The Risks of Contracting Without a License in Arizona

Every commercial construction project in Arizona, regardless of its scale or scope, must comply with licensing statutes under Arizona Revised Statutes Title 32, Chapter 10, which the Arizona Registrar of Contractors (AZ ROC) enforces.

This body of law specifies who can perform construction work, what type of contractor license a professional needs based on the scope of work, how the AZ ROC reviews applications, and what penalties apply to violations. These licensing requirements affect contractors and commercial developers alike.

FR Law Group leads in resolving licensing disputes, defending against enforcement actions, and advising on contractor compliance across Arizona. As an authority on the subject, read on as we explain:

• Who should have a contractor license?
• Which projects fall within or outside a given classification?
• What are the consequences of operating without a contractor license?

Who Needs a Contractor License in Arizona?

Arizona law requires licensure for any individual or business entity that undertakes construction work involving labor, materials, or both, with a combined value of $1,000 or more, according to A.R.S. § 32-1121(A)(14), or when a building permit is necessary. This threshold is not limited to structural construction; it also applies to alterations, repairs, improvements, additions, and any form of professional contracting activity performed for compensation.

Specifically, this requirement applies to the following:

• General contractors working on commercial or residential buildings
• Specialty contractors such as electricians, plumbers, HVAC installers, or roofers
• Design-build firms handling architecture and construction
• Construction managers in charge of labor and materials on site
• Subcontractors hired by a general contractor to complete part of a project
• Out-of-state contractors performing work within the state of Arizona

The licensing requirement applies regardless of the business structure. Sole proprietors, limited liability companies, corporations, and partnerships must obtain the proper contractor’s license before bidding, contracting, or performing any regulated work in Arizona.

The Arizona Registrar of Contractors issues over 100 license classifications across commercial, residential, and dual-license categories. Each classification outlines the scope of work allowed.

Types of Commercial Contractor Licenses

For commercial projects, the AZ ROC recognizes three license types relevant to developers and commercial construction firms:

1. General Commercial Contractor (Class B-1)

The B-1 General Commercial Contractor License allows the licensee to build, alter, or repair any commercial structure, regardless of project cost or complexity. This classification grants the broadest authority in Arizona’s commercial construction licensing system.

A B-1 license covers the following:

• New construction of commercial buildings, warehouses, retail centers, office parks, and industrial facilities
• Tenant improvements and commercial remodels
• Additions, structural alterations, and commercial expansions
• Supervision of subcontractors performing specialty trades

The B-1 license does not permit the construction of residential structures unless the contractor also holds a separate residential or dual license. It also excludes engineering work that falls under specialized licensing.

2. General Small Commercial Contractor (Class B-2)

The B-2 General Small Commercial Contractor License permits many of the same activities as the B-1 classification, but only on projects valued at $750,000 or less, including labor and materials. The B-2 license limits the scope of project size but allows the contractor to supervise various specialty trades as part of the project.

This license applies to:

• Commercial tenant buildouts under the monetary cap
• Renovations or expansions within the cost limit
• Smaller commercial projects where the client does not intend to exceed the threshold

Contractors who anticipate bidding on large and small commercial projects should not rely on a B-2 license alone. Once a project exceeds the monetary cap, the contractor must hold a B-1 license or risk enforcement for unlicensed activity.

3. Dual License Classifications (CR)

A Dual License (CR classification) authorizes the contractor to perform commercial and residential work under the same license number. These classifications are available for general construction and most specialty trades, including electrical, HVAC, plumbing, roofing, and concrete. For example:

• A CR-11 license permits both commercial and residential electrical work.
• A CR-42 license permits both commercial and residential roofing services.

The Arizona ROC published a detailed list of CR codes and all permitted activities, which license holders must review to ensure compliance.

Penalties for Unlicensed Contractors

Anyone who operates without an Arizona contractor license, misrepresents the scope of their license classification, or proceeds with unlicensed contracting activity is subject to fines, legal disputes, and loss of payment or lien rights. These penalties apply whether the violation occurred at the bidding stage, during project execution, or after project completion.

Statutory Violations and Criminal Charges

Unlicensed contracting violates A.R.S. § 32-1151, which prohibits any person or business from engaging in construction work without a license. The Arizona Registrar of Contractors and state prosecutors treat unlicensed contracting as a misdemeanor offense.

The following penalties apply:

• First offense: Up to six months in jail and a minimum fine of $1,000
• Subsequent offenses: Fines reaching $2,500 and a longer jail sentence
• Aggravated violations: Additional charges, such as when the offender used fake license numbers or contracted while under license suspension

In addition to criminal prosecution, the ROC may issue civil citations and impose administrative penalties. Contractors with revoked or suspended licenses may not reapply for new licensure during the restricted period.

Each year, the ROC intensifies its efforts to keep unlicensed contractors off job sites. Click HERE to check the ROC Most Wanted list and HERE for the persons convicted of contracting without a license or found, through administrative adjudication, to have done so after receiving a civil citation.

Invalid Contracts and Forfeited Payment Rights

Under A.R.S. § 32-1153, an unlicensed contractor may not file a lawsuit to recover payment. This restriction applies to written and oral agreements involving labor, materials, or both, when the value exceeds the statutory threshold. If the contractor lacks proper licensure at the time of the agreement or while performing the work, the right to collect payment becomes void, even if the job is complete.

This rule also applies to subcontractors. If a subcontractor works without a license, the general contractor risks losing lien rights and taking on legal disputes. Developers who pay contractors without confirming their license status also expose themselves to complaints and legal claims.

Lien Restrictions

Arizona law limits mechanics lien rights to licensed professionals. Unlicensed contractors may not record liens under A.R.S. § 33-981, and lien claims recorded in violation of this rule are subject to dismissal. This restriction hinders access to payment recovery, bond claims, and lien priority in foreclosure actions.

Consumer Fraud, Restitution, and Regulatory Action

Unlicensed contractors are liable when they misrepresent, conceal, or deceive others about their license status. Courts may order restitution, impose fines up to $10,000 per violation, and issue injunctive relief. The Arizona Attorney General’s Office may pursue enforcement actions in addition to any proceedings initiated by the Registrar.

What if You Hire an Unlicensed Contractor?

Commercial developers who hire unlicensed contractors also put themselves at risk of lawsuits. Courts may determine that the developer aided or facilitated unlicensed activity, especially when the project includes permits, public disclosures, or recorded sales documents.

Arizona law requires developers to disclose contractor license numbers in all written sales materials. Failure to do so may trigger claims from buyers, investors, or regulators.

How to Avoid the Penalties of Contracting Without a License in Arizona

Working without a valid contractor license can lead to penalties, lawsuits, contract disputes, or dismissed liens. Hiring someone unlicensed can cause the same problems.

No developer, investor, or construction professional should assume an exemption exists. Arizona’s licensing laws apply broadly, and the state prosecutes unlicensed activity under civil and criminal statutes. Each situation requires a thorough review of the project scope, contract terms, license classifications, and permitting requirements. To ensure compliance, FR Law Group can evaluate these factors for clients in pre-construction and active project phases. If a complaint has already been filed, we can advise on a response or take steps to reduce the legal and financial consequences.

FR Law Group represents contractors, developers, and business owners across Arizona. Call our office or send us a message to set up a consultation.