Using Stop Notices to Get Paid

By: Rex A. Christensen, Esq.

Under Arizona's Stop Notice statutes, a contractor may serve a notice on the owner and/or construction lender to let them know that a payment is still owed. The owner or construction lender must then withhold that amount from the next disbursement until the dispute over payment is resolved.

In reality, the construction lender often stops all payments to anyone until the payment dispute described in the Stop Notice is resolved. This practice gives a contractor immense leverage through the proper use of a Stop Notice, because the owner or general contractor must resolve the dispute before the money will start flowing again. On the other hand, if a contractor succeeds in stopping all payments by serving an improper or inadequate Stop Notice, he may become liable for delays and other damages caused by the invalid notice.

To ensure that a Stop Notice is valid and has the desired effect, a contractor or supplier should be aware of the following considerations from the earliest stages of the project.

First, realize that Stop Notices are not available on government works or owner- occupied residences. Public projects will have other protections in place, such as payment bonds and performance bonds, but the Stop Notice is not available.

Second, the contract should include clauses stating that invoices are due upon receipt, and that a Stop Notice will be used if payment is not made. This is the contractor's first chance to put everyone on notice that he is serious about using the Stop Notice.

Third, a Preliminary Twenty-Day Lien Notice, including any necessary supplements (if the value of the work exceeds the amount claimed in the original preliminary notice by more than 20%), must be served on the Owner, General Contractor, Construction Lender, and the party who employed the claimant.

After these preliminary steps have been taken, a contractor can then use the Stop Notice if it becomes necessary. At that time, the following steps should be followed: (1) The Stop Notice must be served within 120 days of the completion of the project (or less time, if a Notice of Completion has been recorded); (2) It must contain the information required by statute (identification of the claimant, description of work performed, identification of the party who employed the claimant, amount of the contract, value of work already performed, amount of payments received, etc.); (3) It must be served on the owner and the construction lender (at the branch where the construction loan is being administered).

The greatest advantage of using a Stop Notice is that it catches the attention of the people with the money. By using Stop Notices when payments are delayed too long, a contractor can exert pressure on all parties to resolve the dispute, so the project is not interrupted. If the money is legitimately owed, if the preliminary steps have been followed, and if the Stop Notice contains all the required information, then a Stop Notice can be another effective tool to fight for payments that have been unjustly withheld.

Construction Law Articles

By: Rex A. Christensen, Esq.