By: Wentworth S.B. No. 573 A BILL TO BE ENTITLED AN ACT 1-1 relating to creating a commercial real estate broker's lien. 1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-3 SECTION 1. Subtitle B, Title 5, Property Code, is amended by 1-4 adding Chapter 62 to read as follows: 1-5 CHAPTER 62. BROKER'S LIEN ON COMMERCIAL REAL ESTATE 1-6 SUBCHAPTER A. GENERAL PROVISIONS 1-7 Sec. 62.001. SHORT TITLE. This chapter may be cited as the 1-8 Broker's Lien on Commercial Real Estate Act. 1-9 Sec. 62.002. APPLICABILITY. This chapter applies only to 1-10 real estate that is commercial real estate on the date the notice 1-11 of lien is filed under this chapter. If real estate is zoned or 1-12 restricted for more than one use, the broker's lien attaches only 1-13 to the commercial portion of the real estate. 1-14 Sec. 62.003. DEFINITIONS. In this chapter: 1-15 (1) "Broker" means a person who: 1-16 (A) is licensed as a real estate broker under 1-17 The Real Estate License Act (Article 6573a, Vernon's Texas Civil 1-18 Statutes) and is not acting as a residential rental locator as 1-19 defined by Section 24, The Real Estate License Act (Article 6573a, 1-20 Vernon's Texas Civil Statutes); or 1-21 (B) is licensed or certified as a real estate 1-22 appraiser under the Texas Appraiser Licensing and Certification Act 1-23 (Article 6573a.2, Vernon's Texas Civil Statutes). 2-1 (2) "Commercial real estate" means all real estate 2-2 except: 2-3 (A) real estate improved with one to four 2-4 residential units; 2-5 (B) a single-family residential unit, including 2-6 a condominium, townhouse, or home in a subdivision, if the unit is 2-7 sold, leased, or otherwise conveyed on a unit-by-unit basis and 2-8 regardless of whether the unit is part of a larger building or 2-9 located on real estate containing more than four residential units; 2-10 (C) real estate that is a person's homestead; or 2-11 (D) real estate that is not improved with a 2-12 structure and is: 2-13 (i) zoned for single-family residential 2-14 use; or 2-15 (ii) restricted for single-family use 2-16 under restrictive covenants that provide that the restrictive 2-17 covenants are to remain in effect for at least 20 years after the 2-18 date the notice of lien is filed and recorded in the county in 2-19 which the real estate is located. 2-20 (3) "Commission" includes a fee or other valuable 2-21 consideration. 2-22 (4) "Commission agreement" means a written instrument 2-23 that: 2-24 (A) entitles a broker to a commission; 2-25 (B) is signed by the person obligated to pay the 3-1 commission or the person's authorized agent; 3-2 (C) references the commission amount or 3-3 describes the formula used to determine the commission amount; and 3-4 (D) contains a description legally sufficient 3-5 for identification of the real estate that is the subject of the 3-6 agreement. 3-7 (5) "Future commission" means a commission based on 3-8 the occurrence of a future event, including a commission for: 3-9 (A) the exercise of an option to expand leased 3-10 premises, renew or extend a lease, or purchase real estate; 3-11 (B) the execution of a new lease; 3-12 (C) the expiration of a period of time; or 3-13 (D) any other future event specified in a 3-14 commission agreement. 3-15 (6) "Real estate" has the meaning assigned by Section 3-16 2, The Real Estate License Act (Article 6573a, Vernon's Texas Civil 3-17 Statutes). 3-18 (Sections 62.004-62.020 reserved for expansion 3-19 SUBCHAPTER B. BROKER'S LIEN 3-20 Sec. 62.021. PERSON ENTITLED TO LIEN. (a) If a broker is 3-21 entitled to a commission under a commission agreement signed by the 3-22 owner of commercial real estate or the owner's authorized agent, 3-23 the broker has a lien on the commercial real estate in the amount 3-24 specified by the commission agreement. 3-25 (b) If a broker is entitled to a commission under a 4-1 commission agreement signed by a prospective buyer of commercial 4-2 real estate or the prospective buyer's authorized agent, the broker 4-3 has a lien on the interest, if any, of the commercial real estate 4-4 that the prospective buyer purchases in the amount specified by the 4-5 commission agreement. 4-6 (c) If a broker is entitled to a commission under a 4-7 commission agreement signed by a prospective tenant of commercial 4-8 real estate or the prospective tenant's authorized agent, the 4-9 broker has a lien on the interest, if any, of the commercial real 4-10 estate that the prospective tenant leases in the amount specified 4-11 by the commission agreement. 4-12 (d) A lien described by this section is available only to 4-13 the broker named in the commission agreement. The lien is not 4-14 available to an employee or independent contractor of the broker. 4-15 (e) The broker's right to claim a lien based on the 4-16 commission agreement must be disclosed in the commission agreement. 4-17 Sec. 62.022. WAIVER OR RELEASE. The waiver of a broker's 4-18 entitlement to a lien under this chapter or the release of a lien 4-19 given for the purpose of releasing a broker's lien before the 4-20 commission is satisfied or forgiven is void. 4-21 Sec. 62.023. FILING OF NOTICE OF LIEN. (a) A broker 4-22 claiming a lien under this chapter must file a notice of lien as 4-23 provided by Subchapter C with the county clerk of the county in 4-24 which the commercial real estate is located. 4-25 (b) The county clerk shall record the notice of lien in 5-1 records kept for that purpose and shall index and cross-index the 5-2 notice of lien in the names of the broker and the owner of the 5-3 interest in the real estate on which the lien is claimed. 5-4 Sec. 62.024. CONTENTS OF NOTICE OF LIEN. The notice of lien 5-5 must be signed by the broker or by a person authorized to sign on 5-6 behalf of the broker and must contain the following: 5-7 (1) a sworn statement of the claim, substantially 5-8 including the commission amount or the formula used to determine 5-9 the commission amount and the date or the occurrence of the event 5-10 when the commission is due; 5-11 (2) the name of the broker and the real estate license 5-12 number of the broker; 5-13 (3) substantially the name of the owner and any other 5-14 person who the broker knows is obligated to pay the commission; 5-15 (4) a description legally sufficient for 5-16 identification of the commercial real estate sought to be charged 5-17 with the lien; 5-18 (5) a description of the interest in the commercial 5-19 real estate sought to be charged with the lien; and 5-20 (6) a copy of the applicable commission agreement. 5-21 Sec. 62.025. NOTICE OF FILING. (a) Not later than one 5-22 business day after the date the broker files a notice of lien, the 5-23 broker shall mail a copy of the notice of lien by certified mail, 5-24 return receipt requested, or registered mail to: 5-25 (1) the owner of record of the interest in the 6-1 commercial real estate on which the lien is claimed or the owner's 6-2 authorized agent; and 6-3 (2) the prospective purchaser or tenant and any escrow 6-4 agent named in a contract for the sale or lease of the interest in 6-5 the commercial real estate on which the lien is claimed if: 6-6 (A) a binding written contract for the sale or 6-7 lease of the interest of the commercial real estate on which the 6-8 lien is claimed is in effect between the owner and the prospective 6-9 purchaser or tenant in a transaction that is the basis for the 6-10 commission; and 6-11 (B) the binding written contract in the 6-12 transaction that is the basis for the commission is executed by the 6-13 owner and prospective purchaser or tenant before the date the 6-14 notice of lien is filed. 6-15 (b) Service of the notice under this section is complete 6-16 when the notice is deposited in the United States mail, postage 6-17 prepaid, and addressed to the persons entitled to receive the 6-18 notice under this section. 6-19 Sec. 62.026. INCEPTION OF BROKER'S LIEN. A broker's lien 6-20 attaches to the interest in the commercial real estate owned by the 6-21 person obligated to pay the commission on the date the notice of 6-22 lien is recorded as provided by this chapter. The lien does not 6-23 relate back to the date of the commission agreement. A notice of 6-24 lien for amounts due to the broker under an installment contract or 6-25 under a commission agreement for a future commission is enforceable 7-1 only to the extent that the installment or future commission is 7-2 due. 7-3 Sec. 62.027. PRIORITY. (a) A recorded lien, mortgage, or 7-4 other encumbrance, including a recorded lien securing revolving 7-5 credit and future advances for a construction loan, recorded before 7-6 the date a broker's lien is recorded has priority over the broker's 7-7 lien. A broker's lien against the interest of a person owing the 7-8 commission is not valid or enforceable against a grantee, 7-9 purchaser, lessee, or transferee of an interest in the commercial 7-10 real estate from the person owing the commission if the deed, 7-11 lease, or instrument transferring the interest is recorded before 7-12 the broker's lien is recorded. 7-13 (b) A mechanic's lien that is recorded after a broker's lien 7-14 and that relates back to a date before the date the broker's lien 7-15 is recorded has priority over the broker's lien. 7-16 Sec. 62.028. SUBORDINATION. (a) If the owner of the 7-17 commercial real estate sells the commercial real estate, the 7-18 broker's lien is subordinate to a recorded purchase-money first 7-19 lien authorized by the purchaser if the purchaser: 7-20 (1) executes and files with the county clerk of the 7-21 county in which the broker's lien is filed a memorandum that 7-22 evidences the purchaser's ratification of the broker's lien and the 7-23 purchaser's assumption of the obligation to pay the broker the 7-24 commission as provided by the commission agreement that is the 7-25 basis for the lien; and 8-1 (2) sends the broker, by certified mail, return 8-2 receipt requested, or registered mail, a copy of the recorded 8-3 memorandum required by this subsection. 8-4 (b) If the owner of the commercial real estate refinances a 8-5 recorded first lien secured by the commercial real estate, the 8-6 broker's lien is subordinate to the recorded refinanced first lien, 8-7 regardless of the amount of the first lien after refinancing, if 8-8 the owner: 8-9 (1) executes and files with the county clerk of the 8-10 county in which the broker's lien is filed a memorandum that 8-11 evidences the owner's ratification of the broker's lien and the 8-12 owner's obligation to pay the broker the commission as provided by 8-13 the commission agreement that is the basis for the lien; and 8-14 (2) sends the broker, by certified mail, return 8-15 receipt requested, or registered mail, a copy of the recorded 8-16 memorandum required by this subsection. 8-17 (c) If the owner of the commercial real estate obtains an 8-18 extension of credit secured by the commercial real estate, the 8-19 broker's lien is subordinate to the lien securing the extension of 8-20 credit if, according to the lien documents, the extension of credit 8-21 is made only for the purpose of: 8-22 (1) repairing or renovating the commercial real 8-23 estate; or 8-24 (2) completing construction or providing additional 8-25 improvements as requested by a tenant leasing the commercial real 9-1 estate. 9-2 Sec. 62.029. CHANGE IN USE OF REAL ESTATE. (a) Except as 9-3 provided by Subsection (b), any change in the use of the real 9-4 estate does not affect a broker's lien if the notice of the lien 9-5 was filed when the real estate was commercial real estate. 9-6 (b) The broker's lien is extinguished if: 9-7 (1) not later than the 180th day after the date on 9-8 which the broker's commission is due, the commercial real estate on 9-9 which a broker claims a lien is zoned for single-family use or 9-10 restricted for single-family use under recorded restrictive 9-11 covenants that provide that the restrictive covenants are to remain 9-12 in effect for at least 20 years; and 9-13 (2) the zoning or restrictive covenants for 9-14 single-family use are effective for at least two years after the 9-15 date the commission is due. 9-16 (Sections 62.030-62.040 reserved for expansion 9-17 SUBCHAPTER C. TIME FOR FILING NOTICE OF LIEN 9-18 Sec. 62.041. TIME TO FILE. (a) Except as provided by 9-19 Subsection (b), a broker must record a notice of lien: 9-20 (1) after the commission agreement is signed by the 9-21 person who is obligated to pay the commission or the person's 9-22 authorized agent; and 9-23 (2) before the conveyance of the commercial real 9-24 estate on which the broker is claiming a lien. 9-25 (b) If the lien is based on a lease transaction, the broker 10-1 must record a notice of lien before: 10-2 (1) the 91st day after the date the event for which 10-3 the commission becomes payable occurs; and 10-4 (2) the date that the person who is obligated to pay 10-5 the commission records the future conveyance of the interest in the 10-6 commercial real estate on which the lien is claimed. 10-7 (Sections 62.042-62.060 reserved for expansion 10-8 SUBCHAPTER D. ENFORCEMENT OF LIEN 10-9 Sec. 62.061. SUIT TO FORECLOSE LIEN. (a) A broker may 10-10 bring suit to foreclose a lien in any district court for the county 10-11 in which the commercial real estate is located by filing a sworn 10-12 complaint stating that the notice of lien has been recorded. 10-13 (b) A complaint in a suit filed under this section must 10-14 contain: 10-15 (1) a brief description of the commission agreement 10-16 that is the basis for the lien, including a description of the 10-17 disclosure of the broker's right to the lien contained in the 10-18 commission agreement; 10-19 (2) the date on which the commission agreement was 10-20 executed; 10-21 (3) a description of the services performed by the 10-22 broker; 10-23 (4) the amount due and unpaid; 10-24 (5) a description of the commercial real estate to 10-25 which the lien attaches; and 11-1 (6) other facts necessary for a full understanding of 11-2 the rights of the parties. 11-3 (c) The broker must include as a defendant in a suit brought 11-4 under this subchapter each person whom the broker knows to have an 11-5 interest in the commercial real estate that is subordinate to or 11-6 encumbered by the broker's lien. 11-7 (d) If the broker and a person against whom the broker 11-8 claims a commission use alternative dispute resolution procedures 11-9 to resolve a dispute concerning entitlement to the broker's 11-10 commission, the broker's lien remains valid, and any suit to 11-11 foreclose the lien is stayed until the alternative dispute 11-12 resolution process is completed. 11-13 Sec. 62.062. STATUTE OF LIMITATIONS. (a) Except as 11-14 provided by this section, a broker claiming a lien under this 11-15 chapter must bring a suit to foreclose the lien on or before the 11-16 second anniversary of the date the notice of lien is recorded. 11-17 (b) A broker claiming a lien to collect a future commission 11-18 must bring a suit to foreclose the lien on or before the second 11-19 anniversary of the date on which the commission is due. 11-20 (c) A broker claiming a lien for a commission that is due 11-21 must bring a suit to foreclose the lien not later than the 30th day 11-22 after the date the broker receives a written demand to bring a suit 11-23 to foreclose the lien from the owner of the interest in the 11-24 commercial real estate on which the lien is claimed. 11-25 (d) If a suit to foreclose the lien is not brought within 12-1 the time required by this section, the lien is void. 12-2 (e) A broker claiming a lien to collect a commission must 12-3 bring suit to foreclose the lien on or before: 12-4 (1) the 10th anniversary of the date the lien is 12-5 recorded; or 12-6 (2) the 10th anniversary of the date the broker 12-7 records a subsequent notice of lien as a renewal of the broker's 12-8 entitlement to the lien. 12-9 Sec. 62.063. ASSESSMENT OF COSTS, FEES, AND INTEREST. The 12-10 prevailing party in a suit brought under this subchapter is 12-11 entitled to court costs, reasonable attorney's fees, and 12-12 prejudgment interest. 12-13 (Sections 62.064-62.080 reserved for expansion 12-14 SUBCHAPTER E. RELEASE OF LIEN 12-15 Sec. 62.081. RELEASE OF LIEN. (a) When a debt that is the 12-16 basis for a lien under this chapter is satisfied, the broker shall, 12-17 not later than the fifth day after the date the broker receives a 12-18 written request from the owner of the interest in the commercial 12-19 real estate on which the lien is claimed, furnish to the owner a 12-20 release of indebtedness and any lien claimed to the extent of the 12-21 indebtedness paid. 12-22 (b) When a condition occurs that would preclude the broker 12-23 from receiving compensation under the terms of the commission 12-24 agreement that is the basis for the lien, the broker shall, not 12-25 later than the 10th day after the date the broker receives a 13-1 written request from the owner of the interest in the commercial 13-2 real estate on which the lien is claimed, furnish to the owner a 13-3 release of indebtedness and any lien claimed. 13-4 (c) A release of lien must be in a form that permits the 13-5 instrument to be filed of record. 13-6 (Sections 62.082-62.100 reserved for expansion 13-7 SUBCHAPTER F. ESCROW OF DISPUTED AMOUNTS 13-8 Sec. 62.101. ESCROW ACCOUNT. (a) If a claim for a lien 13-9 described by this chapter is not paid or assumed at the closing of 13-10 a sale, lease, or mortgage of the commercial real estate subject to 13-11 the lien and would prevent the closing of the transaction or 13-12 conveyance, the person named in the notice of lien as obligated to 13-13 pay the commission shall establish an escrow account from the 13-14 proceeds of the transaction or conveyance in an amount sufficient 13-15 to satisfy the lien and related costs for any interpleader action 13-16 brought by the person maintaining the escrow account. Related 13-17 costs for any interpleader action may be deducted from the escrow 13-18 account by the person maintaining the escrow account. If an escrow 13-19 agent is named in the contract on which the transaction or 13-20 conveyance is based, the escrow account shall be established with 13-21 the named escrow agent. 13-22 (b) A party may not refuse to close a transaction because of 13-23 the requirement to establish an escrow account as provided by this 13-24 section provided that the broker executes and delivers a release of 13-25 the broker's lien in a recordable form for the amount of the 14-1 commission that is due. 14-2 (c) The amount held in escrow shall be held in escrow until: 14-3 (1) the rights of the parties claiming the amount in 14-4 escrow are determined by a written agreement of the parties, a 14-5 court of law, or an alternative dispute resolution process agreed 14-6 to by the parties; 14-7 (2) the broker's lien is no longer enforceable; or 14-8 (3) the funds are interpled into a court of competent 14-9 jurisdiction. 14-10 (d) When the escrow account is established under this 14-11 section, the broker's lien against the commercial real estate is 14-12 extinguished and becomes a lien on the proceeds in the escrow 14-13 account. 14-14 SECTION 2. This Act takes effect September 1, 1997. The 14-15 change in law made by this Act applies only to an agreement to 14-16 compensate a licensed real estate broker that is entered into on or 14-17 after the effective date of this Act. 14-18 SECTION 3. The importance of this legislation and the 14-19 crowded condition of the calendars in both houses create an 14-20 emergency and an imperative public necessity that the 14-21 constitutional rule requiring bills to be read on three several 14-22 days in each house be suspended, and this rule is hereby suspended.