Collecting on Your Lease Commission
In these difficult times, real estate brokers are finding it more and more difficult to collect lease commissions from commercial landlords. But brokers have several legal options at their disposal.
The old adage “an ounce of prevention is worth a pound of cure” is never more true than in lease commission disputes. Brokers would be well advised to perform due diligence on landlords that they are listing space for. Check into the landlord’s project that you will be listing and the landlord’s other projects. Look for any signs of distress. You may also want to check the properties owned by the landlord. Is it a single purpose LLC owning only one property, or does the landlord own several properties in their personal name? If it is the latter, you will likely be in a stronger collection position, should the need arise.
Depending on the terms of the listing agreement, an agent will likely be faced with one of two options: arbitration or litigation. In Maricopa County, if the lawsuit is for $50,000 or less, the court will kick it into mandatory arbitration through the court system. If the case is fairly straight forward and the landlord isn’t contesting the commission but is simply unable to pay it, then you may be able to obtain a default judgment or win the case on a motion for summary judgment without having to go through a trial. In any event, once you obtain a judgment (assuming you prevail), you will then have to collect on the judgment.
The judgment should be recorded right away. Once the judgment is recorded properly, it will become a lien on any real estate owned by the landlord in that county. The judgment must be renewed every 5 years and there are a variety of options to enforce the judgment lien, including the possibility of a forced sale of the landlord’s property. Alternatively, you could sit back and wait for the landlord to attempt to refinance or sell the property, which should trigger a payoff of your lien.
Other collection options include the possibility of garnishing the landlord’s bank account and taking any money that is not exempt and located in the account. You may also be able to garnish wages of the landlord, though this is somewhat unusual since you are typically dealing with an LLC and not a person with W-2 income. Finally, you may be able to force the landlord into a judgment debtor’s exam where you can learn the location and amounts of his/her assets.
You will want to make sure your listing agreement has a mandatory fee provision in it authorizing the court to award you your costs and fees incurred in collection. If you don’t have that language, you may still have a basis to recover your attorneys’ fees and costs under A.R.S. § 12-341.01, but it is better to have the provision in your listing agreement.
Mark J. Bainbridge is the founder of The Bainbridge Law Firm, L.L.C., a real estate and business litigation firm in Phoenix. Ph: 602-902-1930.