The Michigan Court of Appeals recently provided guidance on how to better determine whether a private construction project should be considered a “residential structure” for purposes of construction lien rights under the Michigan Construction Lien Act.

The Lien Act defines “residential structure”  as “an individual residential condominium unit or a residential building containing not more than 2 residential units, the land on which it is or will be located, and all appurtenances, in which the owner or lessee contracting for the improvement is residing or will reside upon completion of the improvement.”

Whether a home or condominium unit is considered a “residential structure” under the Lien Act is critical for owners, lessees, and lien claimants. For contractors performing improvements on a residential structure, the improvements must be pursuant to a written contract satisfying certain statutory requirements. Owners and lessees are also entitled to special protection where a residential structure is involved.

In Karaus v Bank of New York Mellon, unpublished opinion per curiam of the Court of Appeals, issued December 20, 2012 (Docket No. 307842), the contractor asserted a construction lien against residential property yet lacked a written contract with the owner. The mortgagee argued the lien was invalid because no written contract existed that contained the necessary statutory terms that is a prerequisite for a contractor to assert lien rights against a residential structure. The mortgagee obtained summary disposition against the contractor’s competing construction lien.

The contractor appealed and the Court of Appeals reversed. The Court of Appeals found there to be an issue of fact regarding whether the owners that engaged the contractor intended to reside in the home, and as such, the trial court erred in granting summary disposition in favor of the mortgagee.The Court found that, “the determining factor in regard to whether a property constitutes a ‘residential structure’ or a commercial property is whether the owner or lessee contracting for the improvement intends to actually reisde on the property upon completion of construction. Thus, intent to reside in a structure is a prerequisite to that structure being a ‘residential structure.’” The trial court engaged in impermissible fact finding to determine the owner’s intent at summary disposition.

Owners, contractors and other potential lien claimants must understand the importance of complying with the Michigan Construction Lien Act and its varied nuances.