Skip to main content
A Better Partnership
July 01, 2016

COA: Regardless of a showing of actual knowledge, failure to follow the directions of Revenue Bonding Act or its municipal equivalent will not prevent utility liens from arising on a subject property

In Sau-Tuk Industries, Incorporated v. Allegan County, No. 325926, the Court of Appeals held that even where a municipality had actual knowledge that a tenant, not the land owner, was responsible for payment of utility charges on a certain property, failure to follow the clear and unambiguous notice directions of the Revenue Bonding Act (“RBA”), in particular MCL 141.121(3), does not prevent a utility lien from arising on the property.  
Sau-Tauk Industries Incorporated (“Sau-Tauk”) leased a piece of business property to Michigan Wood Pellet, LLC (“MWP”). The property was furnished with utility services (i.e. electric and water) by the city of Holland’s Board of Public Works (the “BPW”). MWP, as the new tenant, contacted the BPW about providing utility services to the property. However, because MWP was a new business without an established credit history, and because MWP was renting the property, the BPW required MWP to provide either a surety bond or a cash deposit as a condition of obtaining utility services. MWP complied with the request and was granted utility services. MWP kept up with its utility payments for a period of time but eventually fell behind on payments. By 2012 MWP owed $74,324.77 for utility services, of which $34,390.52 was delinquent. Pursuant to the Section 9-6 of the Holland Code (an equivalent to MCL 141.121(3)) the Allegan County Treasurer served Sau-Tauk with a notice of forfeiture based upon the unpaid utility charges. After a failure to pay the delinquent charges, the Allegan Treasurer filed a petition for foreclosure with the trial court.
In response, Sau-Tauk filed a complaint seeking a declaration that the liens were improper and invalid.   Sau-Tauk argued that the liens were barred by the exception in Section 9-6 of the Holland Code that prevents a lien from arising against the premises for unpaid electric charges if the owner of the premises provides written notice, with a copy of the lease, showing that the tenant and not the landlord is responsible under the lease for the payment of the charges. The notice under the statute is only effective to prevent liens for charges after the notice is given.
Although Sau-Tauk did not provide notice to the BPW before the charges, it alleged that the BPW had actual notice that MWP was renting the property and responsible for the payment of the utility charges. Both parties moved for summary disposition with Sau-Tauk arguing substantial compliance as well as estoppel because Allegan County was put on notice that a tenant was responsible for the charges on the property when it requested a surety bond from MWP before providing utility services. The trial court granted summary disposition in favor of Allegan County.  
The Court of Appeals affirmed, holding that the language of MCL 141.121(3) and Section 9-6 of Holland Code is clear and unambiguous. First, the Court discussed the issue of when the liens became effective on the property. The court stated MCL 141.121(3) plainly authorizes the city of Holland to create a lien that attaches to the premises furnished the utility services to secure payment of the charges and directs the city by ordinance to prescribe the “the time and manner of certification and other details in respect to collection of the charges and enforcement of the lien.” The Court then stated that Holland created liens on premises that arise and attach at the time utility services are provided. Section 9-3 of the Holland Code even states that “such liens shall become effective immediately upon the distribution or supplying of such electric service or services to such premises. . . .” As a result the Court enforced the clear and unambiguous terms of the statute and declared that the notice provided by Sau-Tauk after the MWP had been charged was ineffective to prevent the liens on the property. 
Next, the Court of Appeals discussed whether by not complying with the plain language of the statute and the city ordinance, Sau-Tauk could still invoke the landlord exception because the BPW had actual knowledge that MWP was responsible for payment of the utility charges on the property. The Court held that the statutory language was clear and that Sau-Tauk failed to comply with the plain language of the statute and the city ordinance which gave clear directions on how to prevent liens from arising.  Thus, the Court rejected the argument that the BPW’s actual knowledge prevented the lien. Finally, the Court rejected Sau-Tauk’s argument regarding equitable estoppel because Sau-Tauk failed to produce evidence of ignorance of the requirements of MCL 141.121(3) and Section 9-6 and evidence of its reliance on the BWP’s actions. Accordingly, the Court upheld the trial court decision granting summary disposition in favor of Allegan County.

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

By clicking the ‘ACCEPT’ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.



+ -