Q: I am selling my pizza shop and I have a dispute with my Realtor. He has threatened to file a lien to protect his commission. Can he do that?
A: In 2005, Florida's legislature decided that commercial real estate brokers needed the protection of lien rights. Apparently, some sellers of commercial property were refusing to pay commission. To cure the problem, the legislature adopted a comprehensive statutory system by which commercial brokers could establish liens for both sales and rental commissions.
The commercial broker's lien attaches only to the net proceeds of sale, and not to the real property. That means that buyer acquires title free of lien. The lien arises only when the commission is earned. That generally means when a sales contract is signed.
The lien belongs only to the broker in the brokerage agreement. It can not be factored or sold by the broker, which means the broker can not assign the lien to a third party or sell it. It can not be waived before the commission is earned.
Commercial brokers are required to inform property owners at time a listing agreement is entered that Florida Statutes create lien rights for commissions earned by the broker that are not waivable before the commission is earned. If the broker does not provide a disclosure, the broker can not enforce the lien under the statute.
To enforce the lien, a broker must provide a commission notice to the owner and closing agent. The notice must be sworn and signed before a notary public, and must include name of the owner, legal description of the property, name, mailing address, telephone number and license number of the broker, and effective date of the brokerage agreement. The notice must also include a statement that the statute requires the owner to dispute the claimed commission not later than 5 days after closing or the owner will be deemed to have confirmed the commission and the closing agent is required to pay the commission from the owner's net proceeds.
A notice must be delivered to both owner and closing agent within 30 days after a commission is earned and at least one day before closing. If the broker does not know who the closing agent is at the time the commission is earned, the broker must deliver the commission to the closing agent within 3 days after the broker finds out the identity of the closing agent.
After the broker delivers the commission notice, the broker may record the notice in the public records maintained by the Clerk of Court in the county where the property is located. Recording date establishes its priority with respect to any other claims against the owner's net proceeds of sale. The broker must record a release within 7 days after the commission is paid.
The Statute imposes specific duties on the closing agent with respect to the commission. The closing agent must reserve from the owners net proceeds an amount equal to the commission claimed by the broker if the owner has provided a commission notice. If the net proceeds are insufficient to pay the full commission, all of the net proceeds must be held by the closing agent.
If the broker has recorded a commission notice with the Clerk for at least 60 days, the closing agent is charged with constructive notice and must comply with the withholding requirement. Accordingly, the statute allows the closing agent to require the owner to deliver a sworn statement as to existence of terms of any brokerage agreement and the name, address, and telephone number of any brokerage who might have a claim to a commission. If the closing agent obtains this sworn statement from an owner, the closing agent must reserve from the owner's net proceeds an amount equal to the total commission disclosed by the owner, even if the closing agent did not receive a commission notice from the broker. If the closing agent determines that the owner's net proceeds will be inadequate to pay the entire commission, he must notify both owner and broker of that fact within 3 days of making the determination.
If the owner's cash from closing is insufficient to pay the commission, but the owner is getting a purchase money note, the closing agent is to reserve and release the note only as the owner and broker agree. If the owner and broker do not agree within 5 days after closing, the closing agent is required to file a court action seeking an order of disposition of the note.
Upon request of the closing agent or the owner, any broker who has recorded a commission notice with the clerk must give the closing agent a release in recordable form. The closing agent is required to hold the release in escrow until payment of the commission. The closing agent may deduct from the broker's commission recording cost of the release.
If the owner disputes the commission notice, the statute provides an expedited procedure under which the owner can apply for a court order. Under the procedure, the broker is ordered by the judge to show why the commission notice should not be discharged. If the broker fails, the broker must pay the attorneys fees and costs of the owner and the closing agent and the court will enter an order releasing the broker's.
There is no comparable statute with respect to residential real estate. In fact, Florida Statutes prohibit a broker or sales associate form recording any document which would affect title or encumber real property for purpose of collecting a commission unless expressly permitted by contract with the owner or the broker has otherwise perfected his claim through court judgment.
The statutes give commercial brokers a powerful tool for collection of commissions. They also increase the importance of reading and understanding all terms of brokerage and commission agreements. In your case, prompt action will minimize any problems. I suggest you consult with an experienced attorney immediately.