On July 30, 2014, the Third District Court of Appeal examined whether the Florida Real Estate Commission Lien Act provides the sole and exclusive means for real estate brokers to assert liens related to real estate commissions. In J. Milton Dadeland, LLC v. Abala, Inc., —So.3d —, 2014 WL 3735142 (Fla. 3d DCA July 30, 2014), a purchaser of real property in a short sale challenged the validity of a broker’s lien on the purchased property and argued that pursuant to the Lien Act, the only lien authorized by law is a lien on the proceeds of a sale. On appeal from the circuit court, the Third District held that the Lien Act, chapter 475 of the Florida Statutes, does not serve as the exclusive avenue for brokers to create valid and enforceable liens securing real estate commissions.
The real estate broker, Abala, Inc., had entered into a commission agreement with the owner of the property at issue, Colony RB-GEM, LLC, that provided for a 6% commission upon the sale of the property. In addition, the contract provided that the broker “ha[d] the right to place a Lien on the property for the full amount of the commission due.” Subsequently, the owner signed an agreement to short-sell the property to J. Milton Dadeland, LLC (“Dadeland”). After the agreement was signed, but before closing, the broker recorded a lien in connection with its commissions.
Upon learning of the lien, Dadeland sued the owner of the property and its lender. The parties settled, and Dadeland received a $500,000 reduction in purchase price and $70,000 at closing. At closing, the parties executed a warranty deed expressly acknowledging the broker’s lien. Thereafter, Dadeland brought an action against the broker attempting to cancel the lien. The circuit court entered judgment in favor of the broker. Dadeland appealed.
The Third District rejected Dadeland’s argument that the Lien Act restricts a broker to a lien on proceeds of a sale and does not permit the creation of a valid lien in connection with real estate commissions otherwise. It held that “nowhere does the Lien Act indicate that its remedy was intended to be exclusive. In fact, such an interpretation would lead to absurd results.” The court noted that the Lien Act expressly allows a broker to place a lien on real property where expressly permitted by contract. Finding that the lien was permitted by contractual agreement and that Dadeland had proper notice of the lien, the Third District affirmed the circuit court’s judgment enforcing the broker’s rights pursuant to the lien.
The Third District in J. Milton Dadeland, LLC v. Abala, Inc. clarified that, in the context of commercial real estate transactions, the contractual terms found in a broker’s agreement are not limited to the scope of the Florida Real Estate Commission Lien Act. Real estate commissions, which are often significant sums of money, have the potential to create a meaningful encumbrance on real property. In practice, attorneys should be cognizant of the remedies available under the relevant broker’s agreement when advising potential buyers, sellers, distressed entities, or creditors.