Landlords: Michigan Water and Sewer Lien Exemption

In Michigan, unpaid water and sewer bills become a lien against the property, and this lien has priority over all other liens except taxes and special assessments. This creates a problem where the responsibility for water and sewer fees are the tenant’s under the terms of a lease, as the tenant’s failure to pay its obligation places a lien on the landlord’s property.

Michigan law contains a solution: if a lease provides that the landlord is not liable for payment of water and sewer charges and the municipality is notified in writing including an affidavit from landlord that a lease with such terms exist and identifying the expiration date of the lease, then the property is exempt from a water and sewer lien; instead, the sole remedy is to shut off the services.

In a recent Court of Appeals case, a plaintiff landlord argued that the City of Eastpointe was wrong to place a lien on two of his rental properties where the leases had expired and the charges were incurred after the lease expiration. The tenants had renewed their leases, but the landlord had not provided the City with notice or an affidavit with respect to the renewal terms. The City interpreted the law to require a new affidavit for each lease period. Hartfiel v. City of Eastpointe, Court of Appeals Docket No. 348642, released for publication September 3, 2020.

The Court of Appeals agreed with the City’s interpretation and reasoned that “[t]he owner’s exemption from lien has a beginning and ending period. Simply put, when the lease term ends, so does the exemption from lien. From the lease expiration date forward, all charges for water and service are once again a lien against the property. Because the lien exemption is inextricably tied to the lessor’s lack of direct liability for the charges, it can reasonable be inferred that the exemption set forth [in one of the statutes at issue] and the affidavit establishing entitlement to the exemption both expire along with the lease.”

The Court further pointed to the fact that a landlord is required to notify the applicable official of any cancellation, change in, or termination of the lease. The notice requirement suggests that the Legislature intended that once the lease expired, the lien exemption is extinguished. In order to continue to be protected from liens after the lease on file expires, the landlord must therefore provide a new notice with respect to the terms of the subsequent lease and a new affidavit identifying the expiration date of that lease. To rule otherwise would create an absurd result where a landlord could file a notice for a lease of a short period and forever enjoy the benefit of a lien exemption even where the property no longer met the requirements for the exemption from lien.

The bottom line?

Landlords in Michigan can secure an exemption from a lien for delinquent water and sewer charges that are the responsibility of a tenant pursuant to a lease being placed on the property. To do so, the landlord must file a notice and affidavit with the municipality assessing the charges. However, at each lease expiration, the exemption from lien will also expire. Therefore, whether the lease is renewed with the same tenant or a new tenant occupies the space, if water and sewer is the responsibility of the tenant, then the landlord must file a new notice and affidavit to ensure continued exemption from lien. Providing this notice and affidavit should be included in the landlord’s checklist of items to take care of where the tenant will be responsible for water and sewer charges.

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