A lien is a recorded claim against a property that serves as a record of an alleged debt owed. By recording a lien, lien holder’s put others on notice of their potential claim against the property. While some liens are common and benign, such as a mortgage liens or deeds of trust, other liens are far less desirable and can impede the sale of the property. We have covered mechanic’s and materialmen’s liens, however, another type of lien that is undesirable are liens executed by commercial brokers.
Property owners often employ commercial real estate brokers to assist with the lease or sale of commercial real property. These brokers can acquire lien rights for their commission amount once these terms are met:
- There is a written agreement establishing the commission or compensation of the broker with clear notice that lien rights might arise if the owner fails to pay.
- The broker finds a tenant or entity who is willing and able to sign an acceptable lease agreement with the property owner.
- The broker complies with the requirements of the lien process.
- All payment conditions are satisfied as detailed in the written compensation agreement.
If you are a broker or a property owner, you should be familiar with this type of lien and its impacts. Don’t overlook these three important aspects of commercial liens in Arizona before closing day; and see also Arizona Revised Statutes 33-1071 for guidance and specifics on how to execute a commercial real estate broker lien.
Brokers Must Submit Preliminary Notice Of Intent To Lien
The broker must submit a “Broker’s Preliminary Notice of Intent to Lien” to the county recorder’s office, and to the owner of the real property, at least 15 days before the tenant takes possession of the leased premises. This notice of due compensation must include the following: the broker’s name, address and real estate license number; the property owner’s name, address and real property interest; the amount of the lien; the property description and address; and a signed authorization statement that the contents of the lien are true. As mentioned above, please see ARS 33-1072 and 1073 to ensure full compliance, as this intended only to be a short guide and some additional minor formalities exist.
Commercial Brokers Can Foreclose On Liened Property
Generally, mechanics’ and materialmen’s lien rights take a higher priority than commercial broker liens. However, brokers can still enforce their liens by foreclosing on the property, per ARS 33-1074. This makes a commercial broker’s lien similar to a mortgage.
Brokers have two years from the date the lien is recorded to take action to enforce the lien, after which the lien is no longer valid. A notice of pendency must be submitted within five days of action being taken. Costs and reasonable attorney fees are awarded to the prevailing party in the foreclosure action.
Certain Property Is Not Subject To Commercial Broker Liens
There are rare instances in which real property is not subject to brokers’ liens:
- “The real property is conveyed to a bona fide purchaser for value before the recordation of a broker’s preliminary notice of intent to lien.”
- “It is encumbered by a bona fide lender for value before the recordation of a broker’s preliminary notice of intent to lien.”
- It is residential property with fewer than five units.
- The property has single family units (mobile or manufactured homes, condominiums, etc.) that are sold individually.
Regardless of the type of commercial property, experienced real estate attorneys should search the legal chain of title for any existing liens or other encumberments of the property left behind by previous owners.
Find An Experienced Phoenix Real Estate Attorney
If you are involved in a dispute about property liens, having experienced legal representation is critical. The most economical approach for prospective property owners is to work with a legal team that can evaluate your situation and break down the best approach to the case. MacQueen & Gottlieb has significant experience with Arizona real estate law and completing quiet title actions to make sure clear title is established. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.