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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.

Always Maximize Pre-Litigation Settlement Efforts

As anyone who has been involved in litigation knows, there is almost always communication between the parties and their attorneys before a lawsuit is filed. This is usually at the point when emotions are running high. One party feels that it has been wronged and demands payment or other conduct in lieu of filing a lawsuit. The other side usually disagrees that its conduct caused the harm or argues that the amount of harm was less than the amount being demanded. As a result, often times, the dispute will lead to a lawsuit being filed.

However, it is important to consider the value of resolving the dispute during pre-litigation negotiations. The negotiations can be creative and oftentimes fashion results that are not available in the context of court proceedings. If a settlement is not reached and litigation ensues, one party may later wish it took a more serious approach to the pre-litigation settlement efforts. Consider the following real life example.

I represented a contractor who submitted a bid for a lighting project. The owner of the facility accepted the bid and the parties entered into a written contract. Shortly after this, the contractor began taking all steps necessary to perform the project. However, prior to performing the work, the owner told the contractor that he was cancelling the contract and was not going to pay any amount. The owner claimed that he was not required to pay because the contractor had not yet performed the work identified in the contract.

Prior to filing suit, the contractor consulted me and we made efforts to settle the dispute. Although in litigation we could legally pursue the full amount of lost profit as damages for the owner’s repudiation of the contract, we agreed that $6,000 would be sufficient to compensate him for the time spent and to resolve the dispute without incurring substantial costs. I prepared a demand letter requesting $6,000 from the owner. Rather than negotiating the amount due, the owner responded that he was unwilling to pay anything. Therefore, we filed an arbitration claim, which was required under the contract.

At the arbitration hearing, rather than seeking the $6,000 to compensate for the time spent on the ComEd application and preparation work, we sought the full $45,000 in lost profits that would have been earned on the project, in addition to all attorneys’ fees and costs incurred in enforcing the contract. The arbitrator ruled in favor of the contractor, awarding $45,000 in lost profits and $15,000 in attorneys’ fees and costs, for a total award of approximately $60,000.

After recovering the arbitration award, the owner still refused to pay the amount awarded. So, we attempted to settle the dispute again. We sent correspondence to the owner, this time offering to accept $50,000, instead of the full $60,000 award, to settle the dispute without further litigation. This offer would have not only resulted in the owner paying $10,000 less than the total award, but it also would have stopped his attorneys’ fees and costs from increasing. However, the owner again refused to negotiate.

Accordingly, we filed the necessary pleadings to confirm the arbitration award in court, have a judgment entered and collect on the judgment. After the award was confirmed and judgment was entered, an Illinois statute provided that the judgment began accruing interest at the rate of 9%. As a result, while the owner continued to fight payment of the judgment, the amount of the judgment continued to increase as interest accrued. In the end, we collected nearly $65,000 from the owner when he could’ve settled the case for as little as $6,000 by negotiating.

Let this be an example to always consider the value of resolving a dispute prior to litigation. Not every dispute can be resolved by negotiation. However, whenever a dispute arises that has the possibility to result in litigation, you should consult with your attorney to discuss all possibilities and benefits of resolving the dispute before the litigation commences.

The Illinois Supreme Court and its Message to Hazing Participants on College Campuses

Sending a child off to college should be a joyful occasion. While this transition brings the promise of forging lifelong memories and friendships, it is often also marked by peer pressure to make dangerous decisions. A recent decision by the Illinois Supreme Court may change the party dynamic on college campuses all across the state.
The case is titled Bogenberger v. Pi Kappa Alpha Corporation, Inc., 2018 IL 120951. The facts surrounding the case involve the tragic death of a college fraternity pledge, David Bogenberger, while pledging to the Eta Nu Chapter of the Pi Kappa Alpha fraternity at Northern Illinois University in DeKalb, Illinois (the “NIU Chapter”). While attending the “Mom and Dad’s Night” pledge event, David was required to drink vodka until unconscious. If he showed any reluctance, the “Greek couples,” consisting of NIU Chapter and sorority female members, would call him derogatory names. Pledges, including David, were supplied “vomit buckets” and designated sleeping rooms. Once unconscious, the Greek couples would check the pledges as they slept to make sure they were positioned in such a way that they would not choke in their sleep. Sometime during the night at this event, David died. The special administrator of his estate filed a four-count lawsuit against the Pi Kappa Alpha national organizations (“National Organizations”), the NIU Chapter, its officers, and nonmember sorority women.
This Illinois Supreme Court decision only resolved the narrow question of who should remain in the lawsuit and who could be dismissed. The lower court will determine whether the defendants will be held responsible for David’s death. While the Illinois Supreme Court decision did not address the actual liability of the named defendants, the burden of defending their positions will be substantial no matter the end result.

Social Host Liability

The Illinois Supreme Court’s analysis of the first count was a matter of first impression: does the concept of social host liability apply to an alcohol-related hazing event? In general, Illinois law imposes no liability in situations of a sale or gift of alcoholic beverages, outside of a complaint brought pursuant to the Dramshop Act. The reason for the rule of social host liability is that, in bringing a claim for negligence, the connection between the sale or gift of alcohol is too remote to serve as a proximate cause for alcohol-related injuries. Although this has been a long-standing rule in Illinois with strong precedent in case law, in this case, the Court struck down this defense. The Court reasoned that alcohol-related hazing events involve the required consumption of alcohol to become a part of a school fraternity or sorority. This not only violated the Illinois hazing statute, but also did not involve the type of sale or gift of alcohol protected by the general rule of social host liability. Therefore, the negligence claims were heard by the Illinois Supreme Court.

Liability of the NIU Chapter, Active Members, Pledge Board Members and Officers

The special administrator of David’s estate alleged that the NIU Chapter, its officers, pledge board members, and active members forced David to participate in the Mom and Dad’s Night, required him to drink excessive amounts of alcohol, failed to call 911 or seek medical attention, and failed to implement a risk education program to protect David and other pledges. The Court found that injuries stemming from the hazing were foreseeable. The NIU Chapter and its members were expected to guard against harms associated with hazing to pledges, including David.

Liability of Nonmember Sorority Women

The last subject analyzed by the Court was the liability of the nonmember sorority women. The Court again noted that hazing injuries are reasonably foreseeable and likely to occur, especially at an event where the pledges are required to drink in excess. The Court held that the sorority women were active participants in the hazing event. Just like the NIU Chapter and its members, the sorority women filled cups with alcohol, harassed the pledges, and decorated vomit buckets. They conveyed the same message of “drink to become a member,” just like the fraternity members. The nonmember sorority women were properly named defendants and would remain in the lawsuit.
This case is just as much about the tragedy surrounding one pledge’s death as it is about these types of events on college campuses. The Illinois Supreme Court used this case to send a clear message: participate in hazing, pay the cost.
This Illinois Supreme Court did not make the determination that these classes of defendants were actually liable. This is a decision yet to be made by the lower court. However, the NIU chapter, its members, and the nonmember sorority women will remain in the case and incur the legal expenses to defend their positions. Whether or not the pledge’s estate prevails, the economics of this litigation will in and of itself be a heavy burden.
This opinion opens up legal liability to attendants and participants of fraternity and sorority initiation events, whether that person is a member of the fraternity organization or not. Perhaps this message, coupled with the tragedy of the untimely death of a young college student, will cause college students to think twice about the limits of their own social lives and their ideas of “fun.”

Recovering Post-Judgment Attorney’s Fees – A Practice Pointer for Transaction and Litigation Counsel

By: Thomas M. Lombardo
Most of us know that obtaining a judgment is often much easier than recovering actual dollars. Unless your defendant’s insurer is responsible for payment of the judgment, or your defendant is a “deep pocket” with multiple bank accounts that can be hit with third-party citations, the hard work has just begun. Consequently, it is important for all transactional, litigation, and collections attorneys to remember three critical steps to ensure that your client’s post-judgment attorney’s fees for collection activity are recoverable on top of the judgment itself.

Step One: Drafting the Contract

Post-judgment attorney’s fees are only recoverable if there is a legal basis providing for same. Therefore, attorneys drafting contracts for their business clients must be sure to include clear language which provides for the successful plaintiff to recover not only its reasonable costs and attorney’s fees from bringing a successful lawsuit, but also its collection-related legal fees and expenses. Poilevey v. Spivack, 368 Ill. App. 3d 412 (1st Dist. 2006). Without such a provision, post-judgment legal fees will not be recoverable in contract disputes. For this same reason, it is critical for litigators to carefully examine contractual attorney’s fee provisions before telling a client whether they might be able to recover some or all of their legal fees and expenses in a successful lawsuit.

Step Two: The Judgment

Litigators must also pay close attention to the language in their judgments if they plan to seek post-judgment attorney’s fees at a later date. If there is a contractual provision that provides for collection-related attorney’s fees, the judgment should reduce the already-incurred legal fees and costs to a specific dollar amount and award same. The judgment should also be entered with a provision that allows reasonable attorney’s fees, costs, and post-judgment interest incurred after the date of the judgment. This way, the judgment contemplates future conduct and as such the circuit court retains jurisdiction to enforce same and to rule on later petitions for attorney’s fees. Tobias v. Lake Forest Partners, LLC, 2012 IL App (1st) 110502-U, citing Director of Insurance ex rel. State v. A and A Midwest Rebuilders, Inc., 383 Ill. App. 3d 721 (2nd Dist. 2008).

Step Three: The Petition

After a judgment is entered and the successful plaintiff incurs collection-related attorney’s fees, a petition should be filed in the circuit court requesting that those post-judgment attorney’s fees be added to the judgment award. Id. Furthermore, collections attorneys must be aware that any liens created by enforcement mechanisms, such as citations or wage garnishments, will not include post-judgment attorney’s fees that were not reduced to an already-entered judgment. Therefore, it may be wise to bring several petitions as the legal fees mount from time to time during the collection phase, and to reissue citations and other lien-creating enforcement papers each time the judgment is increased. This will ensure that the post-judgment fee portion of your judgment is not second-in-time, or subordinate, to later secured or judgment creditors. Tobias v. Lake Forest Partners, LLC, 402 Ill. App. 3d 484 (1st Dist. 2010).

Recalcitrant judgment debtors often make the enforcement of judgments difficult, time-consuming, and expensive for successful plaintiffs. But with careful planning and meticulous practice, post-judgment attorney’s fees may not only be recoverable by successful commercial litigants, those fees might even exceed the original fee award.