After working to sell a property, commercial real estate agents expect to collect their commissions when the deal is closed. While most sellers have kept their side of the bargain and payed the agent, over the years some have gone to great lengths to delay paying commission. Some did not pay at all.
Revision of the Texas Property Code: Chapter 62
Recognizing how real estate brokers had no guarantee of receiving their commissions, the Texas Legislature passed HB 1052 in 1999. This bill added a chapter to the Property Code (Chapter 62: Broker’s and Appraiser’s Lien on Commercial Real Estate), which permits commercial real estate brokers to secure their commissions by obtaining a lien on a property of the seller.
A real estate broker’s lien is an official order that allows a real estate broker to keep possession of the property belonging to the seller until the commissions have been fully paid. This lien right applies to commercial properties only. Thus, all real estate brokers involved in the buying and selling of commercial real estate can use this lien if they fail to receive their commissions.
Commercial real estate means all real estates that are used for business activities. They include office buildings, grocery stores, shopping malls, hotels and resorts, factory buildings, large residential rental properties, and even undeveloped lands that are set aside to be used to generate profit.
When can a real estate broker claim a lien?
A lien can be placed on a commercial real estate interest of the seller, buyer or lessor in whatever amount is outlined in the agreement if:
- A commission has been earned under an agreement signed between the broker and the seller, lessor or buyer of a commercial real estate. However, it does not apply if the aggregate commission earned is $2,500 or less. It also does not apply for commissions of $5,000 or less if the property is the principal place of the title owner’s business, is occupied by one to five tenants, or has been improved with a total gross building area of 7,500 square feet or less.
- A lien notice has been filed according to Section 62.024 of the Property Code. For the lien to be enforceable, it must be recorded before the conveyance of the commercial real estate interest on which the lien is being placed. More specifics on the timing of the filing requirements can be found in Subchapter C. Time for Filing Notice of Lien in Chapter 62 of the Texas Property Code.
Once a lien has been recorded, the real estate broker may file a lawsuit if the party responsible for paying the commission fails to make the payment. The lawsuit must be filed within two years of filing the lien. The window of time for filing liens is quite short. Liens that are filed too early are not enforceable. Neither are liens that are filed too late.
For a lien to be possible, the real estate agreement between the parties must be carefully written to include all the necessary language and disclosures. To protect themselves, brokers should make sure the contracts they use are properly constructed to include the pertinent language so, if needed, they can use the lien to obtain their commission from a party that does not pay. The Dallas real estate attorneys at Bennet, Weston, LaJone & Turner, P.C. can construct or review your real estate agreements to help ensure commercial real estate transactions are conducted fairly for all parties.