Arizona’s New HOA Laws Explained

Arizona HOA Laws Breakdown

Homeowners Associations (HOAs) are critical components of Arizona communities. They provide enforcement of community-wide rules and the upkeep of shared amenities, helping to maintain property values and a cohesive living experience. The governance by HOAs is typically outlined in their CC&Rs (Covenants, Conditions and Restrictions), and their operations are generally regulated by both state and local laws.
Given their influence, Arizona has instituted a set of laws governing HOAs, notably found in A.R.S. § 33-1801 ("Arizona’s Planned Communities Act" – formerly known as "The Planned Communities Act" or "PCA"). Along with Title 10 (Nonprofit Corporations) and Title 32 (Developer Homeowners Associations) , the PCA provides the legal framework for how HOAs operate in the state.
From resale certificates to oversight by the Department of Real Estate, these laws create rules for the formation, management and dissolution of HOAs. The laws also protect homeowners’ rights and ensure that they have resources to address any grievances they may have with their HOA.
In sum, understanding Arizona’s HOA laws and how they impact their communities is crucial for homeowners. These regulations can affect everything from the function of the HOA to the individual rights of each homeowner, making it vital to stay informed and be proactive in learning more about them.

Changes in HOA Law 2023

Late last year, we began seeing a wave of legislative activity that would impact all homeowners in HOAs. In other words, whether your HOA has planned projects for next year, you will want to know about these changes in the law so that you as a homeowner can access your rights.
The laws passed include significant changes to two HOA statutes (A.R.S. § 33-1804 and A.R.S. § 33-1243), which govern planned communities (or HOAs). You can read the new laws here: SB1113 (recently signed by the governor) and SB1130 (waiting on the governor’s signature). These statutes establish requirements for planned communities, condominiums and cooperatives (although only very few of the provisions in A.R.S. 33-1804 apply to cooperatives). It will take some time for the associations to bring their rules and policies up to date with the new changes, so in the interest of all homeowners (or residents) who live within an HOA living arrangement, here are the significant changes:
SB 1113 A lot was packed into SB 1113, which relates to both condominium and planned communities. In summary, here are the notable changes: SB 1130 SB 1130, if signed into law by the governor, would amend the statute relating to planned communities. Therein, the main changes would be: And if that is not enough, there is also pending legislation on an earlier bill regarding short-term rentals in HOAs (SB 1158). Overall, the new laws primarily target the percentage of owners affected by a board vote for approval of detrimental actions, and create more rights for owners with regard to how their associations conduct themselves, and what is required to afford them any recourse. As always, this is not legal advice, and to understand how these bills could affect your associations, it would be best to discuss your questions and concerns with your association’s legal counsel.

Implications for Arizona Residents

The effect of the new laws on homeowners can be both good and bad. Unfortunately, the impact will be felt over the next 18 months as associations bring their governing documents in line with the new laws. For those associations that have not previously been engaged in complying with prior laws, compliance will be the most significant hurdle. Simply ensuring that there are proper policies for the storage of personal property and properly adopting required policies will be time-consuming. For those associations that have engaged in a living document process of regularly updating policies, these will be minimal issues. The second bite at the apple for many homeowners will be that as each association is brought into compliance with the new laws, the relative power of homeowners will be impacted. The relative balance of power will change as the number of votes a homeowner has relative to the control held by board becomes more favorable each election season. Prior to the passage of the current laws, there were significant questions regarding the number of votes that an owner would have in an association. With the passage of the current laws and the Arizona Corporation Commission ruling that unless provided for in recorded CC&R’s, owners have only 1 vote per lot and it is not possible to give blocks of votes to an individual. On the positive side for homeowners, some associations will be much more accountable for prohibiting the physical storage of personal items in limited common area. While this is obviously a double-edged sword, for those would-be yard sale entrepreneurs who do not follow the rules, the new laws will help enable enforcement where prior law was less clear.

Alterations in HOA Management and Governance

Along with the new laws on reserve studies and financial planning, there are several other new requirements that may affect the way that HOAs are operated and managed. Beginning August 31, 2012, boards of directors must adopt internal governance policies on: (a) conflict of interest issues; (b) enforcement of the declaration for architectural review, construction or design guidelines; and (c) procedures for the resolution of disputes between members and the association. These must be "in addition to any requirements in the declaration or bylaws." Here are descriptions of each of those three requirements.
Conflict of Interest Policies
The conflicts of interest policy that associations are now required to adopt after their first full fiscal year must be in writing and contain provisions that address the following matters:
• Prohibitions on the use of an officer’s or director’s position to influence board actions for his or her special interest or the interest of a relative or friend, or the company or business where he/she is employed or in which he/she has a financial interest
• Disclosures of directors or officers financial interests in matters that come before the board
• Provisions requiring the board to authorize any contract in which an officer or director has an interest by a majority vote of the board or a majority of disinterested directors
• Guidelines for determining if a conflict is "material" and, if so, requiring approval by a majority vote of the board, or alternatively, the members of the association.
Policies for Architectural Review, Construction or Design Guidelines
Associations must also adopt policies for the handling of architectural matters or architectural control matters, which would include not only the rules for review of exterior enhancements to homes, but also matters related to construction deficiencies or alterations to the common areas, rules for enforcement, and other related matters.
Procedures for the Resolution of Disputes Between Members and the Association
Associations are also required to adopt policy statements in writing to be included in their governing documents and to establish procedures to be followed, which provide a process for resolving disputes, other than the collection of assessments, between the association and one or more of its members. The policy statement must contain specified provisions including: (1) a description of the subject matter, (2) procedures for both parties to participate in the process, (3) requirements for deposit of assessment disputes with a third party holder pending the resolution of the dispute, (4) the naming of a person or persons with authority to settle the dispute, (5) requirements relating to authority of an attorney for either party and the obligations of such attorney and (6) the right to sue after completion of the process provided for in the policy statement.
These new requirements will ultimately result in the revision of many associations’ governing documents as they will need to ensure that their policies are reflected in their governing documents, and some documents currently in use will not have any provisions that conform to the new requirements.

Legal Guidance and Resources

Many websites, both public and private, have recently put up pages on the new laws. The City of Tempe is a good place to start; the city has grouped the information together and provided links to the law as well as a document with FAQs. The legislature’s website also has useful information. Monique Carrizosa, the Ombudsman for the Arizona Department of Real Estate (ADRE) provides all homeowners an open door for their complaints . However, ADRE cannot provide legal opinions or advise you as to how the laws may affect your association. Such requests are best directed to a private attorney familiar with community association law. The Arizona Department of Financial Institutions (DFI) created a website for registrations and postings of financial records and other documents required by the new laws.

Prospective Trends for Arizona HOAs

The long-term effects of these legislative changes will likely be seen in the way HOAs operate. For one, the permission required in many provisions may cause boards to be challenged, or at least scrutinized more heavily. Getting the requisite signature of approval may be an annoyance for boards and argue the case for increasing board size to incorporate more voices so that getting such approval would be easier. Another potential long-term impact could see the traditional "show of hands" function of boards changed to vote by secret ballot since boards with significant stakeholders may be affected by these provisions. The new criminal scheme surrounding HOAs may increase the overall oversight and vigilance on management decisions might be more heavily dissected. It is also likely that the new provisions will force developers to reevaluate certain practices. Depending on how far the Legislature goes with new emerging bills that focused on protection from discrimination for living in an HOA, the community association structure itself may receive heightened attention.
Certainly one thing is clear: the world of community associations in the State of Arizona is fundamentally changing.

Experts Weigh In on Arizona HOA Changes

The changes in Arizona’s HOA laws have been widely discussed and debated, both within the assemblies of HOAs and in legal and real estate communities. Legal experts point to the new provisions as a step towards greater protection for homeowners and greater accountability for HOA governing bodies. "For far too long there has been a perceived [and sometimes real] lack of transparency and accountability among homeowner associations," says Scottsdale-based HOA attorney Adam B. Stern, of Stern & Kremer, PLLC. "This will go a long way toward protecting homeowners’ interests and providing more clarity with respect to the actions taken by an association." Stern says that the change will also help to prevent the risk of legal actions that, "the association, board of directors, and members themselves spend so much time and money trying to stay out of," he says. "For a long time we’ve called HOAs [HOA-hell]," adds John Henley, a licensed Arizona realtor who has spent over 25 years representing buyers and sellers in real estate transactions throughout the state. "One of the worst things about buying in an association is that you’re giving up the majority of your civil rights upon purchase," he says. "But these changes mean less conflict between buyers and associations, and [it] provides greater protections to owners." "On the [real estate] front, it will lead to better educated consumers, which enables buyers to make informed decisions when deciding whether or not to buy into an association , " adds Revell, a realtor in the Mesa and Scottsdale areas. "From a seller’s perspective, there should be less conflict and margin for error during the transactional phase of a sale." Some say that the new laws may provide just enough incentive for HOA boards to update bad policies, but will not stop the behavior of a few rogue associations as there will always be some who choose to flaunt the law. "While the reforms are welcome, the fact remains that there will always be individuals who try to continue their own agendas, outside of the law, and work around the rules," Rever says. "It will take several years and a good deal of pressure from the legislature before the HOA associations wake up and realize that it’s in their best interests to stop acting like dictators and start acting like responsible stewards of the communities they serve," Henley says. "I can say that when one of my clients has to deal with an unscrupulous HOA, it makes it very difficult for us to complete their sale; and buyers become wary as to what the future holds for them." However, many express that the benefits outweigh the risks of a few bad apples. "Many more people who do it the right way will benefit from the tools that will allow member/residents to hold boards accountable," says Scottsdale HOA lawyer John Pinson of Pinson & Associates. "Only the ones that are already renditions of bad governments will see a more difficult road."

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