Arizona law provides a powerful tool to contractors and subcontractors, assisting them in obtaining payment for their work. If a property owner stiffs your company for labor or services, you can file what’s called a mechanic’s lien. A mechanic’s lien is a statutory device that essentially creates a cloud on the owner’s title to the land. Often, the mere filing of a lien is enough to convince an owner to pay up. As a contractor or subcontractor in Arizona, you should be aware of some basic information about mechanic’s liens in case you need to use them.
Before jumping into a discussion of mechanic’s liens in Arizona, let's remember that liens should never be your first step when faced with nonpayment. Most disputes between contractors and owners can instead be resolved through negotiation. You will usually save time and money by dealing directly with the property owner, rather than initiating a legal action.
So how should you go about getting paid? Imagine that your company performed roofing work on a home and the owner has “forgotten” to pay the last $1,000 of the bill. First, you should mail copies of the final invoice and/or statements to the homeowner’s home and business addresses. If that receives no response, telephone the owner. Send an email, even if it's repetitive, in order to create a paper trail. And then try writing a formal demand letter on your company’s letterhead.
If your communications are still being ignored, you might consider investing in a few hours of a lawyer's time to write a demand letter, on law firm letterhead. Sometimes, property owners may take you more seriously if they believe that you are willing to get an attorney involved. While attorney’s rates differ (rates in metropolitan areas like Phoenix will typically be highest), having a lawyer write a simple demand letter will probably cost no more than a few hundred dollars.
More often than not, some combination of these steps will be enough to push the Arizonan property owner to pay the balance owed, or at least come to the negotiating table to pay some substantial portion of that amount. These steps can also help you avoid the time and expense of liens and lawsuits.
Unfortunately, negotiation and demand letters do not always work. You will not be surprised to learn that Arizona law allows you to sue a homeowner who has not paid you, on grounds of simple breach of contract, or based on other related causes of action (such as quantum meruit). The same theories apply if you are a subcontractor or supplier suing a general contractor.
But mechanic’s liens are another important tool in your arsenal. Liens offer a way to pressure an owner to pay by clouding the title to the property. Liens are the result of a specific Arizona statute. They are governed by A.R.S. 33-992.01 et seq.
According to A.R.S. 33-992.01(B), “every person who furnishes labor, professional services, materials, machinery, fixtures or tools” shall be entitled to file a lien.
Note that this broad definition could include contractors, subcontractors, and material suppliers, as well as those who provide “professional services” (a category that includes architects, engineers, landscapers and other designers).
There are a couple of categories of entities that are not permitted to file liens: Suppliers of suppliers (meaning “third tier suppliers”) as well as design professionals who do not have a contract with either the owner or architect. The purpose in both of these situations is to prevent entities that are too attenuated from the job to file a lien on the property docket.
Arizona requires that any entity seeking to file a lien must first serve what is known as a “20-day notice.” This is a notice to the property’s owner, given within 20 days of when the entity begins its work or provides its materials.
According to A.R.S. 33-992.01(B) and A.R.S. 33-992.01(C), anyone who “furnishes labor, professional services, materials, machinery, fixtures or tools for which a lien otherwise may be claimed under this article shall, as a necessary prerequisite to the validity of any claim of lien, serve the owner or reputed owner, the original contractor or reputed contractor, the construction lender, if any, or reputed construction lender, if any, and the person with whom the claimant has contracted for the purchase of those items with a written preliminary twenty day notice as prescribed by this section.”
This so-called preliminary 20-day notice “shall be given not later than twenty days after the claimant has first furnished labor, professional services, materials, machinery, fixtures or tools to the jobsite.”
The notice must contain the following information: (1) A general description of the labor, professional services, materials, machinery, fixtures or tools that will be furnished and an estimate of the total price; (2) The name and address of the person furnishing labor, professional services, materials, machinery, fixtures or tools; (3) The name of the person who contracted for the purchase of labor, professional services, materials, machinery, fixtures or tools; and (4) A legal description of the property where work was performed.
While preliminary notices are not uncommon in other states, Arizona is somewhat unique in that it requires you to provide an estimate of the value of the labor or materials you will provide. This requirement is designed to give the owner a “heads up” if you indicate that you plan to provide a far greater amount of value than he or she intends to bargain for.
The statute itself provides a model form of the preliminary 20-day notice, so that you can essentially follow the template and fill in the appropriate information. You should ordinarily serve this form on the owner as soon as you begin your work, so that the owner is fully “on notice” of your ability to file a lien if he or she fails to pay the amount due.
In addition to the 20-day preliminary notice requirement, several deadlines apply.
Once the project is finished, you must serve what is known as a “Notice of Completion” to the owner. Once it's served, you have a 60-day period within which to file your lien. (If no Notice of Completion has been filed, then you automatically have 120 days from the date of overall completion).
Another important deadline: Once your lien is filed, you cannot simply let it sit on the property docket forever. You must file a lawsuit to “enforce” or “foreclose on” the lien within six months. If you do not, the lien will expire automatically.
The form must include, among other pieces of information, your company’s name, the homeowner’s name, the location of the property, and the amount of money still due. You must also describe the labor or material you provided to or on the property. In Arizona, liens are filed in the county where the property is located in the “office of the county clerk” (usually located within, or near, the local Arizona Superior Court).
You will see that your signature needs to be notarized, meaning that this form is a sworn statement—the legal equivalent of swearing to the veracity of the contents in court.
For contractors and subcontractors in Arizona, liens are an important tool. But they are not necessarily the first or best means of achieving payment for construction projects.
Remember, merely filing a lien will not force the property owner to pay you (nor will it force the general contractor to pay you if you are a subcontractor). The owner will receive notice of the lien, but unless you file a further lawsuit—within two years of the date of the lien filing—to foreclose on the lien, then it will merely sit on the property docket. In other words, you will likely need to spend some amount of money on legal fees in order to “force” payment.
However, filing a lien will send an aggressive message. If you take this step, it might put the homeowner on the defensive. The homeowner might call in the lawyers, or retaliate by publicly claiming that you did shoddy work. Perhaps filing a lien is the direction that you need to take, unfortunately, if the homeowner is refusing to pay. But be aware that you may quickly escalate the dispute by doing so.
Finally, remember that lien laws in Arizona are highly complex. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney who can advise you of your rights.