The Power of a Contractor Lien and Michigan Construction Lien Act (CLA)
Today, we're donning our legal hard hats for a more comprehensive exploration of the Michigan Construction Lien Act (CLA). Whether you're a seasoned contractor, supplier, or property owner in Michigan, understanding the CLA is pivotal for understating your rights and responsibilities as you navigate the dangerous terrain of construction projects.
1. What is the Michigan Construction Lien Act (CLA)?
The Michigan Construction Lien Act, found in MCL 570.1101 et seq., is a legal framework designed to protect the rights of various parties involved in a construction project. From contractors and subcontractors to suppliers and property owners, the CLA establishes a mechanism to secure payment and resolve disputes in the construction industry. The CLA aims to provide contractors and subcontractors who improved a piece of real estate recourse should they not be paid. Generally, a construction lien does not give the lien claimant any greater rights to payment than the claimant can establish in connection with the underlying debt. The lien merely establishes a right to have the improved property sold so that payment can be obtained from the net proceeds of the sale, after claims that have priority are satisfied. However, the lien claimant may be entitled to an award of attorney fees, damages for premature termination of the construction contract, or recovery from a special fund for residential projects, all of which improve the lien claimant’s position during the recovery process.
2. Who Does the CLA Cover?
The CLA extends its protective umbrella to several key players in the construction process:
Contractors and Subcontractors: Those who provide labor, materials, or professional services.
Suppliers: Entities supplying materials to the project.
Property Owners: Those commissioning the construction work.
Design Professionals: Architects and engineers involved in the project.
3. Key Provisions of the CLA:
A. Mechanic's Liens (MCL 570.1101–.1109):
The CLA allows contractors, subcontractors, and suppliers to file mechanic's liens on the property if they haven't been paid for the work or materials provided. This serves as a powerful tool to secure payment, and property owners should be aware of the potential for a lien on their property.
B. Notices (MCL 570.1109a–.1109h):
The Act also introduces notice requirements, such as preliminary notices and notices of furnishing, which must be sent within a specific timeframe by certain parties to protect their lien rights. Be aware of preliminary notices from subcontractors and suppliers. These notices may be a precursor to potential lien claims. These notices play a crucial role in establishing and preserving a party's right to file a lien.
C. Lien Waivers (Michigan Legislature - Section 570.1116):
The CLA provides a framework for the use of lien waivers, allowing parties to waive or release their lien rights under certain circumstances. Understanding the nuances of lien waivers is essential to prevent unintended consequences.
6. The Power of a Construction Lien:
The Michigan CLA is a legal safeguard for those who contribute to property improvements through services, labor, or materials. It grants a powerful tool—the construction lien—allowing a lien claimant to secure payment by placing a lien on the property. In the event of non-payment, the lien claimant can pursue a foreclosure action, potentially leading to a forced sale of the property to recover the owed amount. While the CLA foreclosure provisions create the possibility of recovering attorney fees for the prevailing party, they are not promised. Thus, the cost of the lien foreclosure process is significant enough to support the view that lien foreclosure as a remedy is to be avoided and used in most cases as a last resort.
7. CLA in Addition to Breach of Contract Claims:
Crucially, the construction lien remedy doesn't replace a party's right to pursue a breach of contract claim against the contracting party. It's an additional layer of protection, providing flexibility for claimants to seek payment through various legal avenues.
8. Essential Forms and Timing Requirements:
To perfect and foreclose on a construction lien under the CLA, specific forms must be utilized within established timelines. Let's explore some key forms:
A. Notice of Commencement:
Created by the property owner or lessee.
The request must include a blank notice of commencement and a blank notice of furnishing.
Filed before project commencement on commercial projects.
Specifies property details and designates the recipient for other forms.
B. Notice of Furnishing:
Must be mailed by certified mail or delivered it in person,
Submitted by a lien claimant without a direct contract with the property owner.
Specifies work or materials provided, contract details, and includes proof of service.
Must be served within 20 days of first provision of labor or materials.
C. Sworn Statement:
Submitted by the lien claimant.
The general contractor must provide a sworn statement to the owner or lessee when requesting payment.
Identifies subcontractors, provides financial details of each subcontract.
Generally submitted with payment requests.
D. Lien Waivers:
Waive lien rights for specific amounts, conditioned on payment.
Submitted with payment requests or after receipt of payment.
E. Claim of Lien:
Created by the lien claimant.
Filed with the register of deeds within 90 days of the last provision of labor or materials.
Within 15 days after filing a claim of lien, a copy must be served on the owner’s designee personally or by certified mail.
Accompanied by proof of service to the owner's designee.
F. Notice of Lis Pendens:
Filed in the register of deeds when a foreclosure action begins.
G. Lien Bond:
Filed by a surety on behalf of the property owner.
Results in discharge or removal of the lien.
H. Foreclosure Complaint:
The first step in a foreclosure suit, filed with the circuit court.
Must be filed within one year of filing the lien.
I. Discharge of Lien:
Signed by the lien claimant.
Filed with the register of deeds upon payment of the lien.
9. Proactive Tips for Property Owners, Contractors, and Suppliers:
A. For Property Owners:
Because lien rights attach to the property improved through the efforts of the lien claimant, an owner’s interest in the process of the CLA is largely defensive. The owner seeks to ensure that efforts are made to limit or eliminate the filing of liens and to minimize the effect of liens that are asserted. The CLA provides various mechanisms that allow the owner to monitor payments to those providing improvements and to secure partial releases of lien rights as the work progresses. Therefore, property owners should ensure to:
Be vigilant about preliminary notices from subcontractors and suppliers.
Maintain meticulous records of work, materials, and communications.
Regularly verify payments to all tiers of contractors and suppliers.
Understand the implications of lien waivers.
B. For Contractors and Suppliers:
The CLA recognizes that even residential projects involve multilevel contracts. Thus, the act provides for a downward flow of the notice of commencement. A general contractor or subcontractor who receives a notice of commencement from the owner must provide a copy to a subcontractor, supplier, or laborer with whom the contractor or subcontractor has a direct contract within 10 days after receiving a written request by certified mail. In addition, contractors and suppliers should be careful to:
Serve preliminary notices promptly. Strict compliance with notice requirements may be crucial to protecting your lien rights.
Maintain meticulous records of work, materials, and communications.
Seek legal counsel to ensure compliance with the CLA.
Conclusion: Build Wisely, Navigate Confidently!
The Michigan Construction Lien Act is a robust framework balancing the rights and responsibilities of various stakeholders in construction projects to be paid with the property rights of the owner. Whether you're a property owner, contractor, or supplier, a nuanced understanding of the CLA is key to a successful and dispute-free construction journey in Michigan.
Stay tuned for more insights from Thompson Legal. Remember, in the realm of real estate and construction law, knowledge is your best tool—build wisely!
This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a real estate attorney about your case Contact Us at (734) 743-1646 to schedule a consultation.
