Why are lien laws such a hot topic these days? It’s simple economics, says Cooper: “Companies facing harder times are unwilling to pay the brokerage fees they’re contractually obligated to pay.”
Still, few of the 29 states without commercial broker lien laws are in a hurry to add them. That’s because lien laws can be divisive, and lawmakers prefer not to give brokers—or anybody, for that matter—the ability to encumber the transfer of title.
The divisiveness of lien laws stems from the diverging concerns of different parties to the transaction. Lenders and contractors don’t want their liens to become subordinate to a broker’s lien and complicate their claims. Title companies are concerned that last-minute broker liens would cloud the title and, depending on the timing, impact the sale or subsequent sales.
Details will differ by state, but in general there are ways to satisfy all those objections, says James Hochman, senior vice president and senior counsel at CB Richard Ellis in Oak Brook, Ill.
For instance, in lease cases, if brokers’ liens are the last recorded on a property, other liens would be in superior position, says Hochman. In sale cases, brokers could file their notice of lien before the client conveys title to the buyer so lenders would be protected. And filing the notice before the lien becomes effective would address title concerns over so-called hidden liens.
The REALTORS® Commercial Alliance Advisory Board earlier this year launched an initiative to raise awareness of the lien-law issue.
The REALTORS® Commercial Alliance doesn’t formally support any one lien-law approach over another. But Hochman, a member of the advisory board, has developed model lien provisions, which served as the basis for New Hampshire’s law. That state law creates a lien effective on the date of filing the title, but the broker must ultimately commence a lawsuit to collect on the claim. The law provides for establishment of an escrow in an amount sufficient to satisfy the claim. The escrow enables the property to transfer to the buyer with no encumbrance on the title, yet ensures that there’s money to satisfy the claim should the broker prevail.
But even that’s no panacea for brokers battling for their rightful commission, says Cantor. In his state, it takes from three to five years to bring a suit, and you end up netting a third less after legal costs. “Brokers are in a bind,” he says.
Commercial broker lien laws
Sales Proceeds, Commercial Property, All
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