How current events impact your business and real estate holdings

Tuesday, April 17, 2012

Lis Pendens for a Brokerage Commission? Not So Fast

A recent article in the Nassau Lawyer argued for the use of the lis pendens to enforce a broker’s right to a commission on the sale of real property.  Before we get our hopes up and start filing notices of pendency on every unpaid commission, let’s take a closer look at the law on this issue.

The lis pendens is a document recorded with the county clerk which warns potential purchasers of real property that litigation is pending which may affect title.  The lis pendens creates constructive notice of the pending lawsuit and renders the property unmarketable.  While this might sound like a great way to enforce your rights to a commission, the lis pendens is available only for actions that affect title, possession, use or enjoyment of real property.  A claim for money due under a contract meets none of these requirements, and it has been consistently held that the lis pendens is not an appropriate remedy. 

One court expressed its utter exasperation that brokers who hold themselves out as real estate professionals could be so ignorant of this “basic tenet of real estate law.” In the Second Department, which includes all of Long Island, it is well settled that this remedy does not apply to brokerage commissions.  See Homespring, LLC v. Lee, 2008 NY Slip Op 7618.

So what is the proper way to enforce your right to a commission?  In residential transactions, the proper remedy is Real Property Law 294-b, which gives a broker the right to record an affidavit of entitlement to a commission with the county clerk who will hold the amount of the commission until the broker’s rights can be determined by a court.  For non-residential transactions, a narrow exception exists which creates a lien when the commission derives from the broker’s negotiation of a lease longer than three years.  Lien Law § 2 (4), 3.