Lien on me: An overview of Arizona’s mechanic’s lien laws

Credit managers working in construction know all too well the importance of securing their lien rights. They also know how different these rules can be from state to state, making it all the more important that credit managers take the time to learn the ins and outs of these statutes and how they can vary depending on where you are operating.  

Why it matters: For those in construction credit doing business in Arizona, understanding the laws that regulate lien rights in the state can be the difference between getting paid for your work and taking a big loss.  

In Arizona, lien rights are statutory and cannot be waived by a contract, only through a statutory form. “Even if somebody puts in the contract that you agree not to file a mechanic’s lien in case of nonpayment and you agree to it, you don’t waive your rights and you can’t waive your rights,” said principal Michael Murray, attorney at Lanak & Hanna, P.C. (Orange, CA). “You see that a lot these days, so keep an eye out.” 

Who has lien rights? 

“Anyone who provides labor or materials in the construction, alteration or repair of a building or other improvement has lien rights,” Murray said. “That’s very broad, and most everyone falls into one of those categories.” 

There are some important limitations. Materials and labor must be furnished at the instance of the owner or owner’s agent (usually a contractor, subcontractor, builder or architect). Suppliers selling to another supplier, unlicensed contractors and licensed contractors performing work outside of the area of their license do not have the right to file mechanic’s lien. Before embarking on any project, ensure that you are able to file a mechanic’s lien to mitigate potential risk down the line.

Serving your preliminary notice 

The first, and arguably most important, step for those looking to secure their lien rights is sending the preliminary notice. This is a notice to the owner, general contractor, lender or the person with whom you contracted that you reserve your right to file a mechanic’s lien if you are not paid for your work or for the materials you provided in a timely manner. 

The notice must be sent via first-class mail with certified mailing, certified mail or registered mail. If there is anything inaccurate in your lien notice, the owner must let you know within 10 days of receiving the notice, you will then have 30 days to amend these changes. Whether you’ve misspelled the owner’s name, or the address listed is incorrect, the owner is obligated to alert you. If the owner does not notify you of any false information, they cannot use it as a defense against the lien down the line, should the issue go to court.

When it comes to preliminary notices, timing is everything. A preliminary notice covers back 20 days from the day it is served. It can be served later, but it will not cover materials or labor provided more than 20 days before. It’s important that you consider your production schedule to decide when to send your preliminary notice. Having a clear, organized plan for when you will begin working on a project can help you decide on a definitive date to send your preliminary notice.  

Amending your preliminary notice 

Preliminary notices require an estimate of the total price of labor and materials, and your lien rights cover 130% of the estimate of your notice. If you’ve already exceeded the value of your initial estimate by 30%, you will need to serve a second preliminary notice, which will cover back to 20 days from service. 

When estimating the cost of labor and materials, it’s best to look back on the costs of previous projects to create an estimate that is as close to reality as possible. “There is a limit to how high the estimated cost of labor and materials will be, in the sense that your first preliminary notice has to have a reasonable, good-faith estimate,” Murray said.  

Recording your mechanic’s lien 

If a notice of completion is recorded, your mechanic’s lien needs to be recorded within 60 days. If there is no notice of completion, you have 120 days to record your lien. To ensure you are operating within this framework, you must have a solid understanding of what makes a construction project complete. 

A project is complete 30 days after the final inspection and written final acceptance by the government body that issued the building permit. If there is no permit, completion is the last day any labor, materials, fixtures or tools were furnished to the property. If there has been a cessation of labor for 60 consecutive days, it is considered complete unless there is a strike, shortage of materials or emergency. 

Stop payment notices 

Everyone with the right to file a mechanic’s lien has the right to file a stop payment notice as well, requiring that an owner or lender must hold construction funds up to the amount of the stop notice payment until the claimant is paid back. The time constraints for mechanic’s liens apply to stop payment notices.

“This is a finicky rule in Arizona,” Murray said. “If you send the stop notice to the owner, they must hold that money. But if you send it to a lender, they may hold the money, but they are not required to hold it by the law, unless your stop notice is bonded.” 

Once the stop notice is filed, you must wait 10 days before filing a lawsuit. The lawsuit must also be filed within three months of the last day to record a mechanic’s lien, though this three-month marker can be extended if there is an agreement signed by all parties.  

The bottom line: Before embarking on any project, be sure to familiarize yourself with mechanic’s lien laws in the state in which you are operating. By knowing the exact timeframe to send preliminary notices, file your mechanic’s lien or stop payment notices, you can best protect your company from major losses due to nonpayment. 

Join us for the next installment of this webinar series, Nevada Lien Law: Protecting Your Rights (FREE!) on April 23!