THE OBSCURE COMMERCIAL REAL ESTATE BROKER’S LIEN ACT
Many commercial real estate brokers and commercial property owners are unaware of a provision in the Virginia Code that allows a broker to record a lien for unpaid leasing commissions against the owner’s property. The Commercial Real Estate Broker’s Lien Act (the “Act”), which is codified as Virginia Code §55-526 and -527, can be a tremendous tool for brokers, and a tremendous headache for property owners.
In order to record the lien, the broker must have a written agreement signed by the owner for the payment of a leasing commission. This requirement applies to both the landlord’s broker and to the tenant’s broker. The lien is perfected by recording a memorandum of the lien in the clerk’s office of the circuit court of the county/city where the commercial real estate is located. The Act contains strict requirements as to what information must be included in the memorandum, and failure to strictly comply with the requirements can result in the filing of an invalid lien. Furthermore, the Act does not apply to residential properties.
Unlike some other liens in Virginia, the broker’s lien is not automatically created upon the occurrence of the transaction that gives rise to the lien (i.e. the execution of the lease). It only exists if the broker actually records the lien memorandum. In addition, unlike certain other liens in Virginia (e.g. mechanic’s liens), the lien does not expire if the broker fails to file a lawsuit to enforce the lien within a stated period of time. As such, the lien can remain a cloud on the owner’s title for an extensive period of time, without the requirement that the broker file suit for breach of the lease commission agreement. The broker must release the lien when the commission is settled/paid. If the owner denies that the commission is owed, the owner can petition the Circuit Court to remove the lien (thereby opening the door for potentially expensive litigation).
Interestingly, the existing four paragraph Act is quite brief and does not provide any parameters to control the process of enforcing the lien. Effective October 1, 2019, the Act will be repealed and replaced with Virginia Code §55.1-1101, but the new statute contains mostly minor grammatical alterations. As such, and continuing indefinitely into the future, the ability to record a lien remains an effective tool for brokers that are not paid leasing commissions. Property owners should be aware of this tool, and should take careful measures to enter into lease commission agreements that are exceedingly clear with respect to (a) when and how leasing commissions will be paid, and (b) how leasing commissions will be calculated.
GRDD Law wishes to thank renowned real estate broker/negotiator, Pauline Thompson, for inspiring this Article.