New Ruling Changes Contract Requirements for Construction Lien Claims
Construction contracts can be verbal or written — either form is legally enforceable. However, a recent ruling from the Court of Appeals affirms that in residential construction, builders who fail to document changes to a contract in writing forfeit their lien rights under the Michigan Construction Lien Act for such changed work.
In MDH Construction v Asquith (Court of Appeals, August 17, 2023), a residential builder presented a quote to a homeowner to build stone retaining walls. The parties later signed an agreement for the work. The plan for the project evolved during construction through verbal discussions. There were no written change orders.
The builder claimed that he had completed the work. The owner refused to pay the remaining balance, so the builder recorded a construction lien for $6,000. The owner disputed the builder’s claim, alleging that changes to the plan were actually the result of the builder’s mistakes and that the owner did not agree to all of the changes.
While there were interesting rulings on procedural matters, for purposes of this commentary, the key takeaway from MDH Construction is the court’s ruling that the builder was entitled to contract damages of $6,000 but not entitled to a lien where the builder did not substantially comply with the requirements of the Michigan Construction Lien Act because, among other things, changes to the parties’ agreement were not in writing.
To that end, the Michigan Construction Lien Act, MCL570.1114, provides:
“[a] contractor does not have a right to a construction lien on the interest of an owner or lessee in a residential structure unless the contractor has provided an improvement to the residential structure under a written contract between the owner or lessee and the contractor and any amendments or additions to the contract are also in writing.”
The Court of Appeals affirmed the ruling, noting that because amendments to the contract were not in writing, the builder was not entitled to a lien. Importantly, however, the appellate court explained that the builder’s inability to enforce the lien did not prevent the builder from recovering his contract damages from the owner. That is, the builder had a contract right but could not assert a lien against the property to secure payment for that contract right.
The Construction Lien Act’s requirement that changes be in writing to create a lien right applies only to residential construction, not commercial construction. Regardless of the character of the construction, parties should document changes in writing to minimize the risk of conflict or misunderstanding. Relationships sour; conditions change; memories fade. At best, people remember their oral agreements differently; at worst, they may lie about the promise or retract the commitment. Parties can avoid a “he said / she said” debate by documenting their agreements in writing. The change orders and associated costs can be communicated via text, email, or a written contract, with a written and signed contract being the best practice. The Construction Lien Act does not expressly require a signature for the written contract or written amendment, although it’s recommended. Michigan courts have affirmed lien rights, where a writing (albeit, unsigned) documented the change and the other party accepted the benefit of the change.
The Lesson Learned:
Always document changes in a residential contract, preferably through written and signed change orders. This best practice serves the dual purpose of securing lien rights in residential construction and avoiding misunderstandings about changes that occur as a project evolves.
Questions about how to navigate Construction Liens?
Contact a Hilger Hammond attorney for guidance. We’d be happy to talk through your unique situation.
