Owners Rights and Remedies in a Construction Contract

1. Being Licensed Is A Prerequisite to Bringing A Civil Action: Unlicensed contractors cannot file a lawsuit for payment unless an exemption in A.R.S. § 32-1121 applies. A.R.S. § 32-1153

2. Understand the Contract: Review the contract to make sure it meets the minimum elements of A.R.S. § 32-1158. Make sure you understand what the agreement says and what is necessary to comply with the contract.

Minimum Elements of A.R.S. § 32-1158

A. Any contract in an amount of more than $1,000 entered into between a contractor
and the owner of a property to be improved shall contain in writing at least the
following information:

1. The name of the contractor and the contractor’s business address and license
   number.
2. The name and mailing address of the owner and the jobsite address or legal description.
3. The date the parties entered into the contract.
4. The estimated date of completion of all work to be performed under the contract.
5. A description of the work to be performed under the contract.
6. The total dollar amount to be paid to the contractor by the owner for all work to be performed under the contract, including all applicable taxes.
7. The dollar amount of any advance deposit paid or scheduled to be paid to the contractor by the owner.
8. The dollar amount of any progress payment and the stage of construction at which the contractor will be entitled to collect progress payments during the course of construction under the contract.
9. That the property owner has the right to file a written complaint with the registrar for an alleged violation of section 32-1154, subsection A. The contract shall contain the registrar’s telephone number and website address and shall state that complaints must be made within the applicable time period as set forth in section 32-1162, subsection A. The information in this paragraph must be prominently displayed in the contract in at least ten-point bold type, and the contract shall be signed by the property owner and the contractor or the contractor’s designated representative. This paragraph does not apply to a person who is subject to and complies with section 12-1365.

B. When a contractor and an owner sign a contract, the contractor shall provide the
owner with a legible copy of all documents signed and a written and signed receipt for
and in the true amount of any cash paid to the contractor by the owner.

3. Understand What a Lien and Pre-Lien Are: At the beginning of the project, the contractor may
send a Preliminary 20-day lien notice to the client per A.R.S. § 33-992.01. Then, if the owner does
not pay, the contractor may record a mechanics lien against the Property. Make sure the mechanics
lien complies with the statutory and timing requirements set forth in A.R.S. § 33-993. If the contractor
files a mechanics lien, the next step is to seek to foreclose upon the mechanics lien within six months.
A.R.S. § 33-998. If the contractor does not follow the steps precisely, the owner may have a counter
claim for wrongful recording.

4. Registrar of Contractors (“ROC”) Complaints: Contractors are licensed through the Registrar of
Contractors. The Registrar of Contractors addresses complaints against licensed and unlicensed
contractors and contractors may be liable if they violate A.R.S. § 33-1154. If the owner prevails on a
ROC claim, then the owner may bring a claim first against the contractor’s bond and then for
compensation to the ROC’s recovery fund, which provides up to $30,000 for claimants.

5. Bond: Every contractor is required to have a bond. The bond is listed on the Registrar of Contractor’s
website. Pursuant to A.R.S. § 32-1152(e), if you prevail at an action at law, you may be entitled to
file a claim against the contractor’s bond.

6. Insurance: Insurance is not a substitute for workmanship or the express warranties provided by the
contractor. As a result, insurance generally covers damages that result from the defective construction,
although it may not expressly cover defective construction.

7. Demand: There is no substitute for a good demand letter that shows what is necessary to cure the
defective construction or a written explanation about what damages are owed. If you are dealing with
new construction, a Purchaser Dwelling Act letter and demand to cure pursuant to A.R.S. § 12-1363
is a prerequisite to bringing a dwelling action (whether litigation or arbitration) against the builder.

8. Alternative Dispute Resolution: Check your contract to determine if there are any separate
obligations to complete before you can move forward with litigation or arbitration. In many contracts,
the parties are required to attend mediation first.

*This is not meant to be legal advice or provide all the available remedies. For legal advice related to
your unique situation or dispute, call Degnan Law Group at 602.266.0531.