# How do you protect a broker commission legally?
A broker commission is protected by a signed written agreement, the right licence, proof you caused the deal, and fast action on liens and deadlines.
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You protect a broker commission legally with four things: a written fee agreement signed by the party who will pay, the licence your jurisdiction requires for the work, a record proving that your work produced the deal, and prompt use of the remedies the law gives you when the fee is withheld. Miss one of the four and a fee that was honestly earned can become a fee no court will order anyone to pay.
The rules below change from one country and one state to the next, and each one is tied here to the jurisdiction it belongs to. This article is general information, not legal advice.
2 yearsto start enforcing a recorded commercial broker lien in Illinois, or the lien is extinguished
6 yearsto bring a claim on a simple contract in England and Wales, from the date the fee fell due
One thirddeducted from an estate agent's fee at trial in a United Kingdom case, because written terms arrived late
Illinois Commercial Real Estate Broker Lien Act; Limitation Act 1980; United Kingdom Supreme Court press summary in Wells v Devani.
## What makes a broker commission legally enforceable?
A broker commission is legally enforceable when a contract to pay it exists in the form the local law requires, when the broker was allowed to do the work, and when the event that triggers the fee has happened. A fee claim can fail on any one of those three conditions even when the other two are solid.
Writing rules and licence rules decide whether you can claim at all. Procuring cause, registration of prospects and the evidence file decide whether you can prove performance. Non-circumvention clauses, liens and dispute procedures decide how you collect from a party who would rather not pay.
## Does a broker fee agreement have to be in writing?
In many jurisdictions a broker fee agreement must be in writing and signed by the party who owes the fee, or the broker cannot sue on it at all.
California's Civil Code lists, among the contracts that are invalid unless written and signed by the party to be charged, an agreement employing an agent or broker to buy or sell real estate, to lease it for longer than one year, or to find a buyer, seller, lessee or lessor, for compensation or a commission. Texas goes at the same point through its Occupations Code: a person may not maintain an action to recover a commission for the sale or purchase of real estate unless the promise, or a memorandum of it, is in writing and signed by the party against whom the action is brought.
New York's General Obligations Law reaches further than real estate. It voids an unwritten contract to pay compensation for services in negotiating a loan, or the purchase, sale, exchange, renting or leasing of real estate, or of a business opportunity or a business. The statute says that negotiating includes procuring an introduction to a party to the transaction, and that the rule also applies to a contract implied in fact or in law to pay reasonable compensation. The same provision does not apply to a contract to pay an auctioneer, an attorney or a duly licensed real estate broker or salesperson.
The United Kingdom takes a different route for estate agents. The Estate Agents Act 1979 requires the agent to give the client, before the client enters the contract, particulars of the circumstances in which remuneration becomes payable and of its amount or how it will be calculated. If the agent does not, the contract is not enforceable by the agent except under a court order, and the court may dismiss the application or reduce the sum to reflect prejudice to the client.
| Jurisdiction | What must be on paper | What happens without it |
| --- | --- | --- |
| California | Agreement employing a broker to buy, sell or find a party for real estate, signed by the party to be charged | The contract is invalid |
| Texas | Promise to pay a real estate commission, or a memorandum, signed by the party sued | No action to recover the commission |
| New York | Contract to pay for negotiating a loan, real estate or the sale of a business, introductions included | The agreement is void, and so is an implied claim for reasonable compensation |
| United Kingdom | Estate agent's particulars of when the fee is due and how it is calculated, given before the contract | Enforceable only by court order, which may reduce or refuse the fee |
The United Kingdom Supreme Court's decision in Wells v Devani shows how the last row plays out. According to the court's press summary, an estate agent said he had agreed commission of 2% plus value added tax by telephone, introduced a housing trust that bought the flats for £2.1 million, and sent written terms only after the introduction. The court held that a binding oral contract existed, and it left in place the one-third deduction the trial judge had applied for the breach of the information duty. On that rate and price, the fee before tax works out at £42,000 and a one-third deduction at £14,000.
For the legal layer, leaving the clause-by-clause drafting aside, three points matter: the document is signed by the paying party, it states the event that earns the fee, and it exists before you make the introduction.
## Can you sue for a commission without a licence?
Where brokering an asset is a licensed activity, the right to sue for the fee usually depends on holding the licence, and a court will refuse the claim of an unlicensed intermediary whatever the contract says.
California's Business and Professions Code states that no person acting in the capacity of a real estate broker may bring or maintain an action for compensation without alleging and proving that he or she was a duly licensed real estate broker or salesperson at the time the cause of action arose. Texas requires the claimant to allege and prove that he or she was a licence holder at the time the act was commenced, or an attorney licensed in any state.
Queensland in Australia combines the conditions. The Queensland Law Handbook published by Caxton Legal Centre sets them out: the agent must hold a property agent's licence, must be authorised under that licence to perform the activity, and must be properly appointed by the owner in the manner the legislation prescribes; the agent cannot recover more than the appointment states.
Licence rules catch brokers outside real estate too. In the United States, the Securities and Exchange Commission's guide to broker-dealer registration lists finders and business brokers among the intermediaries who may need to register, including those who find buyers and sellers of businesses where securities are involved or find investors for issuers. One of the questions the guide asks is whether your compensation depends on, or is related to, the outcome or size of the transaction. A success fee on a share sale fits that description, so a business broker or capital introducer settles the registration question with securities counsel before signing the engagement.
## What do you have to prove you did to earn the fee?
To earn the fee you must prove that the event named in your agreement happened and, in most disputes, that your work was the cause of it. American practice calls this procuring cause; English and Australian law speak of the effective cause of the sale.
The National Association of Realtors, in the arbitration guidelines of its Code of Ethics and Arbitration Manual, describes procuring cause as the uninterrupted series of causal events which results in the successful transaction. The same guidelines say there is no predetermined rule of entitlement: a hearing panel looks at the entire course of events, including who made the initial contact with the purchaser, the conduct of the brokers and of the buyer and seller, and continuity and breaks in continuity such as abandonment or estrangement.
In England and Wales, in Foxtons v Pelkey Bicknell, the Court of Appeal considered terms that made commission payable on a sale to a purchaser introduced by the agent. The court held that the agent had to have introduced the buyer to the purchase, and not merely to the property and the agent lost. The court also noted that a term requiring the agent to be the effective cause is very readily implied in residential agency contracts.
Queensland writes the idea into statute for one type of listing. Under the Property Occupations Act 2014, the selling agent under an open listing is entitled to remuneration only if he or she is the effective cause of sale.
The wording of your trigger decides how much causation you must prove. A fee payable on a sale to any buyer during an exclusive period asks only for the sale; a fee payable for a buyer you introduced asks for the introduction and its link to the deal.
Two neighbouring subjects only touch this one. A tail clause extends the fee to deals that close after the agreement ends with parties you introduced during its term. A dispute between two brokers over who closed the deal runs on the same causation tests, with the brokers and not the client as the parties.
## How does registering a prospect protect the fee?
Registering a prospect protects the fee by fixing in writing, at the time, that a named party came from you, so that causation is proved by a dated document and not by memory. A registration is a contractual device: its force comes from your agreement, not from a statute.
A workable registration has three features. The agreement says how a prospect is registered (a written notice naming the party, sent to a stated contact) and what follows from it (a fee on any deal with that party within a stated period). The notice identifies the legal entity and the individuals you spoke to. And the principal has a short window to object, for instance because it already knew the party, after which the registration stands.
A registration does not replace causation where your trigger requires it. If the fee depends on your being the effective cause, a registered name that you never followed up may show an introduction to the opportunity and nothing more, which is the gap the agent fell into in the English case above.
## What does a non-circumvention clause protect, and where does it stop?
A non-circumvention clause protects an intermediary by making it a breach of contract for a signatory to deal directly with a party the intermediary introduced without paying the agreed fee. It stops at the edge of the contract: it binds only those who signed it, for the parties and the period it defines.
The clause is common in commodity, trade and cross-border introductions. The International Chamber of Commerce publishes a model contract for the occasional intermediary, built around non-circumvention and non-disclosure, which the organisation describes as covering the most common international contracts to which an intermediary is a party and as minimising the risks of fraud and misunderstanding.
Three limits are worth knowing before you rely on the clause.
- It binds signatories only. If the seller signed and the buyer did not, the buyer who goes around you has broken no promise to you.
- It is not a fee agreement. State the fee, or a formula for it, in the same document or in the one it refers to.
- It can be too wide to enforce. California's Business and Professions Code, for example, declares void every contract by which anyone is restrained from engaging in a lawful profession, trade or business, to that extent. A clause that ties a fee to named counterparties for a stated period is on firmer ground than one that bars a party from a whole market.
Because the parties are usually in different countries, the clause also needs a governing law and an agreed forum.
## Where can a broker file a lien for an unpaid commission?
A broker can file a lien for an unpaid commission only where a statute creates one, and in the United States those statutes are state laws that mostly cover commercial real estate. A lien turns an unsecured fee claim into a claim against the property itself.
Under the Illinois Commercial Real Estate Broker Lien Act, a broker has a lien on commercial real estate for the amount due under a written instrument signed by the owner, or by a prospective buyer or tenant, or by their authorised agent. The lien belongs to the broker named in the instrument, not to that broker's employees or independent contractors. It attaches when the notice of lien is recorded, not on the date of the agreement.
Texas, in Chapter 62 of its Property Code, likewise gives the lien only to the broker named in the commission agreement, requires that the commission be earned under an agreement signed by the party concerned, and requires the notice of lien to be recorded. It adds a condition: the broker's right to claim a lien must be disclosed in the commission agreement itself.
| Step under the Illinois Act | Deadline | If missed |
| --- | --- | --- |
| Record the notice of lien on a sale | Before the actual conveyance or transfer | No lien on that sale |
| Record the notice of lien on a lease | Within 90 days after the tenant takes possession | No lien on that lease |
| Mail or serve a copy on the owner of record | Within 10 days of recording | The lien is unenforceable |
| Start proceedings to enforce | Within 2 years after recording | The lien is extinguished |
| Sue or answer after a written demand from the owner | Within 30 days of the demand | The lien is extinguished |
Where a recorded claim would stop a closing, the Illinois Act provides for an escrow account funded from the proceeds in an amount sufficient to release the claim. The Act also puts costs, reasonable attorneys' fees and prejudgment interest on the party that does not prevail.
Where no such statute applies, a broker has no lien, and being paid from the sale proceeds takes the paying party's written instruction to the closing agent.
## What does the law give a commercial agent in the European Union?
In the European Union, a self-employed commercial agent with continuing authority to negotiate the sale or purchase of goods for a principal has commission rights set by Council Directive 86/653/EEC, and several of them cannot be signed away. A one-off introducer, or a broker of services or property, is outside it.
The Directive gives the agent commission on transactions concluded during the agency contract as a result of his or her action, or with a customer previously acquired for transactions of the same kind. After the contract ends, commission remains due where the transaction is mainly attributable to the agent's efforts during the contract and is concluded within a reasonable period.
Commission is to be paid not later than the last day of the month following the quarter in which it became due. By that same date, the principal must supply a statement of the commission due, setting out the main components used to calculate it, and the agent may demand the information needed to check it, including an extract from the books. Either party may require a signed written document setting out the terms of the contract. On termination, member states must provide an indemnity or compensation, and the agent loses that entitlement by failing to notify the principal within one year that he or she intends to pursue it.
Each member state implemented the Directive in its own law, so the detail depends on the country whose law governs the agency.
## What belongs in the evidence file?
The evidence file holds the documents that prove the three conditions of a fee claim: the contract, your capacity to act, and your performance. Build it as the deal runs, from documents created at the time.
- The contract: the signed fee agreement and every amendment, with proof of the signatory's authority where the payer is a company; the non-circumvention agreement signed by each side; any co-broker or referral agreement.
- Capacity: a copy of your licence or registration valid on the dates the work was done, for the jurisdiction where the asset is located.
- Introductions: each prospect registration, with the date, the named entity and the principal's acknowledgement or lack of objection.
- The chain of events: dated emails, call notes, meeting invitations, offers you transmitted and drafts you negotiated.
- The trigger: the signed sale contract, the closing statement or completion notice, and the price on which the fee is calculated.
- The claim: your invoice, issued when the trigger occurred, and the payer's response.
Where one payment is to be shared among several parties, such as two co-brokers and a referrer, a payment router is one way to settle the shares in advance: with Shaka, each party's share is set as a percentage of the deal and can be signed by each recipient before the client pays, the client pays once, and every party is paid at the same moment, with a record of who was paid what. Shaka routes the payment and never holds the funds, so it is not an escrow service.
Changed payment instructions are a separate exposure, wire fraud, with its own controls. For this file, one habit is enough: your bank details appear in the signed agreement, and any change is confirmed by a call to a number already on record.
## What do you do when a fee is withheld?
When a fee is withheld, you move in order through a written demand, negotiation or mediation, and then arbitration or court, while protecting any lien or limitation deadline from the first day.
From withheld fee to enforceable judgmentGeneral sequence; the forum and the deadlines depend on your agreement and jurisdiction
Fix the deadlinesNote the date the fee fell due, the limitation period that applies, and any lien recording date.
Read the dispute clauseCheck whether the agreement requires mediation first, names an arbitration body, chooses a governing law and court, and awards costs to the winning party.
Send a written demandState the agreement, the trigger event and its date, the calculation of the fee, the documents relied on, and a date for payment. Send it to the party who signed, by a method that proves delivery.
Ask for the reason in writingThe written reason (a disputed introduction, a licence point, a price adjustment) tells you which of the three conditions is under attack and what evidence to assemble.
MediateA mediator has no power to decide, and a settlement binds only when signed. Mediation suits disputes about causation and amount, where both sides carry risk.
Arbitrate or sueIf the agreement has an arbitration clause, the claim goes to the named body; otherwise it goes to the competent court.
Arbitration clauses are enforced firmly in the United States: the Federal Arbitration Act provides that a written provision to settle a controversy by arbitration, in a contract involving commerce, is valid, irrevocable and enforceable, save on grounds that would revoke any contract.
Trade associations add their own forums. The National Association of Realtors' arbitration guidelines explain that member associations arbitrate contractual disputes between members, and between members and their clients where the client agrees to arbitrate.
## What is a withheld fee worth under each outcome?
A withheld fee is worth its face value only if it is paid on demand; every contested route returns less, and a fee with no enforceable agreement behind it returns nothing. The worked example below is illustrative: the costs and the settlement percentage are assumptions chosen to show the order of magnitude, not market data.
Take the sale of a business for $2,400,000 with a success fee of 5%, so a fee of $120,000. The buyer came from the broker, the sale completed, and the seller has not paid. The chart compares five outcomes, from payment on demand to a claim that fails because the agreement was never put in writing where the law requires it.
What the broker keeps from a $120,000 feeIllustrative worked example: $2,400,000 sale, 5% success fee, assumed costs
Assumed figures: $8,000 unrecovered costs with a costs clause, settlement at 85% less a $2,000 mediator share, $35,000 own costs without a costs clause. Time to payment and interest are not included.
The gap between the second and fourth bars is $27,000, and it comes from one sentence in the agreement: who pays the costs of enforcing it. The gap between the first bar and the last is the whole fee, and it comes from the signature. Neither can be fixed once the dispute has started.
## How long do you have to bring a commission claim?
You have until the limitation period for contract claims expires in the jurisdiction whose law governs the agreement, and that period is often shorter when the agreement is not in writing. The clock normally starts when the fee fell due and was not paid, not when you gave up asking.
California shows the difference a document makes. Its Code of Civil Procedure allows four years for an action on a contract founded upon an instrument in writing and two years for an action on a contract not founded upon an instrument of writing. In England and Wales, the Limitation Act 1980 provides that an action founded on simple contract shall not be brought after six years from the date the cause of action accrued.
Shorter deadlines sit inside the general period and expire first: a broker lien's recording and enforcement dates, the one-year notice for a commercial agent's termination claim under the European Directive, and any period the fee agreement itself sets for raising a claim. List every date that applies on the day the fee is first withheld, and work to the earliest.
Talks do not generally stop these dates from running. If negotiation is productive and a deadline is close, the usual options are a signed standstill agreement suspending the period, or filing the claim to protect it while the talks continue.