One of the first things you learn in law school is about the multiplicity of legal systems: almost every distinct independent/autonomous region operates under their own set of laws. This concept naturally applies to construction law as well. Ontario’s Construction Act is only one of a plethora of different legal regimes governing construction law and lien rights. In Canada, each province has individual versions of construction/mechanics/builders lien acts. While these acts are more or less the same, each province’s legislation has distinct features (such as British Columbia’s express law disallowing any construction liens being registered if the lien amount is less than $200.00)[1].
Outside of Canada, there are even more diverse and unique lien legislations in each respective state and region – each adapting to the particular circumstances, contexts, and traditions of that region. For the purposes of this blog, I invite the readers to turn their attention to the lien legislation of the State of Michigan in the United States of America.
Michigan Construction Lien Act
Enacted in 1980, the Michigan Construction Lien Act (“MCLA”) contains many components similar to the Construction Act. It provides a basic framework that addresses lienability[2], preservation of lien rights, [3] and subsequent expiration of liens rights.[4] Naturally, the wording and flow of this statute is vastly different than the framework established by the Construction Act.
In the present piece, I would like to address attention to a feature radically different from the Construction Act: the MCLA has specific requirements pertaining to construction liens on residential properties. Particularly, it only allows contractors who are licensed with a regulatory body to “record” a construction lien against said residential properties.
Licensed Contractors
Pursuant to Section 114 of the MCLA,
Sec. 114. 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 contract required under this section shall contain a statement, in type no smaller than that of the body of the contract, stating all of the following:
(a) That a residential builder or a residential maintenance and alteration contractor is required to be licensed under article 24 of the occupational code, 1980 PA 299, MCL 339.2401 to 339.2412…
(b) If the contractor is required to be licensed to provide the contracted improvement, that the contractor is licensed and the contractor’s license number.
Based on Section 114, the MCLA creates two requirements in order for contractors to register residential liens: 1) there has to be an explicit and written contract, meaning that there cannot be oral or napkin-based agreements, and 2) the contract must contain a statement outlining evidence that the residential builder is licensed.
The consequences of breaching these sections are severe. Section 114(a) of the MCLA provides that, where a lien is registered by someone who was not licensed, the owner of a residential property may bring a motion to discharge the lien.[5] The unlicensed lien claimant would further be responsible to pay the owner’s actual costs on a full indemnity basis for any steps taken to remove the lien.[6] These provisions raise important inquiries into the purpose and effectiveness of requiring residential lien claimants to be licensed prior to being permitted to preserve their lien.
The licensing process in Michigan creates a regulatory oversight and further requires specific conduct from licensees (such as good moral character and proof of competence).[7] In issuing and renewing licenses, Michigan also requires that residential builders must have financial stability to maintain their license.[8] The licensing authority as has a mechanism to take complaints from the general public, which complaints may result in builders losing their license.[9] Accordingly, it is plausible that this licensing process weeds out potential vexatious and frivolous liens as well as discourages claimants from improperly liening or closing down their companies in face of counterclaims (such as happens every now and then in Ontario).
Conclusion
Aside from those of us that have an academic interest in construction law, observing and inquiring into other lien regimes helps fill gaps and improve our own laws. This one segment from the MCLA offers insight into solution for Ontario’s own construction community. In Ontario, it is not uncommon for homeowners to receive liens from inexperienced/unprofessional contractors who register arbitrary liens, which they either do not pursue or close down shop after enforcement proceedings fail. Given the recent adapting of prompt payment and interim adjudication from the United Kingdom regime, who knows where the law may take us in the future.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] Builders Lien Act, SBC 1997, c. 45, s. 17.
[2] Michigan Construction Lien Act, Act 570 of 1980, s. 103(1) [“MCLA”].
[3] Ibid, s. 108(2)(f).
[4] Ibid, s. 111(1).
[5] Ibid, s. 114a(1).
[6] Ibid, s. 114a(2).
[7] Occupation Code (Excerpt), Act 299 of 1980, s. 2404.
[8] Ibid, s. 2404c(b).
[9] Ibid, s.2411.
