When to Strike

Commercial Broker Liens are a Critical Tool, but They Should Be Used Rarely - and Wisely.

By Carol Weinrich Helsel

It’s a broker’s worst nightmare: A big sale is about to close, and the party obligated to pay the commission signals he or she won’t pay it or won't pay the full amount owed. Or, in leasing, the event triggering a commission—for example, occupancy or receipt of the first month’s rent - occurs with no payment. What’s a broker to do?

Litigation is an option, but it may not be worth it for smaller commissions. Depending on your state, you may benefit from a commercial broker lien law, which protects sale and lease commissions. A 2020 compilation by the National Association of REALTORS® shows that 36 states have commercial broker lien laws. A small number fall under mechanic’s lien laws, but most specifically address broker commissions, thanks to local broker efforts supported by state REALTOR® associations. (See "Advocating for Lien Laws")

Placing a lien on a property is usually the last course of action. It clouds the title, making it nearly impossible to settle a sale unless the seller escrows the amount of the claimed commission. On a lease, a lien could violate the loan documents and be considered a default by the lender. A lien on a tenant’s interest in a property could be a violation of the tenant’s lease by the landlord as well.

“Assertion of the lien is an important step in resolution. But legal language can be tricky. Brokers must ask what they did to effect the transaction.”

The Hammer That Never Falls

ln most situations, the mere threat of a lien will bring the parties to the table to discuss a resolution. “It’s the hammer that never falls,” says Jim Goldsmith, an attorney with Mette Evans & Woodside in Harrisburg, Pa., who has represented the state and local REALTOR® associations. “The assertion of the lien is an important step in resolution.”

“The lien law is like having a big stick,” says Delaware broker Pete Davisson, CCIM, SIOR. The mere passage of a lien law in his state in 2013 significantly reduced brokers’ need to file. “Developers seem more inclined to test the waters [by holding back payment] than building owners or investors,” says Davisson, a founding partner with Jackson Cross Partners.

Lorie Garland, assistant vice president of legal services for Ohio REALTORS®, believes the broker lien law is a powerful tool. She warns, however, that “brokers who record a spurious or materially inaccurate lien can be liable for any damages incurred by a person having a legal or equitable interest in the property.”

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Dot the I's and Cross the T's

Lien laws vary by state, but most spell out the time frame for notice and filing, lien notice contents (required documentation), and process for waiving or extinguishing a lien. Other provisions routinely include priority of payment, properties covered, and assignment of attorney fees. It’s common for the non-prevailing party to pay the attorney fees. Ohio REALTORS® didn’t have such a provision in the state’s original lien law, but they successfully advocated for an amendment, which went into effect in March of 2021. “The ability to recover reasonable attorney fees and costs has helped our members stay out of court,” Garland says. “It eliminates the scenario where the client assumes the broker will not pursue a lawsuit because the attorney fees might exceed the value of the due commission.”

Too often, brokers find themselves lacking the necessary documentation to file a lien. “The first thing a broker should do is determine what the law requires,” advises Goldsmith. Most states require a written and signed contract for providing “licensed services” in exchange for a fee. That’s not always easy. “There are a lot of commercial deals that never get listed,” says Jim Helsel, CCIM, CPM, owner of Helsel Inc., REALTORS®, in Harrisburg, Pa. “I always try to get something in writing—ideally a letter, but an email is better than nothing and can help with negotiation.” (Helsel is the author’s spouse.)

“Legal language can be tricky,” says Goldsmith. “Brokers must ask themselves what they did to effect the transaction.” For example, is it sufficient if the seller produces the buyer or lessor with no contact with the listing or cooperating broker? A skilled attorney can be creative in what constitutes a “licensed service,” notes Goldsmith, but a contract clearly defining the services provided in exchange for a fee is essential for a successful lien. Brokers should familiarize themselves with the lien law and work with counsel to create a standard contract that will stand up to the scrutiny of the law.

Deena Zimmerman, vice president of SVN Chicago Commercial, advises new agents to carefully review the brokerage section of the lease to ensure correct documentation. “I’ve seen brokers lose out because they didn’t notice that their name was not in the lease agreement as representing one of the parties to the transaction.”

Repercussions of Filing a Lien

Because a broker can meet the statutory requirements to file a lien does not necessarily make it the right course of action. “I learned a long time ago that the last thing I want to do is escalate problems with a lease by bringing an attorney to the table,” says Kris Keller, CCIM, of Keller Williams ONEChicago. “It usually leaves a sour taste in the mouth of the landlord, who may have other properties for which we’d like to be the leasing agent.”

Some brokers get a more aggressive response. Greg Hrabcak, CCIM, a Columbus, Ohio, broker in the commercial division of HER, REALTORS®, had a landlord’s broker threaten to run up legal fees if he filed a lien. “The other brokerage had in-house counsel, and I knew they could bleed us to death, but I felt it was my duty to file the lien on behalf of the associate broker who put together the deal.” The parties eventually settled, with Hrabcak’s firm getting half of the owed amount. Hrabcak says in most cases, the warning of a lien is enough.

Greg Herb, CRB, owner of Herb Real Estate in the Philadelphia area, also is hesitant to file a lien. “I want to be a problem solver, not threaten litigation,” says Herb. “We file to find a resolution,” he says, but he admits it is uncomfortable. “It’s tempting to turn the other cheek, but that’s not good for our industry.”

Reputation Matters

Helsel recalls weighing the risk of filing a lien for a multiproperty sale that would generate only enough funds to cover the sellers’ debt and broker commission, with no proceeds for the sellers. The co-listing broker had a personal connection to one of the sellers. “She begged me not to do it, believing they would pay,” Helsel says. “She was correct, and I was glad not to have filed. It was apparent, though, that they knew of my concern. One seller still won’t speak to me. Any time you upset a client,” he says, “others may unfairly judge you—and your reputation,”

The agents in Zimmerman’s firm routinely discuss the possible need for a lease lien. “To avoid offending a client,” she says, “we try to write agreements to cover ourselves in the case of nonpayment, such as retaining the security deposit, but some landlords won’t agree. If we have any concerns, we lien the property.”

Some firms file liens as a standard business practice, primarily for large transactions. Delivering the notice of lien with the contract minimizes the suggestion of distrust. Still, it may be off-putting to the seller or lessor. Firms should also detail in writing the actions that will extinguish the lien.

Rolling the Dice

Most brokers agree that the real value of the lien law is forcing a discussion around a resolution. Davisson recounts one incident in which a developer client wanted to change the commission structure in a land sale transaction arbitrarily. “I could have easily used the broker lien, but we would have lost the opportunity to work with this developer going forward,” he says. “The threat of the lien led to a resolution satisfactory to both parties, and we were able to continue the relationship with the developer.” Davisson’s view is that “a piece of the pie is better than no pie at all.”

A willingness to seek a mutual resolution is the prevailing sentiment. None of the brokers interviewed for this article regretted their decisions not to file a lien—even in instances where they lost money. “I believe most people are fair,” says Helsel, “but you roll the dice every time.” 


Advocating for Lien Laws

Eighteen U.S. states and territories have no broker lien law or have narrowly designed circumstances under which a broker might address nonpayment of commission. Jim Hochman, an attorney with Chicago-based Schain Banks, has assisted with the passage of a broker lien law in 19 states—almost always in conjunction with the state REALTOR® association. Opposition usually comes from developers, builders, and title insurers. Hochman works to show special interest groups that there are no “innocent victims” in a broker lien law. He offers these insights for those interested in pursuing a lien law:

  • It may take more than one legislative session.
  • Legislators want to hear from reputable, known brokers in the state.
  • Involve the state REALTOR® association.
  • Engage brokers who have “been in the trenches” and can speak to the issues.
  • Know what has happened in other states.

“Lien rights are rarely asserted, and litigation is even rarer,” says Hochman, who compared litigation statistics before and following the introduction of a broker lien law. “Lien laws dramatically reduce litigation,” says Hochman. “The right to lien discourages folks from taking a run at denying or reducing the broker’s fee.”

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