Home>Levelset Community>Legal Help>is there a ARS LAW THAT STATES THAT A CUSTOMER CAN WITHHOLD 10% OF YOUR PAYMENT UNTIL THE JOB IS DONE WHEN YOUR PART OF

is there a ARS LAW THAT STATES THAT A CUSTOMER CAN WITHHOLD 10% OF YOUR PAYMENT UNTIL THE JOB IS DONE WHEN YOUR PART OF

WE INSTALLED HARDWOOD FLOORS FOR A CUSTOMER DOING A REMODEL ON THE ENTIRE HOME. WHEN WE COMPLETED THE FLOORS AND INVOICED THE CUSTOMER SHE SAID THAT THE STATE OF AZ ALLOWS HER TO HOLD 10% OF ARE PAY UNTIL THE WHOLE REMODEL IS COMPLETE. SHE STILL HAS NOT PAID AND IGNORE MY CALLS AND EMAILS. WHAT CAN I DO?

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Mar 17, 2020

If the contract doesn't allow for retainage, then a customer shouldn't withhold it. 10% retainage may be withheld from a contractor on an Arizona public works project. However, for a private residence, that specific 10% figure simply does not apply.

Arizona's retainage rules for privately owned projects

According to ARS § 32-1129.01(D), an owner may withhold a "reasonable amount for retention." But, the statute doesn't really define what's considered reasonable. So, potentially, that 10% figure may be allowable pursuant to that section. But the point remains that, if retainage wasn't a feature of the contract, then an owner probably shouldn't be withholding it. For more background on Arizona's retainage rules: Arizona Retainage Guide and FAQs.

Withholding payment for specific issues

It's also worth noting that section § 32-1129.01(D) states a few different reasons for which payment can be denied. Those reasons are: 1. Unsatisfactory job progress. 2. Defective construction work or materials not remedied. 3. Disputed work or materials. 4. Failure to comply with other material provisions of the construction contract. 5. Third party claims filed or reasonable evidence that a claim will be filed. 6. Failure of the contractor or a subcontractor to make timely payments for labor, equipment and materials. 7. Damage to the owner. 8. Reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum. So, if one of these reasons apply, that'd allow an owner to withhold specific amounts until the issue was resolved.

How long can retainage be withheld?

Payments must generally be made within 7 days from the date when the work is billed, according to the Arizona prompt payment laws. If payment is being withheld for a specific issue, then once that issue is resolved, payment withheld should be released. As for other retainage - the timeframe for releasing retainage should generally abide by the contract. If the contract is silent and the owner is still withholding retainage, then there's little guidance on when retainage must be released. We'll dive into more detail below - but keep in mind that a contractor isn't helpless when their owner is refusing to release payment.

How to force an owner to take your debt seriously

There are a few different options for forcing an owners hand - either to make payment, as owed, or simply to just make sure they're giving your situation the attention and respect it deserves. Below are a few different options that might work, depending on the circumstances.

Invoice reminders

For one, sending something simple like an invoice reminder can force payment. An invoice reminder acts as a simple nudge in the right direction. It reminds an owner that payment is owed and outstanding, and that they're still on the hook. At their best, invoice reminders can at least keep payment on the front of a customer's mind and ignite payment talks.

Demand letters

Escalating things a bit might help to force payment, too. By sending a payment demand letter, a contractor will let their customer know that they're serious about getting paid and willing to do what it takes to make sure that happens. A demand letter can ensure that a customer knows there are repercussions to their refusal to release payment.

Notice of Intent to Lien

Finally, keep in mind that mechanics lien claims are a powerful payment recovery tool. And, because they're so powerful, the mere threat of a mechanics lien claim - via a Notice of Intent to Lien - can go a long way toward forcing payment, too. When an owner knows that their refusal to release payment might lead to their property being liened, they'll be more likely to take payment talk seriously.

Mechanics lien claims can help to recover unpaid debts

Finally, keep in mind that an owner arguing they're entitled to keep retainage doesn't mean that a mechanics lien can't be filed. There's a lot of tension regarding mechanics lien deadlines and retainage practices, and Levelset discusses that in this article: Retainage: What It Means For Your Mechanics Lien Deadline. Ultimately, retainage represents amounts that are owed but not paid for work that's already been done. So, amounts being withheld for retainage are generally subject to lien. And, a mechanics lien would seem especially appropriate when an owner has unilaterally decided to withhold retainage and is unsupported by the contract terms. After all, an owner can't simply force their contractor to forgo lien rights - regardless of whether the contract does or does not allow for it. If things get contentious and a lien filing becomes appropriate, these articles should come in handy: (1) Arizona Mechanics Lien Guide and FAQs; and (2) How to File an Arizona Mechanics Lien – A Step by Step Guide to Get You Paid.

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