Commercial real estate brokers work hard, and are an important part of the team of real estate professionals (Lawyers, Brokers, Architects, Construction Managers/General Contractors, Surveyors, Environmental Consultants and Title Companies) that should be consulted in real estate transactions. Brokers bring far more to the table than listing a property for sale or lease. Most possess marketing, advertising, negotiating (business terms), financing and space planning expertise. Some brokers and property owners may be surprised to know that there has been a statute in Ohio, since 1977 (Ohio Revised Code Sec. 1311.86 - 1311.93) that helps secure payment for real estate broker services, much like contractors or materialmen protect themselves by filing a “Mechanic’s Lien”. The “Broker Lien” in Ohio pertains to services provided by a broker pursuant to a written agreement for the sale, lease, or conveyance of an interest in “commercial real estate.”
Under the Statute, “commercial real estate” is defined as any real estate in Ohio, other than that containing one to four residential units. Certain property owned by a public authority is also excluded.
A lien is created and effective once a written contract for broker services is signed by the broker or the broker’s agent, and the owner or owner’s agent. Only the broker named in the agreement has the lien (not any employee or independent contractor of such broker). The lien is for the amount due to the broker prior to or upon conveyance; and the lien only attaches to the interest that is the subject of the agreement.
The lien can be perfected, but only after: (a) the broker is entitled to the fee under the agreement; and (2) the broker files a lien affidavit in the county where the real estate is located. The affidavit must contain the name of the broker and the owner; the applicable property’s legal description; the amount for which the lien is claimed; the date and a summary of the written brokerage agreement; the real estate license number of the broker; a statement that the information contained in the affidavit is true and accurate; and the verified signature of the broker (or his agent).
In the cases of a sale, the lien must be recorded prior to conveyance of the property. For leases, the affidavit must be recorded the earlier of (i) 30 days after the first rental payment is due; or (ii) if owner notifies broker of the intended lease execution date, prior to such date (but owner must have given broker at least 10 days written notice of such date). The broker must serve copies of the lien affidavit on the property owner and the transferee if the transferee is known.
The lien can be enforced by filing a complaint in the applicable county common pleas court within one year following the affidavit filing date, and if not, the lien is extinguished. An owner may demand, by written notice (personal delivery or certified mail), that the broker commence suit within 28 days from receipt of such notice, and barring the commencement of such suit, the lien is extinguished.
The Statute also creates procedures for recording a release or satisfaction of the lien, and also for closing on a property subject to a lien, without a release, by establishing an escrow account to pay off the lien, and upon payoff, the lien becomes extinguished by law.
The only drawback from the broker’s perspective is that “contractors come first”. All valid mechanic’s liens (and all prior recorded liens and mortgages) have priority over a perfected broker’s lien, perfected pursuant to ORC Sec. 1311.87.
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