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In its lame duck session, Michigan’s legislature passed a substantial amendment to the Michigan Construction Lien Act, which was given immediate effect. Specifically, design professionals, defined as architects, professional engineers, surveyors, and their subcontractors, may now record a lien for design services performed prior to the first physical improvement to the property.
To accomplish this, the design professional or its subcontractor must first record a “Notice of Contract” with the Register of Deeds in the county where the project is located. The Notice of Contract must be recorded after executing a contract for their services, but before the first physical improvement to the property and not later than 90 days after the design professional last provided services. Moreover, the Notice of Contract must substantially comport with the form set out in MCL 570.107a and include: (1) a statement which indicates the design professional is performing design services for the improvement of the property; (2) a description of the services provided; and (3) a legal description of the property to be improved. In order to have the right to record a Notice of Contract, the design services performed by a design professional or its subcontractor must have been authorized in writing by the Owner. The Notice of Contract is valid for one year after it is recorded.
If no physical improvement is made to the property, the Notice of Contract is effective from the date it was recorded and the lien it establishes takes priority over any subsequently recorded encumbrance. However, once a physical improvement to the property is made, the Notice of Contract becomes effective from the commencement date of that physical improvement, essentially subrogating it to any other subsequent encumbrance (e.g., mortgage) recorded prior to the first physical improvement. Moreover, as under previous versions of the Michigan Construction Lien Act, the lien of a design professional and the liens of other contractors continue to have equal priority once a physical improvement to the property is made.
Under the new amendment, design professionals may now record a lien for pre-construction services, regardless of whether a physical improvement to the property actually occurs. However, the same right has not been afforded to construction managers, trade contractors, or material suppliers who are performing pre-construction services, typically under construction management agreements.
Therefore, while the legislature has indicated a willingness to allow liens for pre-construction services, regardless of whether physical work ever takes place on the property, these lien rights are limited to “architects, professional engineers, surveyors, and their subcontractors”. Other entities, such as construction managers, trade contractors, and suppliers, who are effectively performing the same services, will still be unable to record a lien until there is an actual physical improvement to the property.