STOP NOTICE AND DEMAND FOR WITHHOLDING OF CONTRACT FUNDS
(Michigan Construction Lien Act, MCL 570.1101 et seq.)
[// GUIDANCE: This template is drafted for use by a subcontractor, supplier, or other construction lien claimant (“Claimant”) seeking to compel the Owner and, if applicable, the Construction Lender to withhold disbursement of contract funds otherwise due to the Prime Contractor until the Claimant’s lien claim is satisfied, bonded off, or otherwise resolved. It is designed to dovetail with the statutory sworn-statement and withholding regime found in MCL 570.1115 while providing additional contractual protections. Customize all bracketed items and attach supporting documentation (invoices, sworn statement, proof of service, etc.).]
TABLE OF CONTENTS
I. Document Header
II. Definitions
III. Operative Provisions
IV. Representations & Warranties
V. Covenants & Restrictions
VI. Default & Remedies
VII. Risk Allocation
VIII. Dispute Resolution
IX. General Provisions
X. Execution Block
XI. Certificate of Service
I. DOCUMENT HEADER
1.1 Title. Stop Notice and Demand for Withholding of Contract Funds (this “Stop Notice”).
1.2 Parties.
a. “Claimant”: [CLAIMANT LEGAL NAME], a [STATE] [ENTITY TYPE] with principal place of business at [ADDRESS].
b. “Owner”: [OWNER LEGAL NAME], a [STATE] [ENTITY TYPE] with principal place of business at [ADDRESS].
c. “Prime Contractor”: [PRIME CONTRACTOR LEGAL NAME] (“Contractor”).
d. “Construction Lender” (if any): [LENDER LEGAL NAME] (“Lender”).
1.3 Project. The improvement known as [PROJECT NAME / DESCRIPTION] located at [PROPERTY LEGAL DESCRIPTION OR STREET ADDRESS] (the “Project”).
1.4 Recitals.
a. Claimant has furnished labor, material, and/or equipment to the Project pursuant to its contract dated [DATE] with [CONTRACTING PARTY].
b. As of the Effective Date (defined below) Claimant is owed the sum of $[AMOUNT] (the “Claim Amount”) for such work.
c. Pursuant to the Michigan Construction Lien Act, MCL 570.1101 et seq. (the “Act”), including without limitation Section 115 thereof, an owner who receives a sworn statement or written demand from a lien claimant may withhold from the Contractor an amount sufficient to pay the claim.
d. Claimant has timely served all notices required under the Act (including any applicable Notice of Furnishing) and intends to file, or has filed, its Claim of Lien.
1.5 Effective Date. This Stop Notice is effective as of [DATE] (the “Effective Date”).
1.6 Governing Law & Jurisdiction. This Stop Notice is governed by, and shall be construed in accordance with, the laws of the State of Michigan, without regard to conflict-of-laws principles. Exclusive venue lies in the state courts located in [COUNTY], Michigan.
II. DEFINITIONS
For purposes of this Stop Notice, capitalized terms have the meanings set forth below:
“Act” has the meaning assigned in Section 1.4(c).
“Bond” means any statutory surety bond posted under the Act in an amount sufficient to discharge Claimant’s lien or to substitute for withheld funds.
“Claim Amount” has the meaning assigned in Section 1.4(b).
“Claim Documents” means Claimant’s sworn statement, invoices, lien waivers, and supporting proofs of delivery.
“Construction Funds” means any undisbursed contract balances, retainage, or progress payments otherwise payable by Owner or Lender to Contractor for the Project.
“Stop Notice” means this instrument, together with all schedules and exhibits hereto.
[// GUIDANCE: Add or delete definitions to track your factual scenario.]
III. OPERATIVE PROVISIONS
3.1 Demand for Withholding. Claimant hereby demands that Owner and, if applicable, Lender immediately withhold from the Construction Funds an amount not less than the Claim Amount, plus statutory interest and recoverable costs (collectively, the “Withheld Funds”), until the earliest of:
a. Payment in full of the Claim Amount to Claimant;
b. Posting of a Bond acceptable to Claimant in accordance with Section 7.2; or
c. Written release of this Stop Notice by Claimant.
3.2 Scope of Withholding. The Withheld Funds shall include retainage, progress payments, and any other sums otherwise due or to become due to Contractor in connection with the Project.
3.3 Time for Compliance. Owner and Lender shall comply with this Stop Notice within three (3) business days after actual receipt thereof.
3.4 Documentation. Concurrently with delivery of this Stop Notice, Claimant has provided, or is providing, the Claim Documents. Owner and Lender may rely on the sworn statement for purposes of determining the amount to withhold under the Act.
3.5 Conditions Precedent to Release. Claimant shall execute and deliver conditional or unconditional lien waivers, as appropriate under the Act, upon (i) receipt of collected funds equal to the Claim Amount, or (ii) posting of a Bond in accordance with Section 7.2 and verification thereof.
IV. REPRESENTATIONS & WARRANTIES
4.1 Claimant’s Authority. Claimant is duly organized, validly existing, and in good standing under the laws of its state of formation and has full power and authority to issue this Stop Notice.
4.2 Accuracy. The Claim Amount is true, correct, and due, and no part thereof has been paid or waived.
4.3 Compliance. Claimant has complied in all material respects with the notice and timing requirements of the Act applicable to its lien rights.
4.4 Survival. The representations and warranties in this Article IV survive delivery of this Stop Notice until final satisfaction, bonding-off, or release.
V. COVENANTS & RESTRICTIONS
5.1 Owner and Lender Covenant. Owner and Lender shall hold and segregate the Withheld Funds and shall not disburse the same to Contractor or any third party except in accordance with Article III.
5.2 Contractor Covenant. Contractor shall promptly (i) satisfy the Claim Amount, or (ii) procure and deliver a Bond meeting the requirements of Section 7.2.
5.3 Claimant Covenant. Upon full satisfaction of the Claim Amount or acceptance of a Bond, Claimant shall deliver a Release of Lien and, where applicable, file a discharge with the Register of Deeds in the county where the Project is located.
5.4 Notice Obligations. Each Party shall give prompt written notice to the others of (i) any payment made on the Claim Amount, (ii) issuance or cancellation of a Bond, or (iii) commencement of any suit affecting the lien or the Withheld Funds.
VI. DEFAULT & REMEDIES
6.1 Events of Default. The following constitute defaults:
a. Failure of Owner or Lender to withhold the Withheld Funds as required;
b. Disbursement of the Withheld Funds in violation of this Stop Notice; or
c. Failure of Contractor to satisfy or bond off the Claim Amount within ten (10) days after notice of default.
6.2 Cure Period. Except for willful disbursement in violation of Section 3.1 (which shall give rise to immediate liability), the defaulting party shall have five (5) business days after written notice to cure.
6.3 Remedies. Upon an uncured default, Claimant may pursue any and all remedies available under the Act, including but not limited to:
a. Enforcement of its construction lien,
b. Recovery of the Withheld Funds directly from Owner or Lender to the extent allowed by law, and
c. Recovery of reasonable attorney’s fees, costs, and interest as permitted under the Act or other applicable law.
6.4 Cumulative Remedies. The remedies provided herein are cumulative and not exclusive.
VII. RISK ALLOCATION
7.1 Indemnification by Contractor. Contractor shall indemnify, defend, and hold harmless Owner, Lender, and Claimant from and against any loss, cost, or expense (including reasonable attorney’s fees) arising out of or related to Contractor’s failure to pay Claimant or to otherwise discharge the Claim Amount.
7.2 Bonding Requirements. Contractor or Owner may discharge the withholding obligation by posting a surety bond issued by a surety licensed in Michigan in an amount not less than the Claim Amount plus 25%, or such greater amount as the Act may require, conditioned upon payment of any judgment or settlement of Claimant’s lien claim (the “Bond”). The Bond shall name Claimant as an obligee and shall remain in force until Claimant’s lien is released or adjudicated.
7.3 Limitation of Liability of Owner/Lender. Except for willful or grossly negligent violation of this Stop Notice or the Act, Owner’s and Lender’s liability shall in no event exceed the lesser of (i) the Withheld Funds, or (ii) the amount recoverable under the Act.
7.4 Force Majeure. No party shall be liable for failure to perform hereunder to the extent caused by an event of Force Majeure (e.g., fire, flood, governmental order) that is beyond the party’s reasonable control and that could not be avoided by the exercise of due diligence, provided that the affected party gives prompt notice and resumes performance as soon as practicable.
VIII. DISPUTE RESOLUTION
8.1 Governing Law. See Section 1.6.
8.2 Forum Selection. Any action arising out of or relating to this Stop Notice or the Claim Amount shall be brought exclusively in the state courts seated in [COUNTY], Michigan (the “Selected Forum”).
8.3 Jury Waiver. Not applicable (per metadata).
8.4 Injunctive Relief. Nothing herein limits Claimant’s right to seek temporary, preliminary, or permanent injunctive relief, including an order freezing funds, in the Selected Forum.
IX. GENERAL PROVISIONS
9.1 Amendments & Waivers. Any amendment or waiver must be in a writing signed by the party against whom enforcement is sought. No delay or omission in exercising any right operates as a waiver.
9.2 Assignment. Claimant may assign its rights under this Stop Notice (including rights to payment and liens) without consent of any other party. Owner and Contractor may not assign or delegate their obligations without Claimant’s prior written consent, except to a successor-in-interest to the Project who assumes such obligations in writing.
9.3 Severability. If any provision of this Stop Notice is held invalid, the remaining provisions shall be enforced to the fullest extent permitted by law, and the invalid provision shall be reformed to the minimum extent necessary to achieve its original intent.
9.4 Integration. This Stop Notice (including the Claim Documents) constitutes the entire agreement and understanding among the parties with respect to the withholding demand described herein and supersedes all prior communications on that subject.
9.5 Counterparts; Electronic Signatures. This Stop Notice may be executed in counterparts, each of which constitutes an original, and all of which together constitute one instrument. Signatures delivered electronically or by facsimile shall be deemed original.
X. EXECUTION BLOCK
IN WITNESS WHEREOF, the undersigned Claimant has executed this Stop Notice effective as of the Effective Date.
CLAIMANT:
[CLAIMANT LEGAL NAME]
By: ____
Name: ____
Title: _____
Date: _________
[OPTIONAL NOTARY ACKNOWLEDGMENT – include if local recording office or lender requires]
XI. CERTIFICATE OF SERVICE
I, [NAME], hereby certify under penalty of perjury that on [DATE], I served a true and correct copy of the foregoing Stop Notice and all Claim Documents on the following parties by [DESCRIBE METHOD OF SERVICE – e.g., certified mail, return receipt requested, and first-class mail]:
- Owner: [OWNER NAME & ADDRESS]
- Contractor: [CONTRACTOR NAME & ADDRESS]
- Construction Lender (if any): [LENDER NAME & ADDRESS]
[NAME], [TITLE]
Date: ____
[// GUIDANCE:
1. Attach the sworn statement (MCL 570.1115) and supporting invoices as Exhibit A.
2. Attach a draft or executed Claim of Lien as Exhibit B (if already recorded).
3. To expedite bonding, consider attaching a sample surety bond form acceptable to Claimant.
4. Verify county-specific recording or mailing requirements before service.
5. Strictly observe statutory deadlines: generally, the lien must be recorded within 90 days after last furnishing, and suit to foreclose must be commenced within one year of recording (MCL 570.1117).]