In general, a person or entity that contracts with a residential property owner to perform residential construction or remodeling on a project for which the total value is $600.00 or more, including labor and materials, is required to be licensed. There are limited exceptions to this rule that should be reviewed, including self-performed construction work. See MCL 339.2403. For purposes of the Residential Builders regulations contained within the Occupational Code, the terms “residential builder,” “residential maintenance and alteration contractor,” and “residential structure” are defined in MCL 339.2401.
What Happens if You Perform Residential Construction Services as an Unlicensed Contractor?
Unless you fall within one of the exceptions, a failure to obtain the proper licenses at the time of the performance of the contract for residential buildings or residential maintenance or alterations could result in catastrophic consequences. In fact, MCL 339.2412 states, in pertinent part, that an unlicensed contractor cannot bring an action in court for collection, cannot impose a lien and that there are potentially civil fines for not being licensed:
(1) A person or qualifying officer for a corporation or member of a residential builder or residential maintenance and alteration contractor shall not bring or maintain an action in a court of this state for the collection of compensation for the performance of an act or contract for which a license is required by this article without alleging and proving that the person was licensed under this article during the performance of the act or contract.
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(3) A person or qualifying officer for a corporation or a member of a residential builder or residential maintenance and alteration contractor shall not impose or take any legal or other action to impose a lien on real property unless that person was licensed under this article during the performance of the Residential Builders act or contract.
(4) A prosecuting attorney and the attorney general may bring an action for a civil violation in a court of competent jurisdiction against a person not licensed under this article that has violated section 601(1) or (2). The court shall assess a civil fine, to be paid to the prosecuting attorney or the attorney general bringing the action, of not less than $5,000.00 and not more than $25,000.00, aside from any civil damages or restitution.
Moreover, MCL 339.601 imposes additional potential penalties for licensing violations:
(5) Except as otherwise provided for in section 735, a person, school, or institution that violates subsection (1) or (2) a second or any subsequent time is guilty of a misdemeanor, punishable by a fine of not more than $1,000.00, or imprisonment for not more than 1 year, or both.
(6) Notwithstanding subsections (4) and (5), a person that is not licensed under article 243 as a residential builder or a residential maintenance and alteration contractor and that violates subsection (1) or (2) is guilty as follows:
(a) In the case of a first offense, a misdemeanor punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than 1 year, or both.
(b) In the case of a second or subsequent offense, a misdemeanor punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than 2 years, or both.
(c) In the case of an offense that causes death or serious injury, a felony punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than 4 years, or both.
In short, you could be subject to large fines, lose your ability to pursue litigation to recover payment for services or materials, preclude yourself from being able to file a lien on the real property, and/or be convicted of a misdemeanor or felony if you are an unlicensed contractor at the time of construction, maintenance, or alterations for a residential home. However, it is important to distinguish that these statutes do not prevent you from defending a lawsuit against you. See Epps v. 4 Quarters Restoration LLC, 498 Mich. 518, 529, 872 N.W.2d 412, 417 (2015).
There are many cases that directly address these devastating results. In Stokes v. Millen Roofing Co., 466 Mich. 660, 662, 649 N.W.2d 371, 373 (2002), an unlicensed contractor, through his roofing company, entered into a residential construction contract with the homeowners. The homeowners did not pay for the outstanding amount due on the contract, and, as a result, the roofer placed a construction lien on the homeowner’s real property. Id. The homeowners then filed a lawsuit to have the lien removed, and the roofer filed a counter claim for breach of contract, quantum meruit, foreclosure on the lien, and, in a later amendment, equitable claims for relief. Id.
The Michigan Supreme Court found that the unlicensed roofer was not entitled to any relief, whether equitable or not, meaning that the unlicensed roofer could not collect payments for labor or materials. Id. at 673. The Court reasoned that, although the results were harsh, the legislature could amend the Occupational Code to include such relief if it chose, it was not the Court’s place “to create an equitable remedy for a hardship created by an unambiguous, validly enacted, legislative decree.” Id. Therefore, the Court found in the homeowners’ favor. Id.
However, even outside the exceptions listed in the Occupational Code, there are instances where these provisions do not apply , especially if the contractor or supplier is not performing the actual work on the residential project. In San Marino Iron, Inc. v. Haji, No. 355643, 2022 WL 1695642, at *3 (Mich. Ct. App. May 26, 2022), the Court found that a fabricator, who installed the wrought-iron railing on the stairway but did not build or repair a wooden structure or its structural parts, was not precluded from bringing suit under MCL 339.2412(1).
Is There Any Way a Contract Can Still Be Enforced if Entered When the Contractor was Unlicensed?
As a last resort, an unlicensed contractor or residential builder might be successful if it can prove “substantial compliance.” Substantial compliance comes into play when an unlicensed contractor or builder enters into a contract for residential constructions or maintenance services but obtains the proper license(s) prior to beginning construction. In those instances where substantial compliance can be met, the contract is valid and enforceable. See Epps v. 4 Quarters Restoration LLC, 498 Mich. 518, 552, 872 N.W.2d 412, 430 (2015) and M-D Invs. Land Mgmt., LLC v. 5 Lakes Adjusting, LLC, No. 336394, 2017 WL 5616198, at 4 (Mich. Ct. App. Nov. 21, 2017). However, obtaining the license after construction services have begun will not qualify an unlicensed contractor for substantial compliance.
Conclusion
If you are a homeowner who has contracted unlicensed contractors or to perform services on your residential building, you might have options to terminate the contract or pursue litigation to enforce such. Or if you are a residential contractor or builder with questions on a similar situation, you might have viable steps to take or defenses to assert. Regardless, it is imperative that you act immediately, or you could be barred from litigating the matter and lose out on any potential remedy. Understanding the laws and circumstances surrounding these claims, can be difficult without the help of an experienced real estate attorney. A construction attorney will be able to help navigate through the applicable laws and protect your property rights.
Kara Moore is an attorney at Hirzel Law, PLC and focuses her practice on general real estate litigation. Ms. Moore received her Bachelor of Arts degree in Communication from Bob Jones University in South Carolina. Ms. Moore earned her Juris Doctor degree from Western Michigan University Cooley Law School. While in school, Ms. Moore made the Honor Roll for six terms and the Dean’s List for seven terms. Ms. Moore is a member of the Macomb County Bar Association and the Genesee County Bar Association. Ms. Moore is experienced performing legal research, arguing motions, conducting depositions, and drafting pleadings and discovery in real estate litigation, probate litigation, landlord/tenant litigation, and civil litigation, and drafting estate planning documents. She can be reached at (248) 480-8704 or at kmoore@hirzellaw.com.
