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Lien On Me: Understanding the Commercial Real Estate Broker’s Lien Act

By: Julia Jensen Smolka

Regardless of COVID-19, the real estate market is hot.  With money being cheap, there will be more and more real estate transactions. With more transactions, there will be more instances where sellers and brokers argue whether a commission was earned by a broker. With larger commercial price tags, a broker could be out tens of thousands of dollars—or significantly more if there is a dispute. Broker’s listing agreements are typically well written form contracts which address when a commission is earned by a broker. But there is even a more powerful tool in Illinois which allows brokers to attach a lien to a commercial property for earned, but unpaid commissions.  The lien could halt a sale.

Illinois allows real estate brokers to place liens for earned commissions on commercial real estate as a way to force payment when a seller or buyer attempts to circumvent payment to the broker. The act is known as the Commercial Real Estate Broker Lien Act, 770 ILCS 15 et. seq. This article addresses the basics on how the act works.

Step 1: Does the Broker Have A Lien?

To know whether the act applies to you, first you have to determine if the property at issue is covered under this act. There are many instances where a property is being used for commercial purposes; however, the act specifically defines what properties are covered.

Under Section 5 of the Act, “Commercial Real Estate” is defined as any real estate located in Illinois other than (i) real estate containing one to six residential units, (ii) real estate on which no buildings or structures are located, or (iii) real estate classified as farmland for assessment purposes under the Property Tax Code.

Next, whether the broker has a lien depends on whether the broker has earned his or her commission under a written instrument signed by either the owner, buyer, or tenant. That written instrument is typically a listing agreement, lease, or sales contract. For the broker to have earned his or her commission, he or she has to produce a ready, willing and able buyer or tenant.

A prospective purchaser of realty will be considered ready, willing, and able to buy if he has agreed to purchase the property and has sufficient funds on hand or if he is able to command the necessary funds with which to complete the purchase within the time allowed by the offer. A broker who shows he produced a prospective purchaser who agreed to the sellers’ terms, who was continuously willing to purchase during the time of the relevant negotiations and became able to execute a contract upon the agreed terms at a reasonable time subsequent to the initial negotiations, has made a prima facie case for recovery of his commission.

Step 2: Perfecting the Broker’s Lien

If you have a right to record a lien, the statute describes what needs to be in the lien notice—names of the owner, description of the property, amount of lien and real estate broker’s license number. It has to be signed and verified.  To perfect the lien, the client has to record a lien in the Recorder’s office of the county where the property is located. Thereafter, the broker shall send notice to the owner.  Strict compliance is required, or the broker lien is not enforceable. So, ideally, if the broker sees the writing on the wall that the parties are trying to avoid paying the commission, he or she can record their lien prior to the closing. It forces the title company to holdback funds, as it would for any other lien.

Step 3: Foreclosing the Broker’s Lien

This statute operates similar to the Illinois Mechanics Lien Act. Like the Mechanics Lien Act, the broker has to strictly comply with the statute, and has to file a foreclosure complaint within two years after recording the lien. Similarly, like with a mechanics lien, an owner can make a 30-day demand to file suit. In the event the suit is not instituted within the 30 days of demand, then the lien will be extinguished as matter of law. If the broker is successful, the statue allows for his or her recovery of attorney’s fees and costs. If he is unsuccessful, the judge can award attorney’s fees and costs against the broker.

Summary

Having filed both broker lien actions and mechanics lien actions in my career, the procedural steps are very similar. So are the pitfalls if you fail to follow the statute precisely. Defending these actions are very similar. Strict compliance to the dates, notices, and forms of the documents in this statute is necessary, or the foreclosure complaint will be dismissed.  If you are a commercial real estate broker, or if you have a commercial property and have questions, please feel free to call us.

When Alleged Hostile Work Environment Does Not Constitute Actionable Title VII Harassment – Summary Judgment in Favor of the Employer

Mulligan-Grimstad v. Morgan Stanley, 877 F.3d 705 (7th Cir., Dec. 11, 2017)

Scenario: Kerrie is hired in 2001 as a sales associate at a financial advisory firm. She enjoys success at work, including promotions. In 2005, she is teamed with John, a male senior financial advisor, on several client accounts. This partnership lasts 7 years until the firm fires Kerrie after its investigation into her processing of a fraudulent wire transfer request.

Kerrie sues the employer, alleging she was fired on the basis of her sex and that her male coworkers’ mistreatment of her over the course of her career created a sexually hostile work environment. She alleges that coworkers harassed her, unduly criticized her, and made sexual advances toward her from 2003 to 2009, though she never reported harassment to management. She also alleges that in 2011, John regularly commented on revealing outfits worn by a CNBC anchor; that after she got married he asked her to plan any pregnancy around his work schedule; and that he told a client that Kerrie planned to start a family. The employer responds that it fired her for a legitimate business reason – the wire transfer – and that the allegations related to her hostile environment claim, even if accepted as true, are not severe or pervasive enough to create a hostile work environment under Title VII of the Civil Rights Act of 1964.

The district court agreed with the employer and granted summary judgment in its favor. The 7th Circuit Court of Appeals affirmed the district court’s decision.

Highlights of the decision:

  1. First, Kerrie argued that she did not violate the employer’s wire transfer policy and, therefore, must have been fired her because of her sex. The court rejected this argument, stating that it will not act as a “super personnel department” – so long as Kerrie’s sex did not influence the decision to fire her, the decision — even if made by misapplying the employer’s performance policies – does not violate Title VII.
  2. Second, Kerrie argued that a similarly situated male oversaw a fraudulent wire transfer but, unlike her, he was not fired. Kerrie argued that this differential treatment proved sex discrimination. The court rejected the argument, finding that the male employee had no significant disciplinary actions on his record, whereas Kerrie had two. The court thereby found that Kerrie and the male were not “similarly situated,” and that the firm’s decision to fire Kerrie, but not the male employee, “sheds little light on why it fired” Kerrie. Further, the firm showed that it fired a male employee who had a checkered disciplinary record after he processed a fraudulent wire transfer request. The court found that this suggested that the firm fired Kerrie for her job performance rather than her sex.
  3. Finally, Kerrie claimed that her male co-workers — who lacked decision-making power to fire her — used the decision-maker as a dupe in a deliberate scheme to trigger the sex-based discriminatory firing decision. This is known as the “cat’s paw theory.” In essence, Kerrie argued that: a) John and another male wanted her fired because they disliked women or worried that she might become pregnant; b) then, between her mishandling of the wire transfer and her dismissal, told the decision-maker to fire her; and c) the decision-maker fired her in part due to their influence. The court rejected this argument because, at most, Kerrie suggested that the men could have met with the decision-maker between the fraud and the firing and that they could have passed their discriminatory views to the decision-maker at such a meeting. The court found this speculation insufficient to establish cat’s paw influence.
  4. The court also found that the male employees’ conduct did not create a hostile work environment because their comments were not “sufficiently severe or pervasive to alter the conditions of employment.” The court found that the conduct was not physically threatening or humiliating, did not unreasonably interfere with Kerrie’s work performance, and at most may have been offensive.

The #METOO and TIME’S UP movements are causing more employers to review their anti-harassment policies and to provide comprehensive Equal Employment Opportunity training to their supervisors. Di Monte & Lizak provides on-site, off-site, group, and one-on-one training to private, public, and non-for-profit employers, including law firms. Let me know how we may help you.

New Illinois Freedom to Work Act Bans Non-Competes for Low Wage Earners

Margherita M. Albarello

Spurred in part by sandwich shop Jimmy John’s requirement that sandwich-makers and delivery drivers sign over-reaching non-compete agreements, the Act prohibits private sector employers from entering into non-compete restrictions with “low-wage employees” and renders such agreements “illegal and void.” The Act applies to non-compete agreements entered into on or after the Act’s effective date of January 1, 2017.

A “low-wage employee” is someone who earns the greater of (1) the hourly minimum wage under federal (currently, $7.25 per hour), state (currently, $8.25 per hour), or local law (currently, $10.50 per hour in Chicago) or (2) $13.00 per hour. Therefore, the Act initially will apply to agreements with employees earning $13.00 per hour or less.

The Act defines “covenant not to compete” broadly to mean an agreement between an employer and a low-wage employee that restricts the employee from performing:

(1) Any work for another employer for a specified period of time;
(2) Any work in a specified geographic area;
(3) Work for another employer that is similar to the low-wage employee’s work for the employer in question.