1.4 Construction Lien Act (PA 497 of 1980), Timelines, Notices & Waivers

Construction Lien Act (PA 497 of 1980), Timelines, Notices & Waivers

In the construction and mechanical contracting industries, securing legal rights to receive payment is as vital as code compliance. The Michigan Construction Lien Act (Public Act 497 of 1980, MCL 570.1101 to 570.1305) establishes a comprehensive statutory mechanism designed to achieve two fundamental goals:

1. Provide contractors, subcontractors, material suppliers, and laborers with a secure legal encumbrance (a construction lien) against the improved real property to guarantee payment for authorized work.
2. Protect property owners from the risk of double payment by establishing transparent notice chains, mandatory sworn statements, and statutory lien waivers.

Strict compliance with the Act's statutory timelines is mandatory. Missing a recording or notice deadline by even a single day can permanently extinguish a mechanical contractor's lien rights.

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Notice of Commencement (MCL 570.1108 & 570.1108a)

The construction lien process begins with the Notice of Commencement. Before any physical construction or mechanical work commences on a project, the property owner or lessee must prepare and record a formal Notice of Commencement.

Requirements for Property Owners

• Recording: Must be recorded with the Register of Deeds in the county where the real estate improvement is situated.
• Jobsite Posting: A copy must be posted conspicuously at the construction site.
• Contents: Legal description of the property, name and address of the fee title owner, name of any contracting lessee, name and address of the general contractor, and the designated agent (Owner's Designee) authorized to receive construction notices.

The 10-Day Response Mandate

If a subcontractor, mechanical contractor, equipment supplier, or laborer sends a written request for a copy of the Notice of Commencement to the owner, lessee, or general contractor by certified mail:

• The recipient must deliver a true copy of the Notice of Commencement, along with an accurate blank Notice of Furnishing form, within 10 days of receiving the request.
• Legal Impact of Failure to Comply: If the owner fails to provide the Notice of Commencement within the mandatory 10 days, the subcontractor's deadline to serve a Notice of Furnishing is extended until 20 days after the Notice of Commencement is actually provided. Furthermore, the owner is liable for any actual damages sustained by the claimant resulting from the failure.

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Notice of Furnishing (MCL 570.1109)

The Notice of Furnishing is the statutory tool by which subcontractors and material suppliers notify the property owner that they are supplying labor or materials to the project, thereby placing the owner on legal notice of their involvement.

Who Must Serve It?

• Subcontractors and Suppliers: Any party that does not have a direct contractual relationship with the property owner (e.g., an HVAC subcontractor hired by a general contractor, or a supply house delivering boilers to a mechanical contractor) must serve a Notice of Furnishing.
• Direct Contractors: A contractor who contracts directly with the owner (the general contractor or a prime mechanical contractor on a retrofit) is exempt from serving a Notice of Furnishing because the owner already has direct contractual knowledge of their work.

The 20-Day Rule

• The Notice of Furnishing must be served personally or by certified mail on the Owner's Designee (or owner) and the general contractor within 20 days after the date the claimant first furnished labor or materials to the jobsite.
• For laborers, the notice must be served within 30 days after wages were due.

Consequences of Late Service

Failing to serve the Notice of Furnishing within 20 days does not completely invalidate a lien. However, under MCL 570.1109(5), a late notice protects the claimant's lien rights only for labor and materials furnished after the date the notice is actually served. If the property owner paid the general contractor for prior work based on an approved sworn statement before receiving the late Notice of Furnishing, the subcontractor forfeits lien rights for all work performed prior to that service date.

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Sworn Statements (MCL 570.1110)

A Sworn Statement is one of the most powerful legal instruments in Michigan construction law. It is a detailed, notarized affidavit executed under oath by the general contractor or subcontractor listing every entity contributing to the project.

Mandatory Inclusions in a Sworn Statement

1. The name and trade of every subcontractor, supplier, and laborer engaged.
2. The full contract price for each party.
3. The exact amount already paid to each party.
4. The current amount due and requested.
5. The remaining balance required to fully complete each subcontract.

Statutory Function and Owner Protections

• Condition Precedent to Payment: Under MCL 570.1110, a contractor has no legal right to demand or receive payment, and cannot initiate a legal action to enforce a lien, until a proper Sworn Statement is furnished to the owner upon request or prior to payment.
• Owner Reliance: An owner or general contractor may rely on the sworn statement to issue payments directly to subcontractors or require lien waivers corresponding to the listed amounts.
• Felony Penalty for Fraud: Under MCL 570.1110(11), anyone who knowingly provides a false sworn statement with intent to defraud commits a felony punishable by substantial criminal fines and imprisonment depending on the monetary amount involved.

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Claim of Lien & Foreclosure Statute of Limitations

If a mechanical contractor or supplier remains unpaid for labor or equipment provided to a project, they must formalize their encumbrance by recording a Claim of Lien.

The 90-Day Recording Deadline (MCL 570.1111)

• A Claim of Lien must be recorded with the Register of Deeds in the county where the property is located within 90 days after the date of LAST furnishing labor or materials under the contract.
• What Constitutes "Last Furnishing"?: Must be substantial work performed in good faith pursuant to the contract scope. Warranty work, remedial repairs, punch list call-backs, or minor servicing to correct defective work do NOT extend the 90-day deadline. The clock runs from the last date of substantial contract performance.

Service on Owner within 15 Days

• Within 15 days after recording the Claim of Lien with the Register of Deeds, the lien claimant must serve a true copy of the recorded Claim of Lien, together with a copy of the Proof of Service, on the owner or the owner's designee, either personally or by certified mail.
• A Proof of Service of Claim of Lien must be filed with the Register of Deeds.

The 1-Year Foreclosure Statute of Limitations (MCL 570.1117)

Recording a Claim of Lien clouds the property's title, but it does not automatically force payment. To enforce the lien, the claimant must commence a judicial foreclosure lawsuit:

• 1-Year Deadline: An action to foreclose a construction lien must be filed in the Michigan Circuit Court within 1 year after the date the Claim of Lien was recorded.
• Failure to File: If a foreclosure complaint is not filed within 1 year, the construction lien expires by operation of law and becomes permanently void and unenforceable.
• Notice of Lis Pendens: Concurrent with filing the foreclosure complaint, the contractor must record a Notice of Lis Pendens with the Register of Deeds to provide public notice that the property's title is subject to active litigation.

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The 4 Statutory Lien Waivers (MCL 570.1115)

Michigan law strictly regulates lien waivers. Under MCL 570.1115, only four statutory forms of lien waivers are legally recognized. Using non-statutory forms can introduce severe legal ambiguities.

The Critical Contractor Trap: Conditional vs. Unconditional Waivers

A frequent point of failure for mechanical contractors involves executing an unconditional waiver upon receiving a paper check from a general contractor or owner. If the contractor signs a Partial or Full Unconditional Waiver and the payor's check subsequently bounces due to insufficient funds, the contractor's lien rights are permanently forfeited. Contractors must strictly use Conditional Waivers until funds have fully cleared the banking system.