Posted by: Hilger Hammond On: 27th April 2012 | no responses.

Promise Made Results in Debt Paid

By Aileen Leipprandt

In the 2011 case, Schippers Excavating v Crystal Creek Enterprises, LLC and Fifth Third Bank, a subcontractor’s shrewd refusal to continue work without written assurance of payment later paid off when the project went south and the construction lender balked at paying.

In Schippers, the developer / general contractor began a subdivision development, but ran into unforeseen costs because its engineer underestimated the site excavation costs.  Concerned that the additional costs exceeded the Developer’s construction loan, the excavator refused to continue working unless Fifth Third Bank, the Developer’s lender, provided written assurance that the excavator would get paid for its work.  In response, the bank’s “relationship manager” faxed a letter to the excavator confirming that the Bank would provide the necessary financing for the updated costs.  Three months later, however, the Bank stopped funding the project and the Developer later defaulted and filed bankruptcy.

The excavator eventually sued the Bank based upon the Bank’s promise to finance the additional costs.  The Bank claimed that the statements in its letter to the excavator were not a clear and definite promise to the excavator, but merely confirmed that financing was in place.  The Bank also argued that it was unreasonable for the excavator to rely on the Bank for payment because the excavator’s contract was with the Developer, not the Bank.  A jury disagreed with the Bank and returned a verdict in favor of the excavator awarding the excavator its requested damages.  The Michigan Court of Appeals affirmed that result.

Lesson learned – contractors must be shrewd about the source and amount of construction financing secured for the project.  When in doubt about the owner/developer’s ability to pay, the subcontractor should seek written assurance of payment from the lender or require the developer to post other unencumbered collateral.  Otherwise, the contractor may be left holding an empty bag.

Posted by: Hilger Hammond On: 20th April 2012 | no responses.

By:  Mark A. Rysberg

Unforeseen site conditions clauses are not new to construction contracts.  In fact, almost all construction contracts contain provisions regarding the claim process for unforeseen conditions and whether adjustments to the contract are to be allowed.  However, when working on public projects, it is important to be aware that the contract terms regarding this issue may not ultimately control the outcome.  That is due to the fact that Michigan has a statutory scheme of dealing with the claim process for unforeseen site condition claims on public projects that exceed $75,000.

The statute, in pertinent part, requires a contractor that discovers either of the following conditions to promptly notify the owner in writing:

(i)                  A subsurface or a latent physical condition at the site is differing materially from those indicated in the improvement contract; or

(ii)                An unknown physical condition at the site is of an unusual nature differing materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the improvement contract.

Other provisions of the statute control situations  that may preclude a contractor’s claim such as failure to provide notice or receiving final payment.  The impact of this statutory scheme is that it may conflict with similar contractual provision governing unforeseen site conditions.  Since, Michigan courts have yet to address this statute, it is imperative to be aware that this statute may impact such a claim and to be proactive in seeking guidance when presented with unforeseen site conditions.

Posted by: Hilger Hammond On: 13th April 2012 | no responses.

By Aileen Leipprandt

Contractors learned a painful lesson about the limits of construction liens for improvements made to property under land contract in the recent Michigan Court of Appeals case, Asphalt Specialists, Inc v Steven Anthony Development Co (2011).

In that case, GTR Glacier Golf Holdings (Glacier) contracted with Wells Venture Corporation (WVC) to buy a golf course.  Glacier then hired contractors to improve the golf course infrastructure, including installing water, sanitary and storm sewer, and asphalt golf cart paths.  Glacier later defaulted on its payments to buy the golf course and eventually forfeited all of its interest in the property to the seller, WVC.  Unpaid for their work, the contractors liened the golf course and later sued to foreclose those liens.  The Court of Appeals ruled that the liens could not attach to the “dirt,” because Glacier did not actually own the property.  Instead, the liens attached only to the actual improvements themselves.  Unfortunately, because the improvements were to the infrastructure, the improvements could not be removed and sold.

This case is an important reminder of the limited power of a construction lien when the lien claimant contracts with someone who is buying or leasing property, as opposed to contracting with the actual owner.  While the Lien Act gives a lien claimant the right to step into the shoes of the buyer/lessee and assume the buyer/lessee’s contract to buy or lease the property (and thereby protect the lien claimant’s investment), this remedy is rarely effective because few contractors can assume such a large financial obligation, particularly in the Asphalt Specialists case which involved the purchase of a struggling golf course.

Lesson learned – where a contractor contracts with a buyer/lessee, the contractor should carefully consider how it will secure payment, as the Lien Act’s protection is more limited and sometimes impractical.  Efforts to secure payment may include requiring the seller/lessor to sign the construction contract, requesting buyer/lessee to post additional collateral, and/or requesting as much payment up front as feasible.

Posted by: Hilger Hammond On: 18th January 2012 | no responses.

By:  Mark A. Rysberg

Historically, OSHA has not required fall protection in residential construction because doing so was too difficult and infeasible.  In September of 2011, OSHA changed the rules regarding fall protection requirements so that residential contractors must use tie-offs or fall protection for work over six feet above grade.  Contractors can use methods to satisfy this requirement; including using a guardrail system, safety net system, personal fall arrest system, and other OSHA approved methods.  Alternatively, residential contractors may use a site specific fall protection plan if the contractor can demonstrate that fall protection is infeasible or makes the work more hazardous.  OSHA has published additional information that may be helpful in understanding and complying with these requirements.

Posted by: Hilger Hammond On: 16th December 2011 | no responses.

By Benjamin H. Hammond
In October of 2010, the Commercial Real Estate Broker’s Lien Act was enacted. This Act provides a mechanism for commercial real estate brokers to secure commissions earned by placing a lien on the real estate being sold. In order for the lien to attach, there must be:

1. A written commission agreement;
2. The broker must be entitled to a commission under a written commission agreement; and
3. The lien must be recorded before the conveyance of the real estate.

The broker must serve a copy of the lien on the owner of the property and the person who signed the written commission agreement within ten (10) days after the lien was recorded. If the lien is not served timely, it will be void and unenforceable.
Interestingly, a broker lien can be recorded if the broker is owed a commission as a result of a lease as long as the lien is recorded within sixty (60) days after the lease is signed. Also, a broker may record a lien if the broker is owed a commission in the future as a result of an option to purchase commercial real estate.

The statute provides that in the event a lien is recorded, the closing of the transaction involving the real estate shall proceed except that an escrow account shall be established from the proceeds in an amount to satisfy the lien. The statute provides that neither the buyer nor the seller are permitted to refuse to close the transaction because of the requirement to establish an escrow account for this purpose. The money remains in the escrow account until the rights have been determined with regard to the parties and the commission owed.

Lastly, similar to the Construction Lien Act, the broker has one (1) year to file a lawsuit to enforce its lien. Failure to commence such a lawsuit within one year after the lien is recorded will result in the extinguishment of the lien.
However, should a court ultimately find that the broker lien is valid, that court may enter a judgment ordering the sale of any interest in the commercial real estate or part of the commercial real estate to which the lien attached by way of a foreclosure sale. The court may, in its discretion, award costs to a prevailing broker, including attorneys’ fees, litigation costs, and pre-judgment interest. However, if the court determines that the action by the broker was frivolous, the court may, in its discretion, award these same costs to the defendants.

A final interesting section of the statute provides that the owner of commercial real estate, upon receipt of the broker’s lien, may make a written demand that the broker file a lawsuit to enforce the lien or that an answer be provided to the owner essentially substantiating the lien. If the broker does not commence an action or an answer is not filed within thirty (30) days of the demand, the lien is extinguished.

Practically speaking, relatively few, if any, broker’s liens have been recorded in West Michigan. This is likely due to the fact that many brokers insist and confirm that their commissions are included on the proposed closing statement prior to the closing. So far, the enactment of the statute has not resulted in broker liens being filed in every transaction simply to preserve the right to collect commissions. However, this Act has impacted title companies, many of which now require the buyer and seller of commercial real estate to provide a representation and warranty that they have not signed any written commission sales agreements with any other brokers.

An interesting scenario may arise where a broker lien is recorded on the day of closing, after the title company last ran its title search, but before the recording of the new deed. This may leave title companies open to exposure under this new Act.

Posted by: Mark Rysberg On: 16th November 2011 | no responses.

By: Mark A. Rysberg

The Michigan Court of Appeals recently applied the six-year statute of limitations to bar an implied warranty claim even though the claim was discovered within the year before the lawsuit was filed. Rivers Investments LCP, LLC v Watson Bros. Co. The Court’s decision was based on a Michigan Supreme Court holding that the one-year discovery rule applies only in tort actions. The Michigan Court of Appeals determined that a claim for implied warranty arises by implication of the law and that the statute of limitations for such claims is six years.

Posted by: Benjamin Hammond On: 4th November 2011 | no responses.

By: Benjamin H. Hammond

Design professionals in Michigan can now breathe a collective sigh of relief – the six year statute of limitations has been returned to the historic two year limitation time period.

On October 4, 2011, Governor Rick Snyder signed Senate Bill 77, which is now known as Public Act 162. This bill addressed a significant change in the law that occurred in 2006 when the Michigan Supreme Court decided Ostroth v Warren Regency. In that case the Court looked at two statutes which appeared to be in conflict with one another. While MCL 600.5805 provided that a party only has two years to bring a lawsuit against a design professional, MCL 600.5839 indicated that a party had up to six years to file a suit arising from a defective or unsafe condition on a construction project. The courts in Michigan had routinely read these statutes together and held that the two year statute of limitation applied. The court in Ostroth, however, concluded that the six year period applied and effectively made Michigan the only state in the country with a six year statute of limitation for design professionals.

 Public Act 162 now specifically clarifies that an action against a design professional arising from the rendering of professional services is subject to the two year statute of limitations. The new law takes effect January 1, 2012, and will apply to causes of action that accrue after that time.

The limitations defense is one of the most powerful weapons design professionals have at their disposal when defending lawsuits. With the passage of this new law, design professionals now have more certainty as to when claims must be filed and should be pleased by the reduction from a six year statute of limitations to a two year statute of limitations.

Posted by: Hilger Hammond On: 19th October 2011 | no responses.

By: Mark Rysberg

Many business owners and venture capitalists rely on private placements to raise capital. In simplest terms, a private placement is a non-public offering of securities such as stock, partnership interests, or membership interests. These offerings are subject to the Securities Act of 1933 (“Act”), but do not require registration with the Securities and Exchange Commission (“SEC”) if certain exemptions are satisfied.

A private placement may be exempt from registration with the SEC if the conditions under Regulation D of the Act are followed. Whether a private placement qualifies for Regulation D exemption is generally determined by the monetary value of the offering and whether the investors are accredited or non-accredited. Investor accreditation is determined on an investor by investor basis by considering each investors net worth and investing sophistication. The specific criteria for investor accreditation are identified in Rules 501-503 of the Act. (Here).

The first limitation for exemption under Rules 504-506 of Regulation D is the value of the offering. Rule 504 applies to offerings valued at less than $1,000,000, Rule 505 applies to offerings less than $5,000,000, and no limit exists for Rule 506 offerings. The second limitation is whether an investor is accredited. Under Rule 504, an unlimited number of accredited and non-accredited investors may participate. Rules 505-506 limit the number of non-accredited investors to 35, but allow an unlimited number of accredited investors.

Private placements can be a valuable tool for raising capital for investments or existing businesses, but need to be tailored to each venture. This article is intended to provide a background of private placements. How private placements can act as a valuable tool for business owners will be discussed in Part II of this Article.

Posted by: Hilger Hammond On: 16th June 2011 | no responses.

Posted by: Hilger Hammond On: 9th June 2011 | no responses.

By Mark Rysberg

Earlier this year the Michigan House of Representatives introduced HB 4224, which if passed into law would repeal the law that requires, among other things, that public construction projects be awarded to contractors paying prevailing wage rates and providing fringe benefits.  Representative Amanda Price, as the primary sponsor for the HB 4224, advocates that Michigan’s prevailing wage law needs to be repealed because it “increases construction costs by 10 percent to 15 percent, costs that are passed on to taxpayers.”  (Here).   Union proponents such as the Michigan Building and Construction Trade Council oppose the bill and argue that “[w]ithout a prevailing wage on which to base their bidding, contractors will be tempted to under-bid others by employing a lower-cost, out-of-state workforce, and oftentimes, an undocumented workforce that doesn’t pay taxes.”  (Here).  HB 4224 has been referred to the House Committee on Oversight, Reform, and Ethics.