Payment disputes are an unfortunate reality in commercial construction. To protect themselves from non-paying clients, contractors have the legal right to file construction liens. Also called a “mechanic’s lien,” this powerful tool allows contractors, subcontractors, and suppliers to secure unpaid labor or materials by placing a claim against a property’s title. This claim complicates matters for property owners, as it prevents them from refinancing or selling the property until they settle their debt. Contrariwise, it gives contractors the upper hand when it comes to collecting overdue payments.
However, while construction liens act as a contractor’s safety net, they are also subject to strict legal rules and procedures. Any mistakes in the lien process can undermine a contractor’s ability to enforce it, often costing them the payments owed. From missing deadlines to miscalculating the amount claimed, contractors’ common errors when dealing with commercial construction liens can jeopardize their rights.
Top Four Lien Mistakes by Contractors in Arizona
Understanding these pitfalls can help contractors safeguard their business interests and ensure their liens are enforceable when needed.
1. Overstating the Lien Amount
Integrity matters. Adhering to the correct lien amount protects contractors and their legal rights, avoiding the risk of facing damages or penalties under Arizona law.
Arizona Revised Statutes (A.R.S.) § 33-420 specifically addresses the filing of “groundless liens.” If a contractor includes amounts in a lien claim that exceed the actual value of the labor or materials provided, this can qualify as an exaggerated or groundless claim. Under A.R.S. § 33-420, property owners can sue for damages if they secure proof that the lien is overstated or fraudulent. Contractors who file a groundless lien may also be liable for statutory damages of up to $5,000 or the actual damages the property owner incurred, whichever is greater.
Inflating a lien in Arizona risks invalidating it and exposing the contractor to financial penalties. To avoid this mistake, contractors must ensure that the lien reflects the exact unpaid amount for labor and materials provided, as agreed upon in the contract. Documentation, such as contracts, invoices, and payment records, should be meticulously maintained to support the claim.
2. Untimely Recording of the Lien
One of the biggest mistakes contractors make when dealing with construction liens is failing to record the lien within the statutory deadline. In accordance with A.R.S. § 33-993(A), contractors, subcontractors, and suppliers must file their mechanic’s lien within 120 days of the completion of the project or 60 days after recording a Notice of Completion, whichever is earlier. Missing this deadline can render the lien invalid, leaving the contractor with no legal recourse to recover unpaid funds through the lien.
To avoid this mistake, contractors should maintain accurate records of project completion dates and stay vigilant about tracking the statutory deadlines. Additionally, if a Notice of Completion is filed, contractors must act quickly, as the 60-day window for filing the lien begins at that point.
3. Failure to Serve Statutory Notice
Under A.R.S. § 33-992.01, all contractors must serve a Preliminary 20-Day Notice to the property owner, general contractor, and construction lender (only if applicable) within 20 days of first furnishing labor, materials, or services. This notice is a prerequisite for preserving lien rights in the state of Arizona, and noncompliance can result in the loss of the right to file a lien.
The Preliminary 20-Day Notice ensures that all parties are aware of the contractor’s involvement and their right to file a lien due to non-payment. Also, even if the notice is served after the 20-day period, the contractor can still preserve lien rights for work performed within the 20 days prior to serving the notice, but not for earlier work.
Failure to serve this notice in a timely manner can compromise a contractor’s ability to execute a lien. Contractors and suppliers should implement a system for sending the Preliminary 20-Day Notice immediately upon starting work or supplying materials, ensuring they conform to Arizona’s statutory requirements. Proper documentation and proof of service are also crucial to protecting lien rights in the event of a dispute. Helpful resource: Ways to Resolve a Commercial Construction Dispute.
4. Delayed Filing of Lien Enforcement Action
Under A.R.S. § 33-998, a contractor must file a lien enforcement action, or foreclosure lawsuit, within six months of recording the lien. If the contractor does not initiate the lawsuit within that time, the lien automatically expires, and the contractor loses the right to implement it.
The consequences of missing this deadline are severe. A contractor cannot revive or enforce an expired lien, meaning they forfeit their leverage to recover unpaid funds through the lien. The contractor has little recourse if the property owner continues to withhold payment. As a final course of action, the contractor may need to pursue a breach of contract lawsuit instead, which can be a more costly, time-consuming, and less effective route than enforcing a lien. If this is the only option left, please read 7 Stages of Commercial Construction Litigation for tips on preparing for potential litigation.
To avoid this costly oversight, contractors should monitor lien deadlines and be ready to take legal action before the allocated six-month period expires. Seeking legal guidance early on guarantees compliance with all requirements and timely filing of the lawsuit.
The Bottom Line on Mechanic’s Lien Mistakes
Adherence to Arizona’s construction and lien laws, such as accurately calculating lien amounts, filing within deadlines, serving necessary notices, and taking prompt legal action, ensures that liens remain enforceable. Contractors, subcontractors, and suppliers who approach these steps with perseverance and seek legal advice when needed retain greater control over the payment process and avoid unnecessary legal challenges.
In the high-stakes commercial construction industry, being diligent in the lien process can make the difference between securing payment and losing out entirely. Contact FR Law Group if you need trustworthy representation in Phoenix, AZ. Our co-founder, Mr. Troy Froderman, is among the Top 100 Civil Defense Litigators® for six consecutive years. You can expect no less than exceptional expertise on your side.
Frequently Asked Questions
What Is a Construction Lien?
A construction lien, or mechanic’s lien, enables contractors or suppliers to place a legal claim on a property to secure compensation for labor or materials provided during a project.
What Is a Notice of Completion?
A Notice of Completion announces the end of a construction project and sets deadlines for contractors and suppliers to file liens for unpaid work or materials.
What Is a Preliminary 20-Day Notice?
A Preliminary 20-Day Notice is a written document from a claimant given before recording a Mechanic’s Lien, filing a Stop Notice, or asserting a claim against a payment bond for private or public work.