Condo law gets challenge to its validity


PHOENIX — A proposal to save condominium owners from being forced out of their homes has run into a problem.

It may be unconstitutional.

An attorney for a Chicago developer told state senators their plan to rewrite the laws governing condos would retroactively change the laws under which the buyers obtained their property. And Charles Markle said that also would interfere with the contractual arrangements those buyers signed.

But the chief proponent of House Bill 2275 told Capitol Media Services he’s not ready to give up.

Rep. Jeff Weninger, R-Chandler, is armed with an opinion from legislative attorneys concluding that lawmakers can step in, as long as they do it before the developer acquires 80% of the units.

That’s an important number.

Under current law, the owners of 80% of the units can effectively dissolve the condominium association if they want to do something else, like convert it to apartments. And that requires owners of the other 20% to sell.

What it also means, however, is that a developer who wants to covert the units to apartments can obtain the voting rights of the 80% and tell the owners of the other 20% they have to sell — and go live somewhere else.

“These are people’s homes,” Weninger said. And he said the requirement to pay the owners an appraised value does little good for people who are retired and on fixed incomes and won’t find a comparable property in the same neighborhood.

That was underlined by a parade of witnesses from several condos being targeted who asked members of the Senate Commerce Committee this past week for help.

“I want to tell you how distressed I am about the current law that allows some big-money developer to come in and force me out of my home,” said Ellen Marginson.

She told lawmakers she and her husband bought the condo 12 years ago and retired just last year.

“We will never be able to purchase another home in this economy,” Marginson said. “Are we supposed to go back to work to qualify and afford a home in an economy that sees day-to-day prices rising every single minute?”

Anthea Harrison, 82, told of living alone on a fixed income after her husband passed away.

“My intention is to live out the rest of my life in my current home,” she said.

“If forced to move, I would find myself in a very difficult situation,” Harrison said. “There are no comparable properties available in this area, and I would be required to pay a much higher price for another home.”

And Cheryl Desimone told of purchasing a condo after her divorce.

“It was instilled throughout my life that you purchase a home or condo so that you have ownership,” she said. And now her daughter has leukemia.

“So the last thing I want to do is worry about losing my home,” Desimone said.

Only thing is, each and every condo purchaser signed documents agreeing to live by the conditions, covenants and restrictions of the association. And in each case, those documents referred to the existing Arizona law that spells out that 80% rule.

It is that contract, Markle said, that remains enforceable. And it is that contract, he told lawmakers, they are powerless to void or alter.

But Jill Evans, who told of buying her condo directly from the builder in 2007, said this was hardly clear.

She said the document she signed did have a statutory reference to ARS 33-1228. That’s the section about the 80% rule to terminate a condo project.

“My husband and I did not review the law prior to purchase,” Evans conceded.

“We assumed state law was there to protect us as homeowners,” she said. “We didn’t realize it was going to protect a company that would force us to sell our home.”

But Greg Patterson, lobbyist for Rockwell Properties which has bought up condo projects in Arizona, said that’s an oversimplification.

“One of the rights that is part of the bundle of rights that owners have is the right of an orderly termination,” he told lawmakers. He said it’s no different than laws on everything from corporations to marriages, where the legislature makes laws on how they can be formed as well as how they can be dissolved.

And Patterson said that’s important because condos are not forever and owners may want to sell.

“Real property becomes obsolete, can deteriorate,” he said. “In a hundred years, these are not going to be condominiums any more.”

Charles Markle, an attorney for Rockwell, told lawmakers the 2021 partial collapse of the Champlain Towers South in Surfside, a suburb or Miami, which killed 98, shows what can happen in situations where condo owners lose interest in paying major assessments for improvements.

Markle said that’s why Arizona law allows for the condo project to be dissolved — and sold off for whatever reason — once 80% of the owners conclude it no longer makes sense.

But Sen. Michelle Ugenti-Rita, R-Scottsdale, said that isn’t the case here. Instead, she said, it’s a single entity coming in and making enough offers to enough owners to allow it to force out the ones who aren’t interested in selling.

“I think that the spirit of the 80%-20%, people thought individual ownership,” she said, not one entity controlling that 80%.

All that leaves the question of what, if anything lawmakers can do.

While Markle contends the contracts are beyond legislative reach, Ken Behringer, the legislature’s general counsel, said lawmakers are free to amend the law to impose a different vote requirement to terminate a project — say 100%. More to the point, Behringer said that law could be applied to any condo where a single entity has not yet acquired 80% of the units.

Weninger said it’s simple: Condos are a creation of the legislature, meaning lawmakers can alter the rules under which they have to operate.

Sen. J.D. Mesnard, R-Chandler, said another option would be to leave the 80% requirement in place but alter the law so that each owner gets only one vote, no matter how many units he, she — or it — owns.

But Markle, whose client has about $450 million in pending deals in Arizona, said it doesn’t matter how you phrase it. He said those CC&Rs are binding, enforceable — and unalterable by state law.
Markle also said it’s not like people are getting thrown out into the street.

The law requires the owners of the remaining 20% to be paid market value plus 5%, along with another 5% for relocation costs. And he said each side has the option to pick an appraiser, with the differences ironed out in arbitration.

At the hearing this past week, several lawmakers questioned whether they should get involved in what essentially is a contract dispute.

“The problem here is that people have purchased condos and did not understand what they had entered into,” said Sen. Tyler Pace, R-Mesa.

He also noted that, had condo owners acted earlier, they may have been able to avoid this situation.

That’s because Arizona law allows the CC&Rs to be amended with the vote of just 67% of the owners.

That could have altered the percentage of votes required to dissolve the condo association or also avoid situations where one entity could simply buy up the majority and force out the others.

But that, Pace noted, wasn’t done when they had the votes. And now they are at the Capitol asking for lawmakers to intercede.

He was not sympathetic.

“That was the agreement that they entered,” Pace said. “Whether they were aware of it or not, it was disclosed in their contract, the statutes were cited in their contract.”

The measure, which already has been approved by the House, faces an uncertain future when it now goes to the full Senate.

condos, HB 2275, Arizona Legislature