Qualifying Party Liability Exposure Clarified for Arizona Contractors
February 7, 2022
To obtain a new contractor’s license, each contractor needs a “qualifying party.” A qualifying party is a person who is a regularly employed person with the necessary experience and knowledge required under A.R.S. § 32-1122(E). If the qualifying party later ceases to be connected with the licensee, a licensee is required to requalify through another person within sixty days after the date of disassociation. Failing to do so will result in an automatic suspension of the contractor’s license. A.R.S. § 32-1127.01.
While the licensee’s need for a qualifying party has remained consistent, the extent of the responsibility or potential liability faced by the qualifying party has varied in recent years. Effective August 27, 2019, the qualifying party responsibility stated:
- While engaged as the qualifying party for a licensee, the qualifying party is responsible for any violation of this chapter by the licensee.
A.R.S. § 32-1127(B). The chapter referenced in the above provision referred to Chapter 10, which applies to contractors. A plain reading of the above provision was reasonably believed to expose qualifying parties to liability for a multitude of actions (including, without limitation, any time the license holder failed to pay subcontractors and suppliers, for violations of the Arizona Registrar of Contractors rules, for payment out of the Residential Contractors’ Recovery Fund, etc.) However, effective September 29, 2021, the Arizona legislature added language to A.R.S. § 32-1127 to reportedly clarify or change what “responsibility” the qualifying party was intended to bear. Specifically, the statute now states:
- While engaged as the qualifying party for a licensee, the qualifying party is responsible for any violation of this chapter by the licensee for licensure regulatory purposes under this chapter. This subsection does not impose personal liability on the qualifying party for a licensee’s violation of this chapter.
In other words, when the Act was revised, it provided that the term “responsible” in these sections applies only for licensure regulatory purposes under title 32, chapter 10. Thus, the qualifying party is no longer exposed to personal liability for other non-license regulatory violations.
While the amended language of A.R.S. § 32-1127 (B) clearly reduced the potential liability of the qualifying party, individuals acting as qualifying parties would undoubtedly prefer to have that exposure reduced to none at all. The Arizona legislature has created a mechanism for a licensee to proceed without a qualifying party. A licensee may apply for exemption for the need to have any qualifying party. Under A.R.S. § 32-1125(C) an exemption is warranted if the licensee can show to the satisfaction of the registrar that during the prior five years the licensee: (i) has held a valid and active license and could legally contract under Chapter 10 for the entire five-year period; (ii) did not transfer 50% or more of its stock or beneficial interest; and (iii) did not commit a violation of A.R.S. § 32-1154 subsection A (i.e. grounds for suspension or revocation of a license) that has not been remedied.
ABOUT THE AUTHOR
Garrett J. Olexa | Read Bio
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