1-1 By: Wentworth S.B. No. 573 1-2 (In the Senate - Filed February 12, 1997; February 18, 1997, 1-3 read first time and referred to Committee on State Affairs; 1-4 April 11, 1997, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 13, Nays 0; April 11, 1997, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 573 By: Carona 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to creating a commercial real estate broker's lien. 1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-12 SECTION 1. Subtitle B, Title 5, Property Code, is amended by 1-13 adding Chapter 62 to read as follows: 1-14 CHAPTER 62. BROKER'S LIEN ON COMMERCIAL REAL ESTATE 1-15 SUBCHAPTER A. GENERAL PROVISIONS 1-16 Sec. 62.001. SHORT TITLE. This chapter may be cited as the 1-17 Broker's Lien on Commercial Real Estate Act. 1-18 Sec. 62.002. APPLICABILITY. This chapter applies only to 1-19 real estate that is commercial real estate on the date the notice 1-20 of lien is filed under this chapter. If real estate is zoned or 1-21 restricted for more than one use, the broker's lien attaches only 1-22 to the commercial portion of the real estate. 1-23 Sec. 62.003. DEFINITIONS. In this chapter: 1-24 (1) "Broker" means a person who: 1-25 (A) is licensed as a real estate broker under 1-26 The Real Estate License Act (Article 6573a, Vernon's Texas Civil 1-27 Statutes) and is not acting as a residential rental locator as 1-28 defined by Section 24, The Real Estate License Act (Article 6573a, 1-29 Vernon's Texas Civil Statutes); or 1-30 (B) is licensed or certified as a real estate 1-31 appraiser under the Texas Appraiser Licensing and Certification Act 1-32 (Article 6573a.2, Vernon's Texas Civil Statutes). 1-33 (2) "Commercial real estate" means all real estate 1-34 except: 1-35 (A) real estate improved with one to four 1-36 residential units; 1-37 (B) a single-family residential unit, including 1-38 a condominium, townhouse, or home in a subdivision, if the unit is 1-39 sold, leased, or otherwise conveyed on a unit-by-unit basis and 1-40 regardless of whether the unit is part of a larger building or 1-41 located on real estate containing more than four residential units; 1-42 (C) real estate that is a person's homestead; or 1-43 (D) real estate that is not improved with a 1-44 structure and is: 1-45 (i) zoned for single-family residential 1-46 use; or 1-47 (ii) restricted for single-family use 1-48 under restrictive covenants that provide that the restrictive 1-49 covenants are to remain in effect for at least 20 years after the 1-50 date the notice of lien is filed and recorded in the county in 1-51 which the real estate is located. 1-52 (3) "Commission" includes a fee or other valuable 1-53 consideration. 1-54 (4) "Commission agreement" means a written instrument 1-55 that: 1-56 (A) entitles a broker to a commission; 1-57 (B) is signed by the person obligated to pay the 1-58 commission or the person's authorized agent; 1-59 (C) references the commission amount or 1-60 describes the formula used to determine the commission amount; and 1-61 (D) contains a description legally sufficient 1-62 for identification of the real estate that is the subject of the 1-63 agreement. 1-64 (5) "Future commission" means a commission based on 2-1 the occurrence of a future event, including a commission for: 2-2 (A) the exercise of an option to expand leased 2-3 premises, renew or extend a lease, or purchase real estate; 2-4 (B) the execution of a new lease; 2-5 (C) the expiration of a period of time; or 2-6 (D) any other future event specified in a 2-7 commission agreement. 2-8 (6) "Real estate" has the meaning assigned by Section 2-9 2, The Real Estate License Act (Article 6573a, Vernon's Texas Civil 2-10 Statutes). 2-11 (Sections 62.004-62.020 reserved for expansion 2-12 SUBCHAPTER B. BROKER'S LIEN 2-13 Sec. 62.021. PERSON ENTITLED TO LIEN. (a) If a broker is 2-14 entitled to a commission under a commission agreement signed by the 2-15 owner of commercial real estate or the owner's authorized agent, 2-16 the broker has a lien on the commercial real estate in the amount 2-17 specified by the commission agreement. 2-18 (b) If a broker is entitled to a commission under a 2-19 commission agreement signed by a prospective buyer of commercial 2-20 real estate or the prospective buyer's authorized agent, the broker 2-21 has a lien on the interest, if any, of the commercial real estate 2-22 that the prospective buyer purchases in the amount specified by the 2-23 commission agreement. 2-24 (c) If a broker is entitled to a commission under a 2-25 commission agreement signed by a prospective tenant of commercial 2-26 real estate or the prospective tenant's authorized agent, the 2-27 broker has a lien on the interest, if any, of the commercial real 2-28 estate that the prospective tenant leases in the amount specified 2-29 by the commission agreement. 2-30 (d) A lien described by this section is available only to 2-31 the broker named in the commission agreement. The lien is not 2-32 available to an employee or independent contractor of the broker. 2-33 (e) The broker's right to claim a lien based on the 2-34 commission agreement must be disclosed in the commission agreement. 2-35 Sec. 62.022. WAIVER OR RELEASE. The waiver of a broker's 2-36 entitlement to a lien under this chapter or the release of a lien 2-37 given for the purpose of releasing a broker's lien before the 2-38 commission is satisfied or forgiven is void. 2-39 Sec. 62.023. FILING OF NOTICE OF LIEN. (a) A broker 2-40 claiming a lien under this chapter must file a notice of lien as 2-41 provided by Subchapter C with the county clerk of the county in 2-42 which the commercial real estate is located. 2-43 (b) The county clerk shall record the notice of lien in 2-44 records kept for that purpose and shall index and cross-index the 2-45 notice of lien in the names of the broker and the owner of the 2-46 interest in the real estate on which the lien is claimed. 2-47 Sec. 62.024. CONTENTS OF NOTICE OF LIEN. The notice of lien 2-48 must be signed by the broker or by a person authorized to sign on 2-49 behalf of the broker and must contain the following: 2-50 (1) a sworn statement of the claim, substantially 2-51 including the commission amount or the formula used to determine 2-52 the commission amount and the date or the occurrence of the event 2-53 when the commission is due; 2-54 (2) the name of the broker and the real estate license 2-55 number of the broker; 2-56 (3) substantially the name of the owner and any other 2-57 person who the broker knows is obligated to pay the commission; 2-58 (4) a description legally sufficient for 2-59 identification of the commercial real estate sought to be charged 2-60 with the lien; 2-61 (5) a description of the interest in the commercial 2-62 real estate sought to be charged with the lien; and 2-63 (6) a copy of the applicable commission agreement. 2-64 Sec. 62.025. NOTICE OF FILING. (a) Not later than one 2-65 business day after the date the broker files a notice of lien, the 2-66 broker shall mail a copy of the notice of lien by certified mail, 2-67 return receipt requested, or registered mail to: 2-68 (1) the owner of record of the interest in the 2-69 commercial real estate on which the lien is claimed or the owner's 3-1 authorized agent; and 3-2 (2) the prospective purchaser or tenant and any escrow 3-3 agent named in a contract for the sale or lease of the interest in 3-4 the commercial real estate on which the lien is claimed if: 3-5 (A) a binding written contract for the sale or 3-6 lease of the interest of the commercial real estate on which the 3-7 lien is claimed is in effect between the owner and the prospective 3-8 purchaser or tenant in a transaction that is the basis for the 3-9 commission; and 3-10 (B) the binding written contract in the 3-11 transaction that is the basis for the commission is executed by the 3-12 owner and prospective purchaser or tenant before the date the 3-13 notice of lien is filed. 3-14 (b) Service of the notice under this section is complete 3-15 when the notice is deposited in the United States mail, postage 3-16 prepaid, and addressed to the persons entitled to receive the 3-17 notice under this section. 3-18 Sec. 62.026. INCEPTION OF BROKER'S LIEN. A broker's lien 3-19 attaches to the interest in the commercial real estate owned by the 3-20 person obligated to pay the commission on the date the notice of 3-21 lien is recorded as provided by this chapter. The lien does not 3-22 relate back to the date of the commission agreement. A notice of 3-23 lien for amounts due to the broker under an installment contract or 3-24 under a commission agreement for a future commission is enforceable 3-25 only to the extent that the installment or future commission is 3-26 due. 3-27 Sec. 62.027. PRIORITY. (a) A recorded lien, mortgage, or 3-28 other encumbrance, including a recorded lien securing revolving 3-29 credit and future advances for a construction loan, recorded before 3-30 the date a broker's lien is recorded has priority over the broker's 3-31 lien. A broker's lien against the interest of a person owing the 3-32 commission is not valid or enforceable against a grantee, 3-33 purchaser, lessee, or transferee of an interest in the commercial 3-34 real estate from the person owing the commission if the deed, 3-35 lease, or instrument transferring the interest is recorded before 3-36 the broker's lien is recorded. 3-37 (b) A mechanic's lien that is recorded after a broker's lien 3-38 and that relates back to a date before the date the broker's lien 3-39 is recorded has priority over the broker's lien. 3-40 Sec. 62.028. SUBORDINATION. (a) If the owner of the 3-41 commercial real estate sells the commercial real estate, the 3-42 broker's lien is subordinate to a recorded purchase-money first 3-43 lien authorized by the purchaser if the purchaser: 3-44 (1) executes and files with the county clerk of the 3-45 county in which the broker's lien is filed a memorandum that 3-46 evidences the purchaser's ratification of the broker's lien and the 3-47 purchaser's assumption of the obligation to pay the broker the 3-48 commission as provided by the commission agreement that is the 3-49 basis for the lien; and 3-50 (2) sends the broker, by certified mail, return 3-51 receipt requested, or registered mail, a copy of the recorded 3-52 memorandum required by this subsection. 3-53 (b) If the owner of the commercial real estate refinances a 3-54 recorded first lien secured by the commercial real estate, the 3-55 broker's lien is subordinate to the recorded refinanced first lien, 3-56 regardless of the amount of the first lien after refinancing, if 3-57 the owner: 3-58 (1) executes and files with the county clerk of the 3-59 county in which the broker's lien is filed a memorandum that 3-60 evidences the owner's ratification of the broker's lien and the 3-61 owner's obligation to pay the broker the commission as provided by 3-62 the commission agreement that is the basis for the lien; and 3-63 (2) sends the broker, by certified mail, return 3-64 receipt requested, or registered mail, a copy of the recorded 3-65 memorandum required by this subsection. 3-66 (c) If the owner of the commercial real estate obtains an 3-67 extension of credit secured by the commercial real estate, the 3-68 broker's lien is subordinate to the lien securing the extension of 3-69 credit if, according to the lien documents, the extension of credit 4-1 is made only for the purpose of: 4-2 (1) repairing or renovating the commercial real 4-3 estate; or 4-4 (2) completing construction or providing additional 4-5 improvements as requested by a tenant leasing the commercial real 4-6 estate. 4-7 Sec. 62.029. CHANGE IN USE OF REAL ESTATE. (a) Except as 4-8 provided by Subsection (b), any change in the use of the real 4-9 estate does not affect a broker's lien if the notice of the lien 4-10 was filed when the real estate was commercial real estate. 4-11 (b) The broker's lien is extinguished if: 4-12 (1) not later than the 180th day after the date on 4-13 which the broker's commission is due, the commercial real estate on 4-14 which a broker claims a lien is zoned for single-family use or 4-15 restricted for single-family use under recorded restrictive 4-16 covenants that provide that the restrictive covenants are to remain 4-17 in effect for at least 20 years; and 4-18 (2) the zoning or restrictive covenants for 4-19 single-family use are effective for at least two years after the 4-20 date the commission is due. 4-21 (Sections 62.030-62.040 reserved for expansion 4-22 SUBCHAPTER C. TIME FOR FILING NOTICE OF LIEN 4-23 Sec. 62.041. TIME TO FILE. (a) Except as provided by 4-24 Subsection (b), a broker must record a notice of lien: 4-25 (1) after the commission agreement is signed by the 4-26 person who is obligated to pay the commission or the person's 4-27 authorized agent; and 4-28 (2) before the conveyance of the commercial real 4-29 estate on which the broker is claiming a lien. 4-30 (b) If the lien is based on a lease transaction, the broker 4-31 must record a notice of lien before: 4-32 (1) the 91st day after the date the event for which 4-33 the commission becomes payable occurs; and 4-34 (2) the date that the person who is obligated to pay 4-35 the commission records the future conveyance of the interest in the 4-36 commercial real estate on which the lien is claimed. 4-37 (Sections 62.042-62.060 reserved for expansion 4-38 SUBCHAPTER D. ENFORCEMENT OF LIEN 4-39 Sec. 62.061. SUIT TO FORECLOSE LIEN. (a) A broker may 4-40 bring suit to foreclose a lien in any district court for the county 4-41 in which the commercial real estate is located by filing a sworn 4-42 complaint stating that the notice of lien has been recorded. 4-43 (b) A complaint in a suit filed under this section must 4-44 contain: 4-45 (1) a brief description of the commission agreement 4-46 that is the basis for the lien, including a description of the 4-47 disclosure of the broker's right to the lien contained in the 4-48 commission agreement; 4-49 (2) the date on which the commission agreement was 4-50 executed; 4-51 (3) a description of the services performed by the 4-52 broker; 4-53 (4) the amount due and unpaid; 4-54 (5) a description of the commercial real estate to 4-55 which the lien attaches; and 4-56 (6) other facts necessary for a full understanding of 4-57 the rights of the parties. 4-58 (c) The broker must include as a defendant in a suit brought 4-59 under this subchapter each person whom the broker knows to have an 4-60 interest in the commercial real estate that is subordinate to or 4-61 encumbered by the broker's lien. 4-62 (d) If the broker and a person against whom the broker 4-63 claims a commission use alternative dispute resolution procedures 4-64 to resolve a dispute concerning entitlement to the broker's 4-65 commission, the broker's lien remains valid, and any suit to 4-66 foreclose the lien is stayed until the alternative dispute 4-67 resolution process is completed. 4-68 Sec. 62.062. STATUTE OF LIMITATIONS. (a) Except as 4-69 provided by this section, a broker claiming a lien under this 5-1 chapter must bring a suit to foreclose the lien on or before the 5-2 second anniversary of the date the notice of lien is recorded. 5-3 (b) A broker claiming a lien to collect a future commission 5-4 must bring a suit to foreclose the lien on or before the second 5-5 anniversary of the date on which the commission is due. 5-6 (c) A broker claiming a lien for a commission that is due 5-7 must bring a suit to foreclose the lien not later than the 30th day 5-8 after the date the broker receives a written demand to bring a suit 5-9 to foreclose the lien from the owner of the interest in the 5-10 commercial real estate on which the lien is claimed. 5-11 (d) If a suit to foreclose the lien is not brought within 5-12 the time required by this section, the lien is void. 5-13 (e) A broker claiming a lien to collect a commission must 5-14 bring suit to foreclose the lien on or before: 5-15 (1) the 10th anniversary of the date the lien is 5-16 recorded; or 5-17 (2) the 10th anniversary of the date the broker 5-18 records a subsequent notice of lien as a renewal of the broker's 5-19 entitlement to the lien. 5-20 Sec. 62.063. ASSESSMENT OF COSTS, FEES, AND INTEREST. The 5-21 prevailing party in a suit brought under this subchapter is 5-22 entitled to court costs, reasonable attorney's fees, and 5-23 prejudgment interest. 5-24 (Sections 62.064-62.080 reserved for expansion 5-25 SUBCHAPTER E. RELEASE OF LIEN 5-26 Sec. 62.081. RELEASE OF LIEN. (a) When a debt that is the 5-27 basis for a lien under this chapter is satisfied, the broker shall, 5-28 not later than the fifth day after the date the broker receives a 5-29 written request from the owner of the interest in the commercial 5-30 real estate on which the lien is claimed, furnish to the owner a 5-31 release of indebtedness and any lien claimed to the extent of the 5-32 indebtedness paid. 5-33 (b) When a condition occurs that would preclude the broker 5-34 from receiving compensation under the terms of the commission 5-35 agreement that is the basis for the lien, the broker shall, not 5-36 later than the 10th day after the date the broker receives a 5-37 written request from the owner of the interest in the commercial 5-38 real estate on which the lien is claimed, furnish to the owner a 5-39 release of indebtedness and any lien claimed. 5-40 (c) A release of lien must be in a form that permits the 5-41 instrument to be filed of record. 5-42 (Sections 62.082-62.100 reserved for expansion 5-43 SUBCHAPTER F. ESCROW OF DISPUTED AMOUNTS 5-44 Sec. 62.101. ESCROW ACCOUNT. (a) If a claim for a lien 5-45 described by this chapter is not paid or assumed at the closing of 5-46 a sale, lease, or mortgage of the commercial real estate subject to 5-47 the lien and would prevent the closing of the transaction or 5-48 conveyance, the person named in the notice of lien as obligated to 5-49 pay the commission shall establish an escrow account from the 5-50 proceeds of the transaction or conveyance in an amount sufficient 5-51 to satisfy the lien and related costs for any interpleader action 5-52 brought by the person maintaining the escrow account. Related 5-53 costs for any interpleader action may be deducted from the escrow 5-54 account by the person maintaining the escrow account. If an escrow 5-55 agent is named in the contract on which the transaction or 5-56 conveyance is based, the escrow account shall be established with 5-57 the named escrow agent. 5-58 (b) A party may not refuse to close a transaction because of 5-59 the requirement to establish an escrow account as provided by this 5-60 section provided that the broker executes and delivers a release of 5-61 the broker's lien in a recordable form for the amount of the 5-62 commission that is due. 5-63 (c) The amount held in escrow shall be held in escrow until: 5-64 (1) the rights of the parties claiming the amount in 5-65 escrow are determined by a written agreement of the parties, a 5-66 court of law, or an alternative dispute resolution process agreed 5-67 to by the parties; 5-68 (2) the broker's lien is no longer enforceable; or 5-69 (3) the funds are interpled into a court of competent 6-1 jurisdiction. 6-2 (d) When the escrow account is established under this 6-3 section, the broker's lien against the commercial real estate is 6-4 extinguished and becomes a lien on the proceeds in the escrow 6-5 account. 6-6 SECTION 2. This Act takes effect September 1, 1997. The 6-7 change in law made by this Act applies only to an agreement to 6-8 compensate a licensed real estate broker that is entered into on or 6-9 after the effective date of this Act. 6-10 SECTION 3. The importance of this legislation and the 6-11 crowded condition of the calendars in both houses create an 6-12 emergency and an imperative public necessity that the 6-13 constitutional rule requiring bills to be read on three several 6-14 days in each house be suspended, and this rule is hereby suspended. 6-15 * * * * *