Changes to the Michigan Construction Lien Act: What every professional in the construction industry needs to know to protect itself
On December 12, 2018, Public Act 367 of 2018 was enacted, amending the Michigan Construction Lien Act, MCL 570.1101 et seq. (“CLA”), to provide design professionals (i.e. licensed or registered architects, professional engineers, or professional surveyors) with specific lien rights and procedures for creating and perfecting those lien rights for professional services provided in the event that an owner of a project or a property does not proceed with actual physical construction of a project or actual physical improvement of a property. The amendments apply both to design professionals in direct contract with the owner or the owner’s agent (“Contractor Design Professional”) and design professionals not in direct contract with the owner or the owner’s agent, but in direct contract with a Contractor Design Professional (“Subcontractor Design Professional”).
Prior to these amendments, design professionals were afforded lien rights when actual physical construction of the project commenced. When the owner of a project did not commence construction of the project, however, there was uncertainty about the priority and enforceability of those lien rights. The latest amendments resolve that uncertainty by adding a notice requirement for design professionals who provide professional services to secure their lien rights in the event the owner of the project does not commence construction.
Specifically, a design professional must record a Notice of Professional Services (“Notice”) with the register of deeds for the county in which the project is located, stating that the design professional is providing professional services (e.g. analyzing and assessing project sites, preparing project plans and specifications, etc.) relating to the project or the improvement to the property and describing those professional services, as well as setting forth the legal description of the property. The Notice must be recorded after the design professional enters into the written contract for its professional services, but not later than ninety (90) days after the design professional last provides its professional services. The form of the Notice and the required contents of the Notice vary depending on whether the design professional is a Contract Design Professional or a Subcontractor Design Professional (the form for the Notice for a Contract Design Professional and the form for the Notice for a Subcontractor Design Professional are set forth, respectively, in MCL 570.1107a and MCL 570.1107b). Notably, a Subcontractor Design Professional may record a Notice when the Contractor Design Professional with whom it has its contract or engagement has recorded a Notice and the owner has provided written approval of its contract or engagement.
The Notice is “valid” for one (1) year after it is recorded and subsequent notice may be recorded if necessary. MCL 570.1107a(3) and MCL 570.1107b(3). Notably, “valid” is not defined by the statute, and thus, what is meant by “valid” is not entirely clear. Also, the priority date of the Notice depends on whether actual physical improvement to the property is made. If actual physical improvement to the property is not made, the Notice has a priority date (relative to other interests and encumbrances on the property) based on the date that the Notice is recorded. If actual physical improvement to the property is made, the Notice has a priority date based on the date that actual physical improvement to the property is made, which would put the design professional’s construction lien in equal priority with the construction liens of all other construction lien claimants.
Importantly, the amendments do not affect the requirements regarding the creation, perfection, and enforcement of a construction lien. In other words, a design professional must still comply with the requirements of the CLA, including, but not limited to, the requirements for serving a notice of furnishing, serving a sworn statement, recording a claim of lien, commencing an action for foreclosure of a claim of lien, to create, perfect, and enforce its construction lien.
Whether you are a Contractor Design Professional, a Subcontractor Design Professional, a contractor, or a subcontractor, you must know your rights before, during, and after a construction project. Butzel Long’s Construction Law Practice Group can assist you with any of your needs.
Michael C. Decker
Paul M. Mersino