Delaware Passes the Commercial Real Estate Broker’s Lien Act

May 14, 2013

Publication| Real Estate Services

On May 3, 2013, Governor Jack Markell signed into law House Bill 29, which creates a commercial real estate broker’s lien in Delaware. This new legislation, which will be codified in Title 25, Chapter 26 of the Delaware Code, allows commercial real estate brokers to place a lien upon commercial real estate for unpaid commissions pursuant to a written brokerage agreement and to enforce that lien in Superior Court.

Under this statute, a broker’s right to place a lien on commercial property arises upon completion of all of his or her duties contained in the written brokerage agreement, except for completing settlement. If the broker is owed any compensation at that time, within 90 days the broker may file a lien against the contracting party’s interest in the subject property for the amount owed. The filed lien has priority from the time it is filed; however, a broker’s lien will never have priority over a mortgage, a mechanic’s lien, state or federal government liens, or certain other statutory liens. The lien is effective for one year, although if litigation on the lien is in process, the lien may be continued. Furthermore, the legislation creates a specific cause of action by which a broker can enforce this lien in Superior Court and collect fees, costs and interest in addition to any compensation owed; however, if the Court determines that no lien should have been filed, the broker will be responsible for the fees and costs incurred by the prevailing defendant as a result of the action. In addition, the party alleged to owe the compensation that is the subject of the lien may require the broker to commence such litigation or lose the lien. In the event the broker’s claim is disputed, the owner or tenant against whom the lien is filed has the option to have the lien released by depositing the amount of the lien, plus 10 percent to cover any costs that may be awarded, in escrow or with the court pending judicial resolution of the claim.

A wide variety of commercial brokerage agreements will be subject to the new broker’s lien. The statute lists “a listing agreement, representation agreement, property management agreement, agreement of sale, lease, option, or exchange agreement” as examples of documents under which a broker might be due compensation and which might provide the basis for a broker’s lien. The statute also includes a broad definition of commercial real estate, only excluding improved real estate consisting of one to four residential units, none of which is used for nonresidential purposes, agricultural land that will continue to be used for agricultural purposes by the purchaser, unimproved land consisting of no more than four single-family residential lots, and certain residential units (such as condominium units) in a project containing nonresidential components. The broker’s right to assert the lien created by this legislation cannot be waived by agreement of the parties, as the statute provides that such waiver is against public policy and therefore void.

The new law will apply to brokerage agreements becoming effective starting August 1, 2013, or to existing brokerage agreements if the parties agree in writing.

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