Rhode Island Follows Suit with Passage of the Commercial Real Estate Broker Lien Act

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There has been an emerging trend over the past few years to give commercial real estate brokers rights to liens on seller and purchaser’s commercial real estate for services performed.  Rhode Island is the most recent state to follow suit with passage on June 5, 2013 of the Rhode Island Commercial Real Estate Broker Lien Act (the “Act”).  The Act is effective on the date of enactment applying only to claims for compensation based on a written listing agreement executed on or after June 5, 2013.  There is no requirement under the Act for a broker to include lien rights in its listing agreement.

The Act creates a lien on commercial real estate but has limiting provisions that must be followed to perfect the broker’s lien.  For purposes of the Act, “commercial real estate” is defined as real estate other than that containing one to four residential units, vacant land, real estate zoned for single family residential use, single family residential units such as condominiums, or homes singly or in a subdivision when sold, leased or otherwise conveyed on a unit by unit basis, even though these units may be part of a larger building or parcel of real estate containing more than four residential units (the “Real Estate”).

The lien attaches to the Real Estate upon the broker being entitled to compensation under a written agreement, and the recording of a notice of lien  (the “Lien”) in the land record office of the city or town in which the Real Estate or any interest therein is located, prior to the recording of an instrument of conveyance or transfer of legal title to the Real Estate by a party from whom compensation is claimed. If this timing prerequisite is not met, then the Lien is void.  However the Act does contain exceptions to the timing of the recording of the Lien.

One example is whenever future compensation is involved as a lease renewal or extension. The Lien may then be recorded at any time after the execution of the lease, but in no event later than ninety (90) days after the occurrence of the act or event on which the future compensation is claimed.  If the Real Estate is sold prior to the date on which a future commission is due and the broker has a validly recorded lien, a purchaser or transferee will take the Real Estate subject to the Lien.

In order to perfect the Lien, the broker must serve notice of the Lien upon the owner within ten (10) days of recording.  Additionally, a complaint must be filed in Superior Court and Lis Pendens recorded within two (2) years of the recording of the Lien or the transfer of the Real Estate under a purchase option. Failure to meet these crucial deadlines results in the broker’s lien being voided.

Compensation under the Act is defined comprehensively as including fees, commissions and any and all compensation due to a broker for performance of licensed services, as defined under state law.  This definition should minimize litigation.

Real estate owners are afforded protections.  The Act specifies that a Lien must be released upon written demand if the broker is not entitled to compensation, the Lien is satisfied, or there is failure to institute a suit to enforce the Lien.  One flaw in the Act is that it does not set penalties for failure to do so.  It is this writer’s recommendation that the law be amended to include a single penalty such as a large fine as the common law slander of title remedy is both costly and time consuming to pursue.  Another available remedy for owners is the ability to make demand that a broker fee complaint be filed within thirty (30) days.  The broker’s failure to do so extinguishes the Lien.  The Act also allows for establishment of escrows for payment of compensation thereby avoiding a closing delay.

Finally, it should be noted that the Act does not preclude other statutory or common law remedies available to real estate brokers; however, the Act does provide an important new tool for brokers eager to get paid for their work.

Topics:  Brokers, Commercial Real Estate Market, Liens, New Legislation, Recording Requirements

Published In: Civil Remedies Updates, General Business Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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