The Mechanics of the New Commercial Real Estate Broker Lien Law ~ SB 1500

Posted on May 2, 2001 by Michelle Lind

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On April 27, 2001, Governor Hull signed SB 1500, which grants commercial real estate brokers the right to file a lien for unpaid leasing commissions.* Senator Elaine Richardson sponsored SB 1500 at the request of the Arizona Association of REALTORS® (“AAR”). AAR Lobbyist Tom Farley, member Tim Hatlestad of RE/MAX Commercial Investment, and numerous others worked with the Legislature to reach a consensus on this legislation. This article will discuss the mechanics of the commercial real estate broker lien law.

*The law will be codified at A.R.S. §33-1071 et.seq. A copy of SB 1500 is available at the Arizona Legislative website:www.azleg.state.az.us/legtext/45leg/1r/bills/sb1500h.pdf

An employing broker acquires lien rights when the broker has produced a tenant pursuant to a written agreement with the property owner [A.R.S. §33-1071]

A commercial real estate “employing broker” (the corporation, LLC, partnership or sole proprietorship) (hereinafter “broker”) acquires lien rights in a property owner’s real property for the amount of compensation the owner agreed to pay for the broker’s lien services in the lease or rental of the real property when:

  1. There is a written agreement between the broker and the property owner providing for the payment of a commission or other compensation, which discloses (above the portion of the agreement calling for the owner’s signature) that the owner’s failure to pay may give rise to lien rights.
  2. The broker produces a ready, willing and able tenant for the owner’s property on the terms of the written agreement or terms otherwise acceptable to the owner, as evidenced by a written agreement or terms otherwise acceptable to the owner, as evidenced by a written instrument signed by the owner.
  3. The broker complies with all of the notices and other requirements of the statute (discussed below).
  4. All the conditions for payment of the commission in the written agreement are satisfied.

A broker’s Preliminary Notice of Intent to Lien must be recorded [A.R.S. §33-1072(c)]

No later than fifteen days before the tenant takes possession of the leased premises, the broker must record a “Broker’s Preliminary Notice of Intent to Lien” (“Preliminary Notice”) at the county recorder’s office. The broker must also deliver a copy of the Preliminary Notice, personally or by mail, to the Owner and any escrow agent involved in the transaction. The Preliminary Notice must state that the broker is entitled to compensation under the terms of the written agreement with the owner and that the broker intends to claim a lien on the property. The Preliminary Notice must also contain all the information required to be included in the actual lien notice, which is discussed in detail below. The broker’s lien rights are extinguished if the broker fails to record the Preliminary Notice.

The lien attaches when recorded [A.R.S. §33-1072(A-B)]

The lien attaches to the property when the broker produces a ready, willing and able tenant on the terms agreed upon with the owner and records a “Notice of Commercial Real Estate Broker Lien” (“Lien Notice”) at the county recorder’s office. The Lien Notice must be recorded within 90 days after the tenant takes possession of the property. The lien is perfected upon recording.

Required contents of the Lien Notice [A.R.S. §33-1073]

The Lien Notice should be entitled “Notice of Commercial Real Estate Broker Lien” and must contain:

  1. The name and address of the broker’s principal place of business
  2. The broker’s real estate license number
  3. The name and mailing address of the property owner
  4. The real property interest of the property owner
  5. The amount of the lien
  6. The legal description of the property
  7. The street address of the property
  8. The broker’s statement that compensation is due to the broker
  9. A notarized statement by the broker that the contents of the Lien Notice are true and accurate

The use of the words “unknown” or “not available” or similar terms in the Lien Notice, in lieu of the above information, will invalidate the lien.

The priority of the lien [A.R.S. §33-1071(B)(C)]

The usual rules of lien priority generally apply to the commercial real estate broker lien. However, the following liens have express priority over the commercial broker’s real estate lien:

  1. Mechanic and materialmen’s liens
  2. Consensual liens, mortgages and deeds of trust recorded prior to the broker’s Preliminary Notice

The lien may be foreclosed like a mortgage [A.R.S. §33-1074]

The commercial real estate broker lien may be foreclosed by a superior court action as if the lien were a mortgage. The foreclosure action must be brought within two years after recordation of the lien. A notice of lis pendens, pursuant to A.R.S. §12-1191, must be recorded within five days after filing the foreclosure action. The prevailing party in the foreclosure action shall be awarded costs and reasonable attorney fees.

A satisfaction of lien must be filed within thirty days after payment [A.R.S. §33-1075(A)]

The broker must record a satisfaction of lien within thirty days after being paid. The form of lien satisfaction required is detailed in A.R.S. §11-480. If the broker fails to record a satisfaction of lien within thirty days, the broker is subject to the penalties of A.R.S. §33-712: $1,000 and any actual damages.

Lien waivers are required under certain circumstances [A.R.S. §33-1075(B)(C)(D)]

The broker must provide the owner with a “Waiver and Release of Claim of Lien” that extinguishes the broker’s lien rights, in the form set forth in the statute:

  1. Within thirty days after satisfaction of a broker’s claim of lien, if the broker is paid before recording a Lien Notice.
  2. Within ten days after receipt of a written request of the owner and if the broker fails to record a Lien Notice within the ninety days after the tenant took possession of the premises.

If the broker fails to provide the waiver, the broker is subject to the penalties provided for in A.R.S. §33-712: $1,000 and any actual damages.

Bonding over the lien [A.R.S. §33-1076]

An owner or any other person with a legal or equitable interest in the property, a mortgagee, or other lien creditor, may record a surety bond in the form described in the statute, in the amount of one and one-half times the amount due to the broker, for the payment of the judgment that would be rendered against the property for enforcement of the lien. A power of attorney disclosing the authority of the person executing the bond on behalf of the surety must also be recorded. Upon recordation of the bond, the property is discharged of the lien.

Certain real property is not subject to the commercial real estate broker lien [A.R.S. §33-1071(D)(E)]

The following property is not subject to a commercial real estate broker lien:

  1. Property conveyed to a bona fide purchaser for value before the broker records the Preliminary Notice
  2. Property encumbered by a bona fide lender for value before the broker records the Preliminary Notice
  3. Residential property with fewer than five residential units
  4. Property on which single family mobile home lots, manufactured housing lots, residences or condominiums are sold by unit

Existing penalties for filing a groundless lien [A.R.S. §33-420]

There is existing law that imposes significant penalties for filing a groundless lien. A person recording a lien knowing or having reason to know that the lien is forged, groundless, contains a material misstatement or false claim, or is otherwise invalid, is guilty of a class 1 misdemeanor, and is liable to the owner for $5,000 or treble the actual damages caused, whichever is greater; and the attorney’s fees and costs of the action. A property owner may file a special action lawsuit to immediately remove the groundless lien, in addition to the claim for damages.

Michelle Lind

Bio:

AAR Chief Executive Officer Michelle Lind is a State Bar of Arizona board-certified real estate specialist and the author of Arizona Real Estate: A Professional’s Guide to Law & Practice. This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

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