A.R.S. 33-994: Withholding Payment So You Do Not Pay Twice

The nightmare in a mechanics lien fight is paying twice: you pay your general contractor in full, the contractor fails to pay a sub, and the sub liens your house for money you already handed over. A.R.S. 33-994 is the section that gives you a tool against that. When a subcontractor or supplier serves a lien claim, you can hold back that amount from what you still owe the general contractor, so the contractor's own money covers the claim instead of yours.

The right to retain

The mechanism is simple: the sub's claim becomes a setoff against the contractor's remaining pay. The statute puts it directly:

Upon service of the notice and claim of lien upon the owner, the owner may retain, out of any amount due or to become due to the original contractor, the amount of the demand stated in the notice and claim of lien.

In plain terms, if your drywall sub records and serves a $12,000 lien, and you still owe your general contractor $30,000, you may hold back $12,000 of that $30,000. That gives you a hold on the contractor: it either resolves the sub's claim or loses that part of the payment. The contractor also has a window to dispute the sub's demand, and the law pairs this with A.R.S. 33-995 , which makes the general contractor responsible for defending you against liens from people it hired.

Why timing makes or breaks the protection

This right only helps if you still owe the contractor money. Once you have paid everything out, there is nothing left to retain, and a later lien from an unpaid sub lands on you. That is the core reason builders and owners use a draw schedule and hold retention instead of paying the full balance up front.

For example, on a Phoenix custom home you owe a $50,000 final draw. Two days before you release it, a framing supplier serves a $15,000 lien claim. Under 33-994 you pay the contractor only $35,000 and retain $15,000 until the supplier's claim is cleared, usually with a lien waiver . Had you already paid the full $50,000, you would be exposed to the supplier's lien with no easy setoff. The protection lives in the timing of your payments.

How this fits with the rest of the lien rules

This section works alongside the early-warning and cleanup tools in the lien article. The twenty day notices you receive tell you who might lien you, so you know whom to cover before releasing a draw. The lien itself is recorded under A.R.S. 33-993 . The cleanest exit is a lien waiver tied to each payment, and if your home qualifies for the owner-occupied exemption , many subs cannot lien you at all. To build the withholding right into your deal from the start, use our checklist on what to include in a custom home contract .

Full text and source

Read the withholding procedure and the contractor's dispute window on the legislature's site: View A.R.S. 33-994 on azleg.gov .

Holding back money is a contract decision with consequences, so before you retain a draw, confirm the lien claim is valid and document in writing why you are withholding, ideally with your construction attorney's input.