Act 341 Amendments To Residential Builders Occupational Code Address When a Builder Needs a Residential Builder’s License

Michigan’s Occupational Code (“Code”) requires builders of residential structures to be licensed as a "residential builder." 

Under the Code, the definition of “residential structure” is very broad and includes almost any type of structure that can be considered a “residence.”  Builders who construct a residential structure without a Residential Builder’s License are subject to sanctions, including being prohibited from suing in the State’s courts and from recording and foreclosing on a construction lien.

The definition of “residential structure” in the Code is defined to be: “A premise used or intended to be used for a residential purpose and related facilities pertinent to the premises, used or intended to be used as an adjunct of residential occupancy.” 

Some courts and litigants have interpreted and/or argued that the Code applies to many types of “commercial residential structures” such as, high-rise apartment or condominium projects; senior extended stay facilities; privately developed university dormitories; and lodging facilities, such as hotel and motel complexes that might not typically be viewed as a “residential structure.”

A further complication when evaluating the application of the Code to a particular project is the definition of "residential structure" in the Michigan Construction Lien Statute, MCL 570.1101 et seq., which defines a "residential structure" to be: “An individual residential condominium unit, or a residential building containing not more than two 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 on completion of the improvement.”

Thus, confusion is created by the two contrary definitions of whether a residential builder’s license is required to foreclose a construction lien on a project whose scope is larger than an “individual condominium unit or a residential building containing not more than two residential units.”

Michigan courts have provided little comfort to the builder by consistently enforcing the residential builder’s license requirement when constructing residential structures as defined by the Code. The courts have consistently denied unlicensed residential builders the right to record construction liens or to access the courts to collect unpaid contract balances. See for example the Michigan Supreme Court case of Stokes v. Millen, 466 Mich 660 (Mich Sup Ct, 2002).

The circumstances give the unscrupulous owner/developers of large commercial type residential projects the opportunity to avoid and/or argue not paying the builder’s earned contract proceeds with immunity from foreclosure on construction liens and/or suit by the builder to collect unpaid fees (or to litigate other contract disputes). On the other hand, the owner/developer enjoys the right to sue the builder without fear of counter-claim by the builder seeking recovery of unpaid contract proceeds or the foreclosure of the builder’s construction lien.

With leadership from the Associated General Contractors of Michigan and support from the Michigan Association of Home Builders, Senator Edward McBroom sponsored an Act to amend the Code to further define “residential structure” and when a Residential Builder’s License is required and to correct the inconsistencies in the Code and Construction Lien Act.

Senator McBroom’s bill was enacted into law on Dec.30, 2020, as “Act 341 of 2020.”

The amendments to Act 341 can be found at MCL 339.2401(c), which now defines "residential structure" to be one or both of the following:

• A detached one or two family dwelling and all related facilities appurtenant to that dwelling, used or intended to be used as an adjunct of residential occupancy.
• A townhouse of not more than three stories above the grade plane in height with a separate means of egress and all related facilities appurtenant to that townhouse, used or intended to be used as an adjunct of residential occupancy.

Further, prior references to combined commercial and residential structures have been removed, and the Act was made retroactive to Jan. 1, 2019.

Clearly, the amendments are of significant value to the construction industry and make it clear that the Occupancy Code licensing requirements apply only to typical, modest residential structures, and are not applicable to commercial type residential structures. 

Thus, when building that high-rise, multi-unit apartment or condominium project; the long term senior extended care facility; or, a private student housing project, no residential builder’s license will be required, and the builder will enjoy full, unrestricted access to the Michigan courts and the builder’s construction lien rights.

This e-alert provides an introduction to the amended Residential Builders Occupational Code. For more information on the amendments and how it applies to your particular situation, Thomas M. Keranen at tkeranen@clarkhill.com, Jeffrey Gallant at jgallant@clarkhill.com, or any member of Clark Hill’s Construction Law Practice Group are available to assist you.