Commercial property owners in Arizona should be aware of the potential for litigation on property they own when lien holders want to collect debts owed. In some cases, this litigation can force the sale of the property to settle debt obligations. In others, it can lead to lengthy and costly litigation where both sides settle the dispute in court.
Read on to learn how to avoid litigation on commercial liens in Arizona.
What Are Commercial Liens in Arizona?
When a lien is recorded against a commercial property in Arizona, it represents a recorded instrument of a debt owed. The act of recording a commercial lien is the process by which the lien holder (debtor) lays claim to the potential proceeds of a sale of the property should the debt not be absolved prior to the sale of property.
Commercial liens can include many different types of debts, and it’s important to understand what they represent.
Mechanic & Contractor Liens
A Mechanic’s or Contractor’s lien can be placed on a commercial property in Arizona when the property owner has failed to pay for services rendered. These are common in instances of construction work or buildout work that was contracted and delivered but never paid for—and can allow for contractors, construction service providers, and other types of commercial services providers, to place liens on the property due to nonpayment of the alleged debts.
Who can and cannot place liens on commercial property?
- Design professionals who have not entered into a written contract with the property owner or a written or oral contract with the project architect do not have the right to file.
- Individuals who worked on an occupied residential project without a written contract do not have the right to file.
- Those who supplied the project’s suppliers do not have the right to file.
- In order for these types of liens to be secured, the supplier/provider must have an existing contract with the owner of the property or the original provider of services to the property.
- Mechanic’s liens must be filled out according to Arizona Revised Statutes 33-993.
- Contractors have 120 days to file a lien.
Commercial Real Estate Broker Liens
It is common practice in Arizona for property owners to use the services of commercial real estate brokers to help them sell properties or lease available units in them. Such brokers also have the ability to acquire lien rights if they are not paid for their commissioned amount when securing new tenants or selling the property.
The law affords Commercial brokers the ability to foreclosure on commercial property they have liens on per ARS 33-1074. This law makes a lien similar to an unpaid mortgage debt, and depending upon the amount of the lien, it can often lead to litigation if the debt remains unsolved for a period of time.
Construction Loan Liens
Another type of lien that can be filed on a commercial property in Arizona is a construction loan lien. These types of liens generally have a higher priority than any other type of lien.
According to Arizona Revised Statutes 33-992, construction loans are given priority over a mechanic lien, even if the loan was taken out after the construction began, so long as the mortgage is recorded within 10 days of labor or material commencement.
How to Avoid Litigation on Commercial Liens
Avoiding litigation on commercial liens starts with understanding the contracts that you are signing before you put ink on them. Most contracts that can involve commercial liens clearly state relief options for the debtor, contractor or real estate commissions that may be involved, should they go unpaid.
The best course of action that you can take to avoid litigation on commercial liens in Arizona is to hire a commercial real estate law firm in Arizona with experience in liens, litigation and contracts. Only a qualified commercial real estate attorney can provide you with the advice, contract review and counsel you’ll require to avoid costly litigation further down the road.
Find An Experienced Phoenix Commercial Lien Attorney
If you are involved in a dispute about property liens, having experienced legal representation is critical. The most economical approach for prospective property owners is to work with a legal team that can evaluate your situation and break down the best approach to the case.
MacQueen & Gottlieb has significant experience with Arizona real estate law and completing quiet title actions to make sure a clear title is established. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.