On October 5, 2010, Governor Granholm signed PA 201 of 2010, known as the Commercial Real Estate Broker’s Lien Act into law, to secure payment of commissions to brokers transacting commercial property. With this new law, Michigan has joined at least 25 other states (including Ohio and Illinois) establishing lien rights for brokers who have in recent years have had difficulty collecting commissions from commercial transactions that, especially under current market conditions, take a considerable amount of time to close. Some key highlights of the new law:
- Applies to commission agreements executed after October 5, 2010 regarding commercial property. The law does not apply to residential property of four units or less, residential property of four units or more if they are to be sold separately, or to vacant property zoned residential.
- For a valid lien, (a) the commission agreement must be in writing, (b) the broker must be entitled to a commission under the agreement, (c) the lien must be recorded before the transaction closes and the commercial real estate conveyed, and (d) the lien must be mailed to the land owner within 10 days of recording.
- In the event of a commission dispute, escrow accounts must be established with sufficient funds to satisfy a lien until the dispute is resolved.
- Only licensed real estate brokers – and not their agents, employees or independent contractors – may claim a lien.
- The broker may foreclose upon the lien only by judicial action commenced within one year of attaching the lien. The redemption period cannot exceed four months.
From a business standpoint, however, the new law is likely to have a profound impact on, among other things, the marketability of property and the relationship between agents and their clients. Consider first that the new law is complex and requires the recording of additional documents affecting commercial property. This creates additional underwriting risks for title insurance companies because those documents could be difficult to timely discover. The anticipated consequences include delayed or disrupted closings and added closing, escrow and title insurance costs.
In addition, an intent of the new law is to reduce breach of contract litigation regarding commissions. Arguably, though, this new law actually increases the prospect of litigation because it permits lien foreclosures only by potentially time-consuming and expensive judicial action, which requires as a prerequisite proof that a commission agreement has been breached. The parties to such cases could dispute the validity of a lien, the amount due to the broker, lien priority, and if the lien is invalid, whether the property owner has the right to recover damages against the lien claimant.
It remains to be seen what impact this new law will have over the long term. In the short term, commercial real estate brokers are well advised to review their current commercial listing and agency agreements with their legal counsel to insure that any liens recorded under this new law are properly perfected and their legal rights preserved. Similarly, buyers, sellers, landlords and tenants involved in commercial transactions should consult with their legal counsel before engaging a real estate broker and at each stage of a transaction to reduce the risk of non-consensual liens or other adverse impact.
Randy Barker is a member of Berry Moorman P.C.’s real estate practice group. He has significant experience with commercial, industrial and residential real estate transactional and litigation matters, including leasing, development, financing, boundary disputes, property tax appeals and lien issues. He also represents real estate professionals in general business, employment, collections, errors and omissions, and licensing matters. If you have questions regarding this or any other real estate matter, you are invited to contact Mr. Barker at (313) 496-1200 or email@example.com.