How the New “Bad Builder” Law Could Impact You

Published in Real Estate, Services We Provide on February 17, 2011

New bipartisan legislation with significant impact to the residential building sector was signed into law in December. The legislation is intended to ensure a higher level of competency in residential builders or, in the alternative, ensure harsher penalties for those who practice residential construction without a license. The new law amends Article 6, dealing with violations and penalties, and Article 24, governing residential builders. The new laws have been called a Christmas gift by some builders, but may have some unintended consequences for some. The good news is that most of the changes go into effect June 1, 2008 giving you plenty of time to ensure your business is ready. Below are some traps for the unwary:

  • Don’t pound that first nail until you have a valid, physical building license in hand. You are not licensed upon passing the exam; background checks, character or financial issues, or just plain old governmental red tape can delay the receipt of your license. Fines are not the only penalty for operating without a license. If you start a job with the expectation your license will be in any day and problems arise, you may be left without use of one of the best tools available to a contractor – the power to lien. The new law prohibits a person not licensed under Article 24 from filing a lien on real property.
  • If you hold your license in your individual name, all contracts must be signed and invoicing must be billed through your own name and not through your corporation or limited liability company. The work must be provided and invoiced by the license holder.
  • Similarly, if the builder’s license is held in the name of the limited liability company or corporation, all contracts and billing must be through the business, not the individual.
  • Licenses will now be issued by the Department of Labor and Economic Growth (DLEG) for a three-year term. You should have a plan in place for renewal or apply for inactive status upon expiration of your license. A person whose license or registration was suspended, revoked, or lapsed, as determined by DLEG records, is considered unlicensed or unregistered.
  • The new law contains provisions that would punish “aiding and abetting” builders or contractors for unlicensed practice. If you hire others to assist you in your work or are hired by other contractors, make sure you verify licenses with the DLEG for all contractors and subcontractors doing business with you/your company.

Be prepared for the changes heading into 2008. Review the status of your license, know whether the license is held individually or under your company name, and be aware of the new education requirements and harsher penalties for violations. As with all Michigan legislation you can view the new laws at http://www.legislature.mi.gov. Understand the new residential builder laws and how those laws can impact you.

* Rachel Terpstra is an associate attorney with Parmenter O’Toole in Muskegon, Michigan.  Parmenter O’Toole is a full-service business and real estate law firm with extensive experience in the area of construction law.  The comments in this article are not intended to be a substitute for legal guidance or advice for a specific situation.  You should obtain informed legal counsel to assist in your decisions relating to any issues which may be raised in this article.  For additional information regarding the above topic, or any other legal issues you may have, Ms. Terpstra can be reached at (231) 722-1621 or rlt@parmenterlaw.com.

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