Appellate Court Rules Design Professionals’ Work Not An ‘Actual Physical Improvement’ Under Construction Lien Act
In a down economy, every entity providing professional design services, labor, materials or supplies to a construction project must protect its interests to ensure remuneration for the services provided. To this end, it must be cautioned that the Michigan Construction Lien Act (CLA) has different implications for the various participants in a construction project such as design professionals or material suppliers.
The Michigan Court of Appeals recently ruled in William J Lang Land Clearing, Inc v Rizzo, et al., unpublished opinion per curium of the appellate court Docket #300402 (Feb. 14, 2012), that engineering planning and surveying services performed by a design professional did not constitute an “actual physical improvement” within the meaning of the CLA. An actual physical improvement is defined by the CLA as “[t]he actual physical change in, or alteration of, real property as a result of labor provided, pursuant to a contract, by a contractor, subcontractor, or laborer which is readily visible and of a kind that would alert a person upon reasonable inspection of the existence of an improvement.” MCL 570.1103(1). Therefore, the court ruled that to constitute an actual physical improvement the CLA “generally requires that visible, on-site construction work has begun on the property.”
Note that the CLA expressly excludes work “which is provided in preparation for that change or alteration, such as surveying, soil boring and testing, architectural or engineering planning, or the preparation of other plans or drawings of any kind or nature.” MCL 570.1103(1)
In Rizzo, the design professional argued that the trial court misinterpreted the meaning of an actual physical improvement when it concluded that the planning and surveying services it performed were not an actual physical improvement within the meaning of the CLA. As support for its argument, the president of the design firm provided an affidavit that outlined the many services provided by the design professional, including, but not limited to, the following: boundary surveying; tree surveying; wetland surveying; topographical surveying; the preparation of engineering drawings for all site development, including earthmoving, location and installation of sanitary sewers and leads; storm drains; water mains and leads; interior streets and connections; and the participation in plat approval.
The affidavit also provided that field crews performed surveys where metal tags were nailed to all trees six inches in diameter and pink plastic ribbons were fastened around all surveyed trees. The appellate court ruled that while the design professional contended that the tree markers and other survey indicators would alert a person of an improvement because of their visibility, the fact remained that these markings were not of the permanent nature and only alerted a person that construction has commenced.
The purpose of the CLA is to “protect the interests of contractors, workers, and suppliers through construction liens, while protecting owners from excessive costs.” Vugterveen Sys, Inc v Olde Millpond Corp., 454 Mich 119, 121 (1997). The appellate court determined that the language of MCL 570.1103(1) is clear and unambiguous in that any labor associated with engineering plans and surveying is expressly excluded from the definition of an actual physical improvement.
The court’s decision also affirmed that a design professionals’ work is not the commencement of work that triggers examination of the priority of competing interests. Accordingly, in Rizzo, the lender’s mortgage interests had priority over that of the design professional and other contractors.
This case could have a significant impact on the rights of design professionals to lien priority. It is not clear whether it will be appealed, but standing alone, it could be used to argue that design professionals do no have lien rights because their services generally do not involve an actual physical improvement to the property.
If you have any questions regarding the Construction Lien Act, please contact the author, your Plunkett Cooney attorney or another member of the firm’s Construction Law Practice Group.
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