Options for Contractors When Landowners Refuse to Pay

Arizona’s Prompt Payment Act (the “Act”) gives licensed contractors specific rights to be paid promptly when they perform their duties under a contract. If an owner does not pay on time, or refused to pay, the contractor may have the right to stop work or file a mechanic’s lien.

The Act generally requires progress payments by an owner every 30 days. This period can be changed if the owner puts the modifications in plain language in the contract and on each page of the project plans.

The contractor must send the owner a monthly invoice, and the owner will be deemed to approved it 14 days after receipt. The owner then has seven days to issue payment, and late payments bear interests at 18 percent annually.

If an owner files to pay on time for work that has been approved, the contractor has the right to stop work under A.R.S. § 32-1129.04. Before doing so, the contractor must give seven days prior written notice to the landowner.

Subcontractors have similar rights, except that they may also stop work due to a failure to pay by the general contractor, if the owner pays the contractor but the contractor files to pay the subcontractor.

Generally, a contractor will not be deemed in breach of the construction contract if they stop work or terminate the contract due to a failure to pay on time by owner, provided that the notice requirements are satisfied.

Only a licensed contractor can file a civil action to collect payment. A.R.S. §32-1153 provides that an unlicensed contractor cannot bring a civil case for breach of contract if an owner refuses to pay. If the contractor is licensed to perform some, but not all, of the work that gives rise to the civil claim, then the lawsuit can only be brought as it relates to the work the contractor is licensed for. Chavira v. Armor Designs of Delaware, Inc., 356 P.3d 334 (App. 2015).

Finally, contractors can file a mechanic’s lien to enforce their right to payment in Arizona. The lien must be filed within 60 days of the Notice of Completion, and a suit must be brought to enforce lien within six months of its filing.

Chernoff Law handles construction disputes, including failure to timely pay and workmanship disputes. Call us at 480-719-7307 to discuss your case with one of our construction lawyers.