Michigan's Construction Lien Act: (Part 2)

In this article, part 2 of a series concerning the Michigan Construction Lien Act, I will be discussing the Notice of Furnishing (NOF).

In part 1, we had established that Fritz Concrete Company (Fritz) was a qualified subcontractor. It had contracted directly with Musclehead Building Corporation (Musclehead), the general contractor.

Fritz had obtained a copy of the Notice of Commencement (NOC) from Hercules. The next step is for Fritz to provide a NOF to the designee or owner named in the NOC, or to the general contractor, Musclehead.

Fritz decides to provide a copy of the NOF to Hercules, the property owner.

Chapter 570.1109 sets forth the rules concerning the NOF, which are:

(1) Except as otherwise provided in sections 108, 108a, and 301, a subcontractor or supplier who contracts to provide an improvement to real property shall provide a notice of furnishing to the designee and the general contractor, if any, as named in the notice of commencement at the address shown in the notice of commencement, either personally or by certified mail, within 20 days after furnishing the first labor or material. If a designee has not been named in the notice of commencement, or if the designee has died, service shall be made upon the owner or lessee named in the notice of commencement. If service of the notice of furnishing is made by certified mail, service is complete upon mailing. A contractor is not required to provide a notice of furnishing to preserve lien rights arising from his or her contract directly with an owner or lessee.

So, according to this Section, Fritz must supply the NOF to Hercules within 20 days after furnishing the first labor or material.

Question: Why does Fritz have to supply a NOF to Hercules?

Answer: It's all about notification. Remember, Fritz contracted directly with Musclehead, not with Hercules. As a result, the most logical way for Hercules to learn of the existence of Fritz is by use of the NOF. Fritz will notify Hercules directly that it is performing work on Hercules's project. Additionally, the general contractor, Musclehead, is not required by statute to supply a NOF to Hercules, because Musclehead contracted directly with Hercules. Hercules knows that Musclehead is fully involved.

Question: What happens if Fritz fails to supply a NOF to Hercules?

Answer: We look to section 1109(6) for the answer:

(6) The failure of a lien claimant, to provide a notice of furnishing within the time specified in this section shall not defeat the lien claimant's right to a construction lien for work performed or materials furnished by the lien claimant before the service of the notice of furnishing except to the extent that payments were made by or on behalf of the owner or lessee to the contractor pursuant to either a contractor's sworn statement or a waiver of lien in accordance with this act for work performed or material delivered by the lien claimant. This subsection does not apply to a laborer.

In part 3 of this series, I will be discussing the "sworn statement and waivers" that is so critical in understanding the Construction Lien Act. For now, just understand that if Fritz fails to supply a timely NOF, it may defeat Fritz's ability to file a successful lien for work performed if Hercules is relying on a "sworn statement" issued by Musclehead, that does not recite the interest of Fritz.

The NOF must be supplied to the owner, designee, or general contractor. A party in interest cannot file a valid lien until this NOF is supplied. This makes good sense: after all, how can a property owner be subject to a lien when they don't even know the lien claimant exists? If you stop and think about it, it's all really common sense.

So, what have we covered so far? Part 1 concerned the Notice of Commencement. The NOC is a notice from the owner of the subject property that work is about to commence. Any person or entity working the job can rely on the NOC for the filing of the NOF. The NOF is a notice to the owner of the subject property that a particular entity, other than the general contractor, has begun work on the job.

Please click on this site next week for a discussion of the "sworn statement and waiver."

dave