JUNE 14, 1996

The following overview is intended to familiarize you with the workings of the Construction Lien Act. This memo is not intended to cover every aspect of the Act, but rather merely to familiarize you with its basic workings.

The Michigan Construction Lien Act [MCLA 570.1101 et seq] works through a series of notices between the owner, general contractor and sub-contractors. These notices are intended to keep all parties apprized of what type of work/material is being provided and by whom, as well as assuring that all parties working on the project are paid or their rights to a lien preserved.

The first document which is prepared is a Notice of Commencement. This document is required in commercial construction and sets forth the name of the owner and general contractor, as well as a legal description for the property where improvements/construction will occur. This notice also sets forth the (designee) person to which other notices required by the Act should be sent. The Notice of Commencement is recorded at the Register of Deeds in the county where the property is located and is posted at the job site. Copies of this notice are provided by the owner to the general contractor and by the general contractor to the sub-contractors.

The second notice is called a Notice of Furnishing. This document identifies the contractors who are or will be furnishing work or materials on the project. A sub-contractor must provide this notice to the owner or its designee as well as to the general contractor within 20 days of beginning work or providing of materials in order to insure full protection of the sub-contractor's lien rights. (This notice should be provided as soon as possible even if the 20 days have passed, since it will fully protect lien rights arising after it is given and preserves some rights for work/materials provided prior to it.) This notice tells the owner and general contractor who is/will be working on the project in order that they can be paid and a waiver of lien rights obtained to the extent they are paid.

The third document involved in complying with the Act is called a Sworn Statement. This document is provided to the general contractor by sub-contractors when payment is due and outlines in detail what work/materials were provided as of a certain date and the cost for them. The general contractor and/or owner uses these statements to make payments to those working on the job.

At or near the time payment is made pursuant to a Sworn Statement, the general contractor and/or owner should require a waiver from those contractors who have been paid. The waiver should waive the right to claim a lien in an amount equal to what the sub-contractor has been paid. There are four types of waivers:

Partial Conditional - means that the party which will be paid is waiving their lien rights conditioned on payment. In other words, the waiver is not effective until payment is made and received. Partial means that more work has been done which has not been paid for or is expected of the party being paid.

Partial Unconditional - means a waiver which is given after payment is received. Partial means that more work has been done which has not been paid for or is expected of the party being paid.

Full Conditional - means a waiver that waives all lien rights (usually used along with last payment) conditioned on receipt of payment.

Full Unconditional - means a waiver that waives all lien rights (usually used along with last payment) after full payment has been received.

If payments are not made by the owner or general contractor when due to a sub-contractor and the sub-contractor has not waived their lien rights, a provider of work/materials may file a construction lien within 90 days of last furnishing labor or materials on the project. The lien sets forth the name of the claimant, the amount claimed (which is the amount for work/materials provided less amounts received), and the first and last dates that labor/materials were provided. This lien identifies the real property on which the lien is claimed (from the Notice of Commencement) and is recorded at the Register of Deeds.

A lien claimant has one (1) year from the date the claim of lien is recorded to foreclose the lien in Circuit Court. Usually the filing of the lien prompts payment and demand for discharge of the lien without the necessity for foreclosing the lien.

Note: On residential construction there must be a written contract before a lien can be claimed but it is a good idea to have a written contract in all circumstances.