CHANGES TO THE CONSTRUCTION LIEN ACT

On December 28, 2006, Governor Granholm signed into law two separate Bills introduced by separate senatorial teams that made significant changes to the Michigan Construction Lien Act (CLA).  Changes to the CLA became effective January 3, 2007.  The most significant of the changes affect three separate areas of the CLA, which are as follows:

I. SWORN STATEMENTS.

As you may recall from the original CLA, the CLA required that a Sworn Statement contain language substantially provided in the form provided in the CLA.  That Sworn Statement form has been changed and a copy of the new Sworn Statement form is enclosed.

The significant change to the Sworn Statement form and the requirement to the Sworn Statement section of the CLA are contained in the following language from the new Sworn Statement form:

“ON RECEIPT OF THIS SWORN STATEMENT, THE OWNER OR LESSEE, OR THE OWNER’S OR LESSEE’S DESIGNEE, MUST GIVE NOTICE OF ITS RECEIPT, EITHER IN WRITING, BY TELEPHONE, OR PERSONALLY, TO EACH SUBCONTRACTOR, SUPPLIER, AND LABORER WHO HAS PROVIDED A NOTICE OF FURNISHING UNDER SECTION 109 OR, IF A NOTICE OF FURNISHING IS EXCUSED UNDER SECTION 108 OR 108a, TO EACH SUBCONTRACTOR, SUPPLIER, AND LABORER NAMED IN THE SWORN STATEMENT.  IF A SUBCONTRACTOR, SUPPLIER, OR LABORER WHO HAS PROVIDED A NOTICE OF FURNISHING OR WHO IS NAMED IN THE SWORN STATEMENT MAKES A REQUEST, THE OWNER, LESSEE, OR DESIGNEE SHALL PROVIDE THE REQUESTER A COPY OF THE SWORN STATEMENT WITHIN 10 BUSINESS DAYS AFTER RECEIVING THE REQUEST.”

The new Sworn Statement form and the changes to the CLA require the provider of the Sworn Statement to include in the Sworn Statement  the name, address, and telephone number of each of its subcontractors and/or suppliers listed on the Sworn Statement.  The new changes to the CLA, essentially, require the receiver of the Sworn Statement to provide a copy of it to all persons that have provided a Notice of Furnishing or any subcontractor and/or supplier who makes a request for it or any subcontractor or supplier that is not required to provide a Notice of Furnishing, which generally means any person that has a direct contract with the owner or is not required to provide a Notice of Furnishing because the owner failed to file a Notice of Commencement.

It is our recommendation that upon receipt of a Sworn Statement from your subcontractor or supplier that you supply each of the labor and material suppliers listed in the Sworn Statement along with anyone for which you or the owner has received a Notice of Furnishing a copy of the Sworn Statement and  follow up a few days later with a telephone call to that subcontractor or supplier listed on the Sworn Statement requesting verification that the information supplied on the Sworn Statement is accurate.  This process may be made slightly easier by insisting that the provider of a Sworn Statement identify the responsible person at its subcontractor and/or supplier that will handle the notification that you provide along with the verification of the accuracy of the information.

In addition to the changes in the Sworn Statement and your duties as the receiver or supplier of the Sworn Statement, criminal sanctions for the providing of a false Sworn Statement have been more precisely codified and substantially increased.

II. LIEN WAIVER FORMS.

Like the Sworn Statement form, the CLA has also included new forms to be substantially followed for Full and Partial Conditional Waivers and Full and Partial Unconditional Waivers.  These forms have now been altered to include the following language:

“If the owner or lessee of the property or the owner's or lessee's designee has received a notice of furnishing from me/one of us or if I/we are not required to provide one, and the owner, lessee, or designee has not received this waiver directly from me/one of us, the owner, lessee, or designee may not rely upon it without contacting me/one of us, either in writing, by telephone, or personally, to verify that it is authentic.”

Enclosed you will find the four (4) new separate forms for both the Partial Unconditional and Conditional Waivers and the Full Unconditional and Conditional Waivers.  The changes to the CLA, consistent with the new language contained on the lien waiver forms, essentially state that the owner, lessee, or designee cannot rely upon a lien waiver provided by a person other than the party giving the waiver unless the party purporting to rely on the lien waiver has verified the authenticity of the waiver either in writing, by telephone, or personally with the provider.

In essence, unless you receive the lien waiver directly from the entity that purports to supply it, you must contact the supplier of the lien waiver, either in writing, in person, or by telephone to confirm that the lien waiver is authentic. 

III. RESIDENTIAL PROJECTS.

We have continuously urged all of our clients, except those required to be licensed as electricians, plumbing, or mechanical contractors under separate licensing requirements, to obtain a Residential Builder or a Residential Maintenance and Alteration Contractor License.  The reason for this recommendation is that the interpretation of a “residential structure” can be left to the imagination of the Courts.  What your industry perceives to be a commercial-type project for a large apartment, condominium, or mixed use project could be perceived to be a residential structure by an uninformed Court.  There is now even greater reason to heed our advice.

The amendments to the CLA statutorily codify the prohibitions against an entity that is not properly licensed to enforce a lien and include sanctions against an entity that wrongfully attempts to enforce a lien against residential property. 

Under the original CLA, the Homeowner Recovery Fund (Fund) was established to protect homeowners that fully paid for improvements against the liens of subcontractors and/or suppliers to an unscrupulous contractor under such circumstances that a subcontractor or supplier lost its lien claim but had a claim against the Fund.  The new changes to the CLA have made it even more difficult to recover against the Fund.  Under the new changes to the CLA, a contractor or subcontractor must demonstrate that it contracted directly with the party with whom the owner or lessee contracted.  More importantly, if the party claiming recovery against the Fund is a supplier, that supplier must generally demonstrate that it required its customer to (a) submit a credit application, (b) obtained a favorable credit report on a publicly traded corporation, (c) obtained a credit report of the owner or qualifying officer or a non-publicly traded corporation, and (d) obtained a personal guaranty from the owner or one or more of the principals of the subcontractor or supplier if it is less than four years old.

Even if the Fund is responsible, it is not responsible for time price differential or finance charges that accrued 90 days after the Claim of Lien was recorded.   In addition, the Fund is not liable for materials shipped if the customer was delinquent in paying for more than 180 days.  Lastly, the Fund will not be liable for any amounts that exceed the customer’s credit limit at the time that the materials were supplied.

IV. CONCLUSION.

The two bills that incorporate the new changes to the CLA contain 12 pages of language.  Obviously, not all of the changes and the effects of those changes can be discussed in this relatively short letter to you.  You are encouraged to discuss your particular industry and circumstances with our team of professionals so that you can be comfortable that you are compliant with the most recent changes to the CLA as they apply to your particular industry and business practices.