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Friday, January 29, 2010

Broker's Liens

 

Connecticut statutes provide two procedures for real estate brokers to protect their ability to collect commissions due in connection with sales and leases of real estate. These procedures can be used when a broker is concerned that he or she will not able to collect a commission (i.e., concerned about getting “stiffed”). 
 
Section 20-325a of the Connecticut General Statutes grants to brokers the power to record a lien to protect their rights to a commission. This section applies to both sales and leases. The statute provides that a broker “who has performed acts or rendered services relating to real property … shall have a lien upon such real property” for the amount of the compensation due. The lien does not attach, or become enforceable, until all contingencies to the transaction have been satisfied. At that point the broker must record the claim for lien in the land records where the property is located. If the contract is with the buyer, then the lien can only be recorded after the sale occurs. The broker must also serve a copy of the lien on the owner property and comply with other notice requirements as described in the statute.
 
There are many other strict requirements a broker must follow in order to use this procedure. The broker must be properly licensed; there must be a written agreement meeting the requirements of the statute; the agreement must provide notice that the broker has these lien rights; and other requirements. Any broker who intends to file a lien must follow the requirements of the statute carefully.
 
As long as attention is paid to the necessary details, this statute does provide some options for a broker who feels he or she is not going to get paid. It must be employed prudently, because the last thing anyone wants to do is kill the deal.
 
There is another, lesser known statute which provides protection for brokers in commercial lease transactions. Connecticut General Statutes section 20-325k provides that a commission agreement that provides for future payments, such as the in the case of a lease renewal, will be binding on subsequent owners of the property, including someone who acquires the property through foreclosure, if the broker records a notice of commission rights and complies with the requirements of the statute. If the lease renews after the property is transferred, then the new owner will be obligated to pay any commission that is due on the renewal. Again, the statute should be reviewed carefully to ensure compliance with the various requirements.
 
The statute is very clear that the recorded notice does not constitute a lien on the property. As a result, the broker cannot bring a foreclosure action to collect on the lien. This was probably inserted in the statute to provide some comfort to lenders who did not want another lien on the property. But if the statute creates a contractual obligation that did not previously exist, I don’t see how there is much of a difference. Either way the property owner has a new obligation.
 
Clearly the intent of the statute was to provide some protection to real estate brokers without creating a new way of creating a cloud on title. But I don’t think the statute accomplishes that goal. The existence of such a notice is certainly going to come up as an issue in any closing. The buyer and seller can likely resolve it through a negotiated solution. The buyer may be willing to assume the commission obligation as a cost of doing business. But no lender is going to finance an acquisition with that notice in place, and the lender will insist that it be removed. The broker will then insist that it re-recorded after the closing. But the lender may object to that as well. What if there is a foreclosure? Can the notice be foreclosed out? How can it be foreclosed out if it is not a lien?
 
There is no easy solution to this issue. The only answer is that counsel for the buyer, seller and lender will have to think and talk it through and come up with a compromise.



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