Frederick F. Butters, Attorney at Law

Senate Bill 465

Changes to the Michigan Lien Law and the impact on the Design Professional

You may have heard of a lien being referred to as a “mechanics’ lien”.  That term owes to the fact that the legal underpinning behind a lien claim derives from origins of the law.  As automobiles became more prevalent so did the need to repair them.  The auto mechanic faced a difficult question when faced with a customer who refused to pay for repairs.  If the mechanic allowed the owner to take the vehicle the odds of payment dropped to zero.  However, if the mechanic retained the vehicle a claim for conversion (the civil version of theft) likely followed

The legal answer was to afford the mechanic lien rights.  The mechanic could retain the vehicle by asserting a right to the value the repairs added, in effect claiming part ownership in the vehicle as necessary to secure payment.  That same thinking was adopted in the context of construction liens; hence the reason the term “mechanic’s lien” is sometimes used to describe the process.

Inherent in the lien concept is the notion that the work has actually added value to the property.  Obviously a vehicle repaired so that it is in running condition has value a vehicle that won’t run doesn’t.  In the case of design services the added value isn’t quite so apparent.  As such, the traditional lien laws have required actual physical improvement to the realty in order for a lien to attach.  Therefore, where a design professional claims a lien but no actual work ever occurs, the lien would never attach and the lien would be unenforceable.  That was particularly problematic since the design professional is the first to be engaged as without a design there can be no construction.  In instances where the project didn’t proceed to construction, the design professional had no effective lien.[1]

Senate Bill 465 (“SB 465”) addresses that failing.  Once it became law, a design professional lien may attach to the realty even if no actual construction ever occurs.  In specific, there could be two scenarios under which a lien could attach.  Each is addressed as follows;

Actual Physical Construction / Improvement Occurs;  In the event actual physical construction or improvement occurs, nothing changes.  In order to keep all liens arising out of the design and construction process equal, all liens attach on the date actual physical construction commences.  This is the current law, and that does not change presuming actual physical improvement occurs.

Actual Physical Construction / Improvement Never Occurs;  In the event actual physical construction or improvement never occurs the design professional’s lien would still attach provided the design professional has complied with the requirements set out in SB 465.

With SB 465 effective, the design professional must now record a “Notice of Professional Services Contract” in the chain of title (actually that is now a precursor to any claim of lien by a design professional in every instance).  If the design professional has taken that step and no construction / improvement ever occurs, any the lien will still attach effective on the date on which the notice was recorded.  Although recording is a necessary step, it isn’t difficult or costly, and the required form (as is generally the case with all lien forms) is itself set out in the statute

In addition, to address some of the opposition from lenders and land title insurance interests SB 465 adds a requirement that a design professional have a written contract in order to make a lien claim.  While perhaps not universally practiced, securing a written contract for any design services is certainly always a wise practice.  While a breach of contract claim in the event of non-payment is still possible without a written contract, lien claims by design professionals no longer are.  Similar requirements apply to sub-consultants, with the exception being their engagement and contract must be approved by the Owner in order for the lien to attach.  In addition, a Notice of Design Professional Contract must be recorded by the prime design professional before a sub-consultant may record its notice.

The question then becomes whether a lien will attach to the interests of the Owner or whether its effect is limited to the interests of the person or entity contracting for the design services.  Under the prior law, where a design professional has a contract with a tenant or a developer who only held an option on the realty, the lien would only attach to the tenant’s lease or the option unless the tenant or developer was acting as an agent of the Owner.[2] 

The new law clarifies the process for design professional liens and plugs a hole in the lien law but it also adds a number of other logistic changes the design professional who seeks to claim a lien must be aware of and must comply with.  By reducing the process to statute, a significant portion of the litigation surrounding lien claims will hopefully be eliminated.

SB 465 passed 38-0 in the Senate and 105-4 in the House, by all accounts a massive majority.  Although legislation typically takes effect 90 days after the end of the legislative session in which it passes, it may also be given immediate effect if it receives a 2/3 majority on an immediate effect vote in both chambers.[3]  The bill passed an immediate effect vote and became effective when it was signed by the Governor and filed with the Secretary of State on December 12, 2018.

This article is offered for general education and information only.  Always consult with an attorney knowledgeable in the specific area of law applicable to your specific issue before making business decisions as how you should proceed.

Feel free to contact us for more information

Senate Bill 465

How it came to be

I had worked with the AIA Michigan government affairs committee since its inception in the late 1980s.  The idea of modifying the Michigan lien law so that it allowed a lien to attach where there had been no actual physical improvement had been something that I was investigating at the urging of an engineer member of the ACEC of Michigan who had lost out on a lien claim because of that requirement.

By the end of July of 2015 I had prepared a bill draft based on a few things that had just been accomplished in Massachusetts and Utah.  Unfortunately, developing a true design lien was not really something that was politically palatable so we were stuck with the existing lien framework.  Nevertheless, working with Senator Proos I developed a draft and came out of a meeting with a short to do list.  The Senator indicated he intended to introduce the bill after Labor Day when the summer recess ended

The very next day I was informed that I had been removed from the AIA Michigan government affairs committee.  That ended my work on legislative issues until February 2018.  At that time I was contacted by the ACEC of Michigan asking if I would help them move the bill.  As they put it, they couldn’t get it done without the assistance of someone who understood it, and they didn’t know where else to turn.  The ACEC have always been my friends and I think have always tried to advance the legitimate interests of their members so I agreed.

We dressed up the draft and met with numerous groups who either opposed or questioned the bill (as is typically the case).  Following countless meetings, hours of research, memos back and forth, etc., the draft was finalized and introduced.  It moved quickly through the Senate where it received final passage on a 38-0 vote.

In the House we encountered some opposition from the BOMA people.  While their opposition was more theoretical than practical, it was addressed by simply writing an aspect of current case law into the bill.  That bill passed the House on a 105-4 vote.  However, because that change was reflected in a substitute bill conference and Senate concurrence was required.  That happened quickly and on December 12, 2018 the Governor signed the bill into law.

While I focused on the legalities the ACEC leadership addressed the impacts on practitioners.  The new law does change the way every design professional claims a lien, but we believe in a manner that confers substantial benefit as well.   

Legislation is generally a long and tough road.  Indeed, reducing the statute of limitations for claims against design professionals in Michigan required 7 full years of effort.  In this instance the advocacy was solid and to a degree the stars aligned.  Nevertheless, without the industry input and leadership the ACEC of Michigan provided the end result simply would not have been possible.  They deserve the acknowledgment and support of every design professional who practiceis in Michigan