construction defects; repairs; replacements; reports

HB4045 - 572R - I Ver

REFERENCE TITLE:
construction defects; repairs; replacements; reports

State of Arizona

House of Representatives

Fifty-seventh Legislature

Second Regular Session

2026

HB 4045

Introduced by

Representative
Biasiucci

AN
ACT

AMENDING SECTIONS 12-1362, 12-1363,
12-1364 and 12-1366, ARIZONA REVISED STATUTES; AMENDING TITLE 32, CHAPTER 10,
ARTICLE 3, Arizona Revised Statutes, BY ADDING SECTION 32-1155.01;
AMENDING TITLE 33, CHAPTER 9, ARTICLE 2, ARIZONA REVISED STATUTES, BY ADDING
SECTION 33-1231; AMENDING SECTION 33-1251, ARIZONA REVISED
STATUTEs; RELATING TO construction DEFECT PROCEEDINGS.

(TEXT OF BILL BEGINS ON NEXT PAGE)

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 12-1362, Arizona Revised
Statutes, is amended to read:

START_STATUTE
12-1362.

Dwelling action; offer to repair or replace; jurisdictional
prerequisite; insurance; bifurcated trial; legislative intent

A. Except with respect to claims for alleged
construction defects involving an immediate threat to the life or safety of
persons occupying or visiting the dwelling
or for an alleged
construction defect a seller previously refused to correct or failed to
properly correct
,

a purchaser must first comply
with this article before filing a dwelling action.

B. A seller and the seller's construction
professional who receive a written notice of claim pursuant to section 12-1363
have a right pursuant to section 12-1363 to
make an offer
to
repair or replace any alleged construction defects after sending or
delivering to the purchaser a written
notice of intent

offer
to repair or replace the alleged construction
defects. The seller and the seller's construction professional do
not need to repair or replace all of the alleged construction defects.�
A purchaser may not file a dwelling action until the seller and the
seller's construction professional have completed all intended repairs and
replacements of the alleged construction defects.

C. If a seller or a seller's construction
professional presents a notice received pursuant to section 12-1363 to an
insurer that has issued an insurance policy to the seller or the seller's
construction professional that covers the seller's or the seller's construction
professional's liability arising out of a construction defect or the design,
construction or sale of the property that is the subject of the notice, the
insurer must treat the notice as a notice of a claim subject to the terms and
conditions of the policy of insurance.� An insurer must work cooperatively and
in good faith with the insured seller or the seller's construction professional
within the time frames specified in this article to effectuate the purpose of
this article.� This subsection does not affect the coverage available under the
policy of insurance or create a cause of action against an insurer whose
actions were reasonable under the circumstances, notwithstanding its inability
to comply with the time frames specified in section 12-1363.

D. Subject to Arizona
rules of court, the identified construction professionals shall be joined as
third-party defendants, if feasible.� Subject to Arizona rules of court, for
each construction defect found to exist, the trier of fact in any dwelling
action filed pursuant to this article shall first determine if a construction
defect exists and the amount of damages caused by the
construction

defect and identify each seller or construction professional whose
conduct, whether by action or omission, may have caused, in whole or in part,
any construction defect.� The purchaser has the burden of proof to demonstrate
the existence of a construction defect and the amount of the damages caused by
the construction defect.
The seller has the burden of
proof to establish which construction professional's conduct caused, in whole
or in part, the construction defect.
The trier of fact shall thereafter
determine the relative degree of fault of any defendant or third-party
defendant. The trier of fact shall allocate the pro rata share of
liability based on relative degree of fault. The seller has the
burden to prove the pro rata share of liability of any third-party
defendant. The determination of whether a construction defect
exists, the amount of damages caused by the construction defect and who may
have caused, in whole or in part, the construction defect
shall

may
be bifurcated from and take place in a separate phase
of the trial
or alternative dispute resolution process

from the determination of the relative degree of fault of any defendant or
third-party defendant
, unless the court finds that
bifurcation is not appropriate
.

E. The legislature finds
and determines that given the complexity and multiparty nature of dwelling
actions, it is important to provide a streamlined process for the resolution of
construction defect claims and indemnification claims between the seller and
the construction professionals that is efficient, economical and convenient for
the parties involved.
The legislature further finds
and determines that for the majority of dwelling actions, bifurcation of the
issues of the existence of a defect and causation from the issue of
apportionment of fault is more efficient, fair and convenient for the parties.
�
It is the legislature's intent that the bifurcation process prescribed in
subsection D of this section does not alter the seller's liability under the
seller's implied warranty to the purchaser.
It is the
legislature's intent that the bifurcation process prescribed in subsection D of
this section be used and that the issues of existence of a construction defect,
damages, causation and apportionment of fault be tried in one trial unless the
court finds that the circumstances of the particular case at issue render
bifurcation inappropriate.

END_STATUTE

Sec. 2. Section 12-1363, Arizona Revised
Statutes, is amended to read:

START_STATUTE
12-1363.

Notice and right to repair or replace; tolling of time limits;
admissible evidence; definition

A. Before filing a dwelling action, the purchaser
shall give written notice by certified mail, return receipt requested, to the
seller specifying in reasonable detail the basis of the dwelling action.� A
seller who receives notice under this subsection shall promptly forward a copy
of the notice to the last known address of each construction professional who
the seller reasonably believes is responsible for an alleged
construction

defect that is specified in the notice. The seller's notice
to each construction professional may be delivered by electronic means.

B. After receipt of the notice
described
prescribed
in subsection A of this section, the seller and the
seller's construction professional may inspect the dwelling to determine the
nature and cause of the alleged construction defects and the nature and extent
of any repairs or replacements necessary to remedy the alleged construction
defects.� The purchaser shall ensure that the dwelling is made available for
inspection not later than ten days after the purchaser receives the seller's
and the seller's construction professional's request for an
inspection. The seller and the seller's construction professional
shall provide reasonable notice to the purchaser before conducting the
inspection.� The inspection shall be conducted at a reasonable time.� The
seller and the seller's construction professional may use reasonable measures,
including testing, to determine the nature and cause of the alleged
construction defects and the nature and extent of any repairs or replacements
necessary to remedy the alleged construction defects. If the seller
or the seller's construction professional
conduct
conducts
testing pursuant to this subsection, the seller or
the seller's construction professional shall restore the dwelling to its
condition before the testing.

C. Within sixty days after receipt of the notice
described
prescribed
in subsection A of
this section, the seller shall send to the purchaser a good faith written
response to the purchaser's notice by certified mail, return receipt
requested.� The response may include the seller's and the seller's construction
professional's
notice of intent

offer
to
repair or replace any alleged construction defects
, to have the
alleged construction defects repaired or replaced
at the seller's or
seller's construction professional's expense or to provide monetary
compensation to the purchaser. The written
notice of
intent

offer
to repair or replace shall describe
in reasonable detail all repairs or replacements that the seller and the
seller's construction professional intend to make or provide to the dwelling
and a reasonable estimate of the date by which the repairs or replacements will
be made.� This subsection does not prohibit the seller from offering monetary
compensation or other consideration instead of or in addition to a repair or
replacement.
� Within thirty days after receiving seller's offer,

the purchaser
may

shall
accept
or reject
an offer of monetary compensation or other
consideration, other than repair or replacement
the
offer, in whole or in part,
and, if rejected
in whole or
in part
, may proceed with a dwelling action on completion of any
accepted
repairs or replacements the seller and the seller's
construction professional intend to make or provide.� The parties may negotiate
for a release if an offer involving monetary compensation or other
consideration is accepted.

D. If the seller does not provide a written response
to the purchaser's notice within sixty days, the purchaser may file a dwelling
action.

E. If the response provided pursuant to subsection C
of this section includes
a notice of intent

an offer
to repair or replace the alleged construction defects
and the offer to repair or replace is accepted in whole or in part
,

to the extent of the acceptance
the purchaser shall allow
the seller and the seller's construction professional a reasonable opportunity
to repair or replace the alleged construction defects or cause the alleged
construction defects to be repaired or replaced pursuant to the following:

1. The purchaser and the seller or the seller's
construction professional shall coordinate repairs or replacements within
thirty days after
acceptance of
the seller's
notice of intent

offer
to repair or
replace was sent pursuant to subsection C of this section. If
requested by the purchaser,
the
repair or replacement of
alleged construction defects undertaken by the seller shall be performed by a
construction professional
that is
selected by the seller
and consented to by the purchaser, whose consent shall not be unreasonably
withheld,
and
that was not involved in the construction
or design of the dwelling.� A contractor or subcontractor that was not involved
in the construction or design of the dwelling and that performs any repair or
replacement of the alleged construction defect pursuant to this section is
liable only to the seller or purchaser who contracted for the contractor's or
subcontractor's services for the contractor's or subcontractor's scope of work
and that contractor or subcontractor may be named in an amended notice pursuant
to subsection I of this section or in the corresponding dwelling action.

2. Repairs or replacements shall begin as agreed by
the purchaser and the seller or the seller's construction professional, with
reasonable efforts to begin repairs or replacements within thirty-five
days after the seller's
notice of intent to repair or replace was
sent pursuant to subsection C of this section
offer was
accepted by the purchaser
. If a permit is required to perform
the repair or replacement, reasonable efforts shall be made to begin repairs or
replacements within ten days after receipt of the permit or thirty-five
days after the
seller's notice of intent to repair or replace

purchaser's acceptance
was sent pursuant to subsection C
of this section, whichever is later.

3. All repairs or replacements shall be completed
using reasonable care under the circumstances and within a commercially
reasonable time frame considering the nature of the repair or replacement, any
access issues or unforeseen events that are not caused by the seller or the
seller's construction professional.

4. The purchaser
shall provide reasonable access for the repairs or replacements.

5. The seller is not
entitled to a release or waiver solely in exchange for any repair or
replacement made pursuant to this subsection, except that the purchaser and
seller may negotiate a release or waiver in exchange for monetary compensation
or other consideration.

6. At the conclusion of any repairs or replacements,
the purchaser may commence a dwelling action
or, if the contract
for the sale of the dwelling or the community documents contain a commercially
reasonable alternative dispute resolution procedure that complies with section
12-1366, subsection C, may initiate the dispute resolution process
including any claim for inadequate repair or replacement
.

F. During the notice and repair or replacement
process, and for thirty days after
the rejection of all repairs
or the
substantial completion of the
repair
accepted repairs
or
replacement
replacements, whichever is longer
, the statute of limitations
and statute of repose, including section 12-552, applicable to the
purchaser, including any construction professional involved in the construction
or design, are tolled as to the seller and the seller's construction
professional who were involved in the construction or design of the dwelling
for all alleged construction defects described in reasonable detail in the
written notice sent to the seller pursuant to subsection A of this section.

G. The statute of
limitations and statute of repose, including section 12-552, that apply
to the seller's claim for indemnity or contribution against any construction
professional is tolled from the date the seller receives the notice required by
this section until nine months after the purchaser's service of the civil
complaint
or arbitration demand
on the seller.

H. All parties' conduct during the repair or
replacement process prescribed in subsections B, C, D and E of this section may
be introduced in any subsequent dwelling action.� Any repair or replacement
efforts undertaken by the seller or the seller's construction professional are
not considered settlement communications or offers of settlement and are
admissible
for all purposes
in evidence.

I. A purchaser may amend the notice provided
pursuant to subsection A of this section to include alleged construction
defects identified in good faith after submission of the original
notice. The seller and the seller's construction professional shall
have a reasonable period of time to conduct an inspection, if requested, and
thereafter the parties shall comply with the requirements of subsections B, C,
D and E of this section for the additional alleged construction defects identified
in reasonable detail in the notice.

J. Subject to Arizona
rules of court, during the pendency of a dwelling action the purchaser may
supplement the list of alleged construction defects to include additional
alleged construction defects identified in good faith after filing of the
original dwelling action that have been identified in reasonable detail as
required by this section.
within ten day after receiving the
supplemental list of alleged construction defects, the seller may request that
the
court
shall
provide the seller and the seller's
construction professional a reasonable amount of time to inspect the dwelling
to determine the nature and cause of the additional alleged construction
defects and the nature and extent of any repairs or replacements necessary to
remedy the additional alleged construction defects
.

and,
On request of the seller or the seller's construction
professional,
the court shall provide
sufficient time to
make an offer to
repair or replace the additional alleged
construction defects
and, if accepted by the purchaser, sufficient
time for the repairs to be completed
. The parties shall
comply with the requirements of subsections B, C, D and E of this section for
the additional alleged construction defects identified in reasonable detail in
the notice.

K. The service of an amended notice identifying in
reasonable detail the alleged construction defects during the pendency of a
dwelling action shall relate back to the original notice of alleged
construction defects for the purpose of tolling applicable statutes of
limitations and statutes of repose, including section 12-552.

L. By written agreement of the seller and purchaser,
the time periods provided in this section may be extended.

M. For the sale of a dwelling that occurs within the
statutory period set forth in section 12-552, the escrow agent, as
defined in section 6-801, shall provide notice to the purchaser of the
provisions of this section and sections 12-1361
,

and
12-1362
and 32-1158
. This
subsection does not create a fiduciary duty or provide any person or entity
with a private right or cause of action or administrative action.

N. A purchaser who files a contested
dwelling action under this article must file an affidavit with the purchaser's
complaint, under penalty of perjury, that the purchaser has read the entire
complaint, agrees with all of the allegations and facts contained in the
complaint and, unless authorized by statute or rule, is not receiving and has
not been promised anything of value in exchange for filing the dwelling action.

O.
N.
If
the seller does not comply with the requirements of this section and the
failure is not due to any fault of the purchaser or as a result of an
unforeseen condition, including an unforeseen weather condition or government
delay, the purchaser may commence a dwelling action.

P.
O.
If
the purchaser fails to comply with the requirements of this section before
bringing a dwelling action, the dwelling action shall be
dismissed. If
the dwelling action is dismissed after the statute of limitations or statute of
repose, including section 12-552, applicable to the purchaser, any
subsequent dwelling action brought by the purchaser is time barred as to the
seller and the seller's construction professional involved in the construction
or design of the dwelling
stayed pending compliance with
the requirements of this section
.

P. The seller's completion of any
repair or replacement constitutes substantial completion of the repair or
replacement as prescribed in section 12-552.

Q. For the purposes of this section,
"reasonable detail" includes all of the following:

1. An itemized list that describes
in
layman's terms
each alleged construction defect with sufficient detail
to allow the seller or seller's construction professional to identify the
alleged construction defect.

2. The location that each alleged construction
defect has been observed by the purchaser in each dwelling that is the subject
of the notice.

3. The impairment to the dwelling that has occurred
as a result of each of the alleged construction defects or is reasonably likely
to occur if the alleged construction defects are not repaired or replaced.

4. The street address for each dwelling that is the
subject of the notice.

5. In connection with the seller's
offer, the location of each repair offered, the method of repair that will be
implemented and the damage that is being repaired or avoided by virtue of the
repair.
END_STATUTE

Sec. 3. Section 12-1364, Arizona Revised
Statutes, is amended to read:

START_STATUTE
12-1364.

Dwelling actions; statement of public policy; attorney fees, expert
witness fees and taxable costs; prohibited costs

A.
The public policy of this state is
to protect owners and to hold builders accountable for their work.� In
furtherance of this public policy and notwithstanding any contract to the
contrary,
in a contested dwelling action, the court
or
tribunal may

shall
award the
prevailing

successful
party
with respect to a
contested issue
reasonable attorney fees
, reasonable
expert witness fees
and taxable costs.�
A purchaser is
deemed the prevailing party with respect to a contested issue if the relief
obtained by the purchaser for that contested issue, exclusive of any fees and
taxable costs, is more favorable than the repairs or replacements and offers
made by the seller before the purchaser filed a dwelling action pursuant to
section 12-1363.� The seller is deemed the prevailing party with respect
to a contested issue if the relief obtained by the purchaser for that contested
issue, exclusive of any fees and taxable costs, is not more favorable than the
repairs or replacements and offers made by the seller before the purchaser
filed a dwelling action pursuant to section 12-1363.
If the final judgment is more favorable to the purchaser
than any combination of consideration offered or provided by, or repairs or
replacements offered or performed by, the seller pursuant to this article, the
purchaser is deemed to be the successful party from the date that the purchaser
provided a notice pursuant to section 12-1363, subsection A. If the
final judgment is less favorable to the purchaser than any combination of
consideration offered or provided by, or repairs or replacements performed by,
the seller pursuant to this article, the seller is deemed to be the successful
party from the date that the seller provided a response pursuant to section
12-1363, subsection C.

B. An award of attorney fees pursuant
to this section is limited to the amount of fees actually and reasonably
incurred with respect to the contested issue for which the party has been
deemed the prevailing party.� In determining whether the fees actually incurred
with respect to a contested issue are reasonable, the court or tribunal shall
consider all of the following:

1. The repairs, replacements or offers
made by the seller, if any, before the purchaser filed the dwelling action
pursuant to section 12-1363.

2. The purchaser's response to the
seller's repairs, replacements or offers made or proposed, if any, before the
purchaser filed the dwelling action pursuant to section 12-1363.

3. The relation between the fees
incurred over the duration of the dwelling action and the value of the relief
obtained with respect to the contested issue.

4. The amount of fees incurred in
responding to any unsuccessful motions, claims and defenses during the duration
of the dwelling action.

B. The seller may not be reimbursed
for an investigation or repair that the seller performed pursuant to this
article.

C. This section does not alter, prohibit or restrict
present or future contracts that may provide for attorney fees or expert
witness fees.

D. Notwithstanding any other law, in a
contested dwelling action that involves a single purchaser, the court or
tribunal may award the prevailing party with respect to the contested issue
reasonable expert witness fees. The determination of the prevailing
party and the reasonableness of the expert witness fees shall be made using the
same criteria used in determining the award of attorney fees pursuant to
subsections A and B of this section.� This subsection does not apply to a dwelling
action that involves more than one purchaser or an action that is consolidated
with any other dwelling action.� The expert witness fees prescribed in this
subsection are in addition to the taxable costs authorized by section 12-332.

E. For the purposes of this section:

1. "Contested issue" means
an issue that relates to an alleged construction defect and that is contested
by a purchaser following the conclusion of the repair and replacement
procedures prescribed in section 12-1363.

2. "Purchaser" means any
person or entity, including the current owner of the dwelling, who files a
dwelling action during the time period described in section 12-552.

END_STATUTE

Sec. 4. Section 12-1366, Arizona Revised
Statutes, is amended to read:

START_STATUTE
12-1366.

Applicability; claims and actions

A. This article does not apply:

1. To personal injury claims.

2. To death claims.

3. To claims for damage to property other than a
dwelling.

4. To common law fraud claims.

5. To proceedings brought pursuant to title 32,
chapter 10.

6. To claims solely seeking recovery of monies
expended for repairs to alleged defects that have been repaired by the
purchaser.

7. If the contract for the sale of
the dwelling or an association's community documents contain commercially
reasonable alternative dispute resolution procedures.

8. To claims for alleged defects if
the seller previously refused to repair the alleged defect or already performed
a repair on the alleged defect that was improper.

B. A dwelling action brought by an association is
also subject to title 33, chapter 18.

C. After the repair or replacement
process has been completed as prescribed by section 12-1363, this article
does not affect either party's ability to enforce any commercially reasonable
alternative dispute resolution procedures contained in the contract for the
sale of the dwelling or an association's community documents. The
seller's election to enforce any commercially reasonable alternative dispute
resolution procedures contained in the contract for the sale of the dwelling or
an association's community documents does not negate, abridge or otherwise
reduce the seller's right to repair or replace any alleged construction defects
pursuant to section 12-1363.� If the contract for the sale of a dwelling
contains the procedures, the procedures shall conspicuously appear in the
contract in bold and capital letters and a disclosure statement in at least
twelve-point font, bold and capital letters shall appear on the face of
the contract and shall describe the location of the alternative dispute
resolution procedures within the contract.

END_STATUTE

Sec. 5. Title 32, chapter 10, article 3,
Arizona Revised Statutes, is amended by adding section 32-1155.01, to read:

START_STATUTE
32-1155.01.

Required reporting of civil judgments and arbitration awards
against licensees; suspension or revocation of license for violations; civil
penalty

A. NOTWITHSTANDING any other law, to
further the public policy of quality construction, the registrar shall require
the holder of a license or all persons who are listed on a license to report to
the registrar any civil court judgment or arbitration award against the
licensee within forty-five days after the judgment or award becomes final.

B. The registrar may on its own
motion, and on the written complaint or request of any party that is a named
party to the subject civil court action or arbitration from which the judgment
or award is obtained shall, investigate the acts of any licensed contractor
within this state that had a judgment or award entered against
it. The registrar may temporarily suspend, with or without the
imposition of specific conditions in addition to any increased surety bond or
cash deposit requirements, or may permanently revoke any or all licenses that
are issued under this chapter if the license holder commits any of the acts or
omissions set forth in section 32-1154.

C. In addition to any suspensions or
specific conditions authorized by subsection B of this section, the registrar
shall require a contractor that commits a violation of section 32-1154 to
pay a civil penalty of not less than $1,000 and not more than $10,000 for each
violation.� the registrar shall use the monies for the administration of all
reporting and investigations conducted under this section.
END_STATUTE

Sec. 6. Title 33, chapter 9, article 2, Arizona
Revised Statutes, is amended by adding section 33-1231, to read:

START_STATUTE
33-1231.

Enforcement of governing documents

NOTWITHSTANDING any provision in the governing
documents to the contrary, after the declarant has completed construction of
the development, has terminated construction activities and has terminated
marketing activities for the sale, lease or other disposition of separate
interests with the development, the declarant shall cease to have any right to
enforce, take action, modify or restrict modification of the governing
community documents.
END_STATUTE

Sec. 7. Section 33-1251, Arizona Revised
Statutes, is amended to read:

START_STATUTE
33-1251.

Tort and contract liability

A. An action alleging a wrong done by the
association shall be brought against the association and not against any unit
owner.

B. A statute of limitation
or repose,
or both,
affecting any right of action of the association against the
declarant is tolled until the period of declarant control terminates
, except that claims that are subject to section 12-552 shall be
made not later than nine years following substantial completion irrespective of
discovery
.

C. A unit owner is not precluded from bringing an
action against the association because
he

the unit owner
is a unit owner or a member or officer of the
association.

D. Liens resulting from judgments against the
association are governed by section 33-1256.
END_STATUTE

Sec. 8.
Severability

If a provision of this act or its
application to any person or circumstance is held invalid, the invalidity does
not affect other provisions or applications of the act that can be given effect
without the invalid provision or application, and to this end the provisions of
this act are severable.