THE LAW OFFICE of DOMINIC SILVESTRI, PLLC


FOUR THINGS EVERY CONSTRUCTION CONTRACTOR SHOULD KNOW ABOUT THE MICHIGAN CONSTRUCTION LIEN ACT

FOUR THINGS EVERY CONSTRUCTION CONTRACTOR SHOULD KNOW ABOUT THE MICHIGAN CONSTRUCTION LIEN ACT

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Construction contractors are often some of the hardest working individuals I’ve ever met. And this time of year is no different. Unfortunately, many contractors are so focused on cranking out the work (which is to be expected and not a bad thing), that they often don’t have time to devote to other parts of their business. One important yet overlooked, part is understanding the Michigan Construction Lien Act and how it can protect their hard work in the event of non-payment. To simplify, I’ve summarized 4 things that every construction contractor should know about the Michigan Construction Lien Act:

  1. Notice of Commencement

The Notice of Commencement is something that should be requested the minute the contract is signed with the general contractor. This document is important for a number of reasons. But mainly because it identifies some major information about any construction project: specifically, it identifies the owner of the property, the general contractor and the legal description of the property. This information is crucial to making sure your rights are protected. For example, lets say you are the roofer who just found out your bid was accepted. You’ve been dealing with a general contractor, but do you know who the owner is? If not, the Notice of Commencement will give you that information. This is important because if you don’t get paid by the general contractor, and file a lien on the property, the owner may be able to defeat your lien if they had no clue who you were or what you provided. In order to file your lien if you don’t get paid, you’ll need the legal description of the property – again, this is provided in the Notice of Commencement. Ask for the Notice of Commencement at the same time you get the contract.

  1. Notice of Furnishing

Like the Notice of Commencement, the Notice of Furnishing is a document the MCLA requires so that parties involved with a project, in this case the owners lenders and subcontractors, can protect themselves. Parties who supply labor or material and who do not have a DIRECT contract with the owner MUST provide a notice of furnishing to the owner or lessee and to the general contractor within 20 days after furnishing the first labor or material. See MCL 570.1109(1). Failure to provide this form does not defeat your right to a construction lien performed or material furnished AFTER the Notice is provided…but it does defeat your lien rights to anything performed or provided BEFORE. See MCL 570.1109(5). This means that if you don’t provide this until the very end, after you’ve completed your work, your lien rights are in jeopardy!

This form is relatively simply to prepare and a sample can be found within the statute itself, here: Notice of Furnishing.

Notice of Furnishing

  1. Waiver of Lien

Because most owners and lenders on a construction project want to maintain clear title to the property, most require a waiver of your lien rights in exchange for payment. There are 4 different waivers:

  • Partial conditional waiver: this waiver means that you will partially waive your lien rights on the condition that you will receive a partial payment for the work you’ve provided (this means partial payment comes AFTER you sign).
  • Partial unconditional waiver: this waiver means that you partially waive your lien rights in exchange for partial payment for the work you’ve provided (this means payment is given at the same time you sign).
  • Full conditional waiver: this waiver means that you will waive ALL lien rights on the condition that you will receive FULL payment for the work you’ve provided (this means full payment comes AFTER you sign)
  • Full unconditional waiver: this waiver means that you will waive ALL lien rights in exchange for FULL payment for the work you’ve provided (this means payment is given at the time you sign)

Worried about signing a conditional waiver – especially since that means you must waive your rights first and receive payment later? The Michigan Construction Lien Act protects you by providing that lien waivers “shall be effective when a person makes a payment relying on the waiver..” see MCL 570.1115(6)

Again, the waiver documents are relatively simply to prepare. A sample, with the information required to be included can be found here: Waivers of Lien Form

  1. Claim of Lien

The Claim of Lien is the first outward notice to the world that a construction lien is being claimed for non-payment of labor and/or material. This document MUST be recorded with the register of deeds and therefore becomes part of the title history of the property. It also places the owner or lessor and the general contractor on formal notice that a lien claimant has not been paid. Often construction contracts, particularly those between the owner and lender, owner and general contractor and general contractor and subcontractors, require (1) that the project be maintained free of liens and (2) that the party whose downstream subcontractor or supplier has asserted a lien take immediate steps to remove the claim of lien, often by payment or other resolution. The Claim of Lien is an important, effective and economical tool to assist you with getting paid, short of filing a lawsuit and incurring expensive litigation costs. However, the Michigan Construction Lien Act must substantially comply with the form and timing requirements set forth in MCL 570.1111. This is important because MCL 600.2907a(1) provides that a party who encumbers a property through the recording a document without lawful cause and with the intent to harass or intimidate any person, is liable to the owner of the property for all costs, including attorney fees and all damages sustained as a result of the filing of the lien.

Required Contents:

The Claim of Lien must include the following:

  1. The date on which you first provided labor or material
  2. The legal description of the property (which you already received when you requested the Notice of Commencement)
  3. The name of the owner or lessee
  4. The last day you provided labor or material
  5. The total amount of your contract, including extras
  6. the total amount received to date (if any)
  7. The amount claimed as a lien (i.e., the contract amount minus payments received)
  8. name and address of the lien claimant
  9. notarized signature of the lien claimant

Again, this form can be relatively simple to prepare. A sample, with the information required to be included can be found here: Claim of Lien Form.

 

Claim of Lien

One of the most sensitive items of information that must be included on the lien, aside from the last date of furnishing, is the amount of the lien. In Tempo v Rapid Elec Sales, 132 Mich App 93 (1984), the court ruled that a lien will be entirely lost if the amount is overstated in bad faith.

Timing Requirements to File a Claim of Lien

The 90 day Rule: The MCLA states that if a lien claimant does not record its claim of lien within 90 days after it furnished labor or material, the lien is invalid.

The 1 year Rule: If you have properly filed your Claim of Lien and have still not been paid, you must file a complaint for enforcement of the Claim of Lien within 1 year after the lien was recorded. If not, your lien may be discharged.

Keep in mind that you still retain your rights under traditional contract law, including a 6 year statute of limitations. However, knowing your rights under the MCLA will help you avoid the potential and significant costs of litigation later down the road.

As always, if you have any questions, feel free to contact your lawyer.

Good luck!

 

 


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