Construction Liens Attorneys
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No one likes to work without getting paid (unless, of course, you have chosen to give of your time and skills to someone less fortunate). However, if you provide any improvement to residential real estate (including the structure and ground) and you are not a licensed residential builder, the homeowner may not have to pay for the improvement. This could apply to landscape installers, painters, and other trades. If your thought is “How can that be?” read on.
Michigan’s statutory law requires that residential builders, electricians and electrical contractors, plumbers, and other professionals, be licensed in their trade. That same statutory scheme does not require that other professionals, such as landscape nstallers, painters, or drywall installers, be licensed, even though they most often perform their services by providing improvements to residential real estate (which includes tructure and the grounds on which the structure sits).
The problem is that two cases from the Michigan appellate courts, when taken together, may have effectively created a new licensing requirement, by denying a person the right to recover the value of the improvement he or she provides to residential real estate, unless that person is licensed as a residential builder.1
The two cases are Stokes v Millen Roofing Co, 466 Mich 660; 649 NW2d 371 (2002) and Utica Equipment Co v Ray W Malow Company, 204 Mich App 476; 516 NW2d 99 (1994). The Stokes case ruled that a person who performs services of a residential builder, but who does not hold a residential builders license, is absolutely barred, from recovering any compensation for labor, materials, or any other part or portion of the services provided. In other words, an unlicensed builder or contractor may not claim a construction lien, file a lawsuit, or take any other legal action to collect any compensation for work he performs. He cannot bring an action for breach of contract, foreclose a construction lien, or even bring an action for quantum meruit (for the inherent value that the homeowner received), unjust enrichment (the legal notion that it would be unjust for the homeowners to retain the benefit of the improvement without paying the party who provided the improvement), or any other theory. It seems fair enough, right? We do not want unlicensed builders preying on the public right? Here’s the rub: the Utica Equipment case defines “residential builder” or “contractor” to include any person or company who works on a residential structure or its “appurtenances.” The Michigan Court of Appeals, in Utica Equipment Co, said:
A residential builder is “a person engaged in the construction of a residential structure or a combination residential and commercial structure” as either a contractor or a subcontractor. MCL 339.2401(a); MSA 18.425(2401)(a). A “residential structure” is defined as “premises used or intended to be used for a residence purpose and related facilities appurtenant to the premises, used or intended to be used, as an adjunct of residential occupancy.” MCL 339.2401(c); MSA 18.425(2401)(c).
The Court went on to define an “appurtenance” as:
Black’s Law Dictionary (5th ed) defines “appurtenant” as “[b]elonging to; accessory or incident to; adjunct, appended, or annexed to” and states that “[a] thing is ‘appurtenant’ to something else when it stands in relation of an incident to a principal and is necessarily connected with the use and enjoyment of the latter.” Also, “[a] thing is deemed to be incidental or appurtenant to land when it is by right used with the land for its benefit, as in the case of a way or water-course.” The same dictionary defines “adjunct” as “[s]omething added to another, but in a subordinate, auxiliary, or dependent position.” Webster’s New Twentieth Century Dictionary of the English Language (2d ed) in its definition of appurtenance includes “gardens” and “pasturage” among its examples of things that are appurtenant “to a house or to land.”
So, because the Court of Appeals has ruled that “residential builder” includes anyone who does work on a residential structure “or its appurtenances” (which could even include gardens, landscaping, etc.), if you provide an improvement to real estate, and are not a licensed builder, the homeowner does not have to compensate you for your services (or materials, or incidental expenses). This is true even if the type of work you are doing (roofing, landscaping, painting, etc.) does not otherwise require any license.
It could play out like this: you, a professional painter, bid a whole-house exterior repainting job for $15,000. The homeowner accepts the bid, and pays half down ($7,500) to start the project, with the balance due upon completion. Your buy the paint, bring your crew and equipment to the site, and complete the job. You then present the final bill to the homeowner, showing the balance due of $7,500. The homeowner responds “Thank you, you did a nice job. By the way, are you a licensed builder? You’re not? Well, I’m sorry, but I am not going to pay you the remaining $7,500. Have a nice day.”
Under the current state of Michigan law, there may be nothing you can do. Because the improvement was clearly provided to a residential structure, the Utica Equipment Co case says that you must be a licensed builder in order to be able to recover the value of that improvement. You cannot sue the homeowner for breach of contract, though there clearly was a contract, and the homeowner has clearly breached it. You cannot claim or record a lien against the property.2 You cannot sue the homeowner in Small Claims. You have just been outfoxed, by the homeowner, and by Michigan law (albeit perhaps unintentionally). Almost certainly, you have suffered a significant loss on this job.
How do you protect yourself against such a course of events? Under the current state of the law, it appears that the only way to guard against such a loss is to obtain a residential builders license. If you are doing business as a limited liability entity (a corporation or limited liability company), it may be appropriate for the company to hold the license.3
It may be that the Michigan Court of Appeals, or the Michigan Supreme Court, will overrule the Utica Equipment Co case in the coming years, and fix this “quirk.” Unless and until that happens, however, you should be aware of this pitfall, and take action to protect yourself from involuntarily providing “free” improvements.
1 A laborer or subcontractor who is working under a licensed builder on a project, who does not have an agreement directly with the owner, does have some protections, and can probably file a claim of lien and/or take other actions to recover the value of his or her services.
2 An unlicensed builder is not entitled to claim a lien against the property. In addition, unless your written contract contains other language required by Michigan Construction Lien Act, MCL 570.110 et seq., that, too, may bar you from recording a claim of construction lien.
3 Although arguably it might be sufficient for a principal or the company to hold a residential maintenance and repair alteration license, under the case law, it would be the safest to make it a full builders license.