Ohio’s Broker Lien Law
For commercial real estate practitioners, it is important to understand how Ohio’s Broker Lien Law operates. An understanding of the process of obtaining, perfecting and foreclosing a lien could mean the difference between getting paid or not in what oftentimes is a lucrative transaction.
The Basics. Only an Ohio licensed real estate broker has lien rights. The property that is the subject of the transaction and upon which the lien is sought to be filed must be commercial property. This means any parcel of real estate in this state other than real estate containing one to four residential units. Thus single-family residential units such as condominiums, townhouses, manufactured homes, or homes in a subdivision when sold, leased, or otherwise conveyed on a unit-by-unit basis are excluded. The broker must have a signed written contract for services with the owner or owner’s agent for the commercial property at issue. For example, if you represent a buyer of commercial property, in order to protect your right to a lien under the Broker Lien Law, you must have a signed written compensation agreement (or contract for services) with the owner and/or the owner’s agent of that commercial property. No signed agreement, no lien.
The amount of the lean for a lease is limited to the amount due the broker pursuant to the contract for services. The statute provides that if the amount due is payable in installments (i.e. first payment due at lease signing, second due after first 12 months, etc.), the amount of the lien is the amount of all installment payments over the life of the contract less any payments made prior to owner’s default in payment.
The amount of the lean for a sale is limited to the amount due the broker pursuant to the contract for services. For example, if the contract for services is 1.5% of a $5,000,000 sale price, the amount of the lien would be the $75,000.00.
The Lien Affidavit. The Ohio Broker Lien Law provides that the affidavit must include the following:
- The name of the broker who has the lien,
- the name of the owner of the lien property,
- a legal description of the lien property,
- the amount for which the lien is claimed,
- the date and a summary of the written contract on which the lien is based,
- the real estate license number of the broker,
- broker’s attestation.
Perfection. If you’ve met all of the requirements set forth above, the next step will be to perfect the broker’s lien. Perfection occurs when the broker becomes entitled to the fee or commission under the contract for services. The broker must (i) record the lien affidavit with the county recorder for the county in which the property that is the subject of the lien is located, and (ii) provide a copy of the lien affidavit to the owner and any known prospective transferees.
Timing is a critical element of perfecting your broker’s lien. Ohio law provides for different timing requirements depending on the type of transaction at issue. In a sale transaction where the buyer is to pay the commission, the broker must record the lien within 90 days of closing. Conversely, when the seller is to pay the commission, the lien affidavit must be recorded prior to the conveyance of the property. In a lease transaction, the broker must record the lien affidavit within 90 days of the owner’s default on payment of fees due under the contract for services.
Enforcement. To enforce a broker’s lien, the broker must file a lawsuit in the common pleas court in the county where the lien was recorded and property is located. The broker has 2 years from the date the lien was recorded to file the lawsuit. Alternatively, the owner may demand the broker commence a lawsuit and if the broker fails to do so within 28 days, the lien is extinguished. In the lawsuit, the broker must name as defendants every person or entity that the broker has knowledge of that has a legal or equitable interest in the lien property.
Attorney’s Fees & Broker Liability. Ohio law permits the Court to award attorney’s fees to the prevailing party. Additionally, a broker may be held liable to the owner for damages for improper liens.
If your practice includes commercial real estate, Ohio’s Broker Lien Law may assist you in compelling payment of your commission. I recommend you pay close attention to the statutory requirements, as any misstep could invalidate your lien and commission claim. If necessary, your local bar association may be a useful resource to obtain legal assistance in pursuing your commission through the Broker Lien Law.