Governor Signs Broker Lien Law

Governor Signs Broker Lien Law

On April 29, Governor Bill Ritter, Jr. signed the Commercial Real Estate Brokers Commission Security Act (HB10-1288, the "Broker Security Act") into law. The Broker Security Act gives commercial real estate brokers in Colorado the opportunity to file a lien against an owner's commercial property when the owner fails to pay a broker a commission due for procuring a tenant for the property.

The Broker Security Act will take affect ninety days after adjournment of the General Assembly which will be August 11, 2010 if adjournment falls on May 12, 2010, the constitutional deadline.

The lien right created by the Broker Security Act is similar to the right provided to building contractors and sub-contractors, architects, engineers, and surveyors under current mechanic's lien laws, but it differs in significant ways. Brokers may obtain lien rights only against commercial properties and only on lease transactions, not sales. Also, there must be a written agreement between the broker and commercial property owner or the property owner's agent.

The Broker Security Law is intended to encourage resolution of disputes between owners and brokers prior to the filing of a lien, and certainly before foreclosure of a lien. To this end, a broker must serve a notice of intent to file lien at least thirty days before he or she may record the lien. Before a broker's lien attaches to commercial real estate, the broker must make a good faith attempt to obtain settlement through non-binding mediation.

The Broker Security Act includes several protections for property owners. Specifically, the Act incorporates an existing spurious lien statute which provides substantial remedies to an owner faced with a fraudulent or spurious lien. In addition, an owner may file a bond or other assurance in an amount equal to one and a half times the amount of lien plus other costs as approved by a district court judge. Once a bond or other assurance is filed, the lien against the owner's property will be discharged, permitting the owner to sell or borrow against the property while at the same time providing the broker with assurance that if he or she prevails in an action against the owner, funds will be available to satisfy the judgment.

Other deadlines in the Act ensure that a broker's lien will not cloud title to the property any longer than necessary. For instance, a broker may not file a lien later than 90 days after the procured tenant takes possession of the leased property or 90 days after the broker's commission is due, whichever is later. In addition, a broker must begin judicial foreclosure proceedings within six months after a lien is recorded.

Broker's liens will be subordinate to all valid prior recorded liens, mortgages and encumbrances. In addition, the broker's lien only relates back to the date on which the lien was recorded, not the date of the listing or other agreement between owner and broker.

While the Broker Security Act may substantially change the relationship between commercial property owners and brokers, a majority of states have enacted some form of broker lien law. There will likely be a period of uncertainty as Colorado's commercial real estate community and courts learn and interpret the new law, but within a few short months or years, the Act will be part of business as usual.