homeowners' associations; rules; enforcement

SB1674 - 572R - I Ver

REFERENCE TITLE:
homeowners' associations; rules; enforcement

State of Arizona

Senate

Fifty-seventh Legislature

Second Regular Session

2026

SB 1674

Introduced by

Senator
Kavanagh

AN
ACT

amending sections 33-1202, 33-1215,
33-1243, 33-1245 and 33-1811, Arizona Revised Statutes; relating to
condominiums and PLANNED communities.

(TEXT OF BILL BEGINS ON NEXT PAGE)

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

Section 1. Section 33-1202, Arizona Revised
Statutes, is amended to read:

START_STATUTE
33-1202.

Definitions

In the condominium documents, unless specifically provided
otherwise or the context otherwise requires, and in this chapter:

1. "Affiliate of a declarant" means any
person who controls, is controlled by or is under common control with a
declarant.

2. "Allocated interests" means the
undivided interests in the common elements, the common expense liability and
votes in the association allocated to each unit.

3. "Articles of incorporation" means the
instrument by which an incorporated association or unit owners' association is
formed and organized under this state's corporate statutes.

4. "Assessment" means the share of monies
that is required for the payment of common expenses and that the association
assesses periodically against each unit.

5. "Association" or "unit owners'
association" means the unit owners' association organized under section 33-1241.

6. "Board of directors" means the body,
regardless of its name, designated in the declaration and given general
management powers to act on behalf of the association.

7. "Bylaws" means the bylaws required by
section 33-1246.

8. "Common elements" means all portions of
a condominium other than the units.

9. "Common expense liability" means the
liability for common expenses allocated to each unit pursuant to section 33-1217
or 33-1255.

10. "Common expense lien" means the lien
for assessments, charges for late payment of assessments if authorized in the
declaration, reasonable collection fees and costs incurred or applied by the
association and reasonable attorney fees and costs that are incurred with
respect to those assessments, if the attorney fees and costs are awarded by a
court.

11. "Common expenses" means expenditures
made by or financial liabilities of the association, together with any
allocations to reserves.

12. "Condominium" means real estate,
portions of which are designated for separate ownership and the remainder of
which is designated for common ownership solely by the owners of the separate
portions. Real estate is not a condominium unless the undivided
interests in the common elements are vested in the unit owners.

13. "Condominium documents" means the
declaration, bylaws, articles of incorporation, if any, and rules, if any.

14. "Declarant" means any person or group
of persons who reserves, is granted or succeeds to any special declarant right.

15. "Declaration" means any instruments,
however denominated, that create a condominium and any amendments to those
instruments.

16. "Development rights" means any right
or combination of rights reserved by or granted to a declarant in the
declaration to do any of the following:

(a) Add real estate to a condominium.

(b) Create easements, units, common elements or
limited common elements within a condominium.

(c) Subdivide units, convert units into common
elements or convert common elements into units.

(d) Withdraw real estate from a condominium.

(e) Make the condominium part of a larger
condominium or planned community.

(f) Amend the declaration during any period of
declarant control, pursuant to section 33-1243, subsection
E
F
, to comply with applicable law or to correct any error or
inconsistency in the declaration, if the amendment does not adversely affect
the rights of any unit owner.

(g) Amend the declaration during any period of
declarant control, pursuant to section 33-1243, subsection
E
F
, to comply with the rules or guidelines, in effect from time
to time, of any governmental or quasi-governmental entity or federal
corporation guaranteeing or insuring mortgage loans or governing transactions
involving mortgage instruments.

17. "Identifying number" means a symbol or
address that identifies one unit in a condominium.

18. "Leasehold condominium" means a
condominium in which all or a portion of the real estate is subject to a lease
the expiration or termination of which will terminate the condominium or reduce
its size.

19. "Limited common element" means a
portion of the common elements specifically designated as a limited common
element in the declaration and allocated by the declaration or by operation of
section 33-1212, paragraph 2 or 4 for the exclusive use of one or more
but fewer than all of the units.

20. "Person" means:

(a) A natural person, corporation, business trust,
estate, trust, partnership, association, joint venture, government,
governmental subdivision or agency, or other legal or commercial
entity.

(b) In the case of a subdivision trust, as defined
in section 6-801, the beneficiary of the trust who holds the right to
subdivide, develop or sell the real estate rather than the trust or trustee.

21. "Real estate":

(a) Means any legal, equitable, leasehold or other
estate or interest in, over or under land, including structures, fixtures and
other improvements and interests which by custom, usage or law pass with a
conveyance of land though not described in the contract of sale or instrument
of conveyance.

(b) Includes parcels with or without upper or lower
boundaries and spaces that may be filled with air or water.

22. "Rules" means the provisions, if any,
adopted pursuant to the declaration or bylaws governing maintenance and use of
the units and common elements.

23. "Special declarant rights" means any
right or combination of rights reserved by or granted to a declarant in the
declaration to do any of the following:

(a) Construct improvements provided for in the
declaration.

(b) Exercise any development right.

(c) Maintain sales offices, management offices,
signs advertising the condominium, and models.

(d) Use easements through the common elements for
the purpose of making improvements within the condominium or within real estate
that may be added to the condominium.

(e) Appoint or remove any officer of the association
or any board member during any period of declarant control.

24. "Unit" means a portion of the
condominium designated for separate ownership or occupancy.

25. "Unit owner" means:

(a) A declarant or other person who owns a unit or,
unless otherwise provided in the lease, a lessee of a unit in a leasehold
condominium whose lease expires simultaneously with any lease the expiration or
termination of which will remove the unit from the condominium but does not
include a person having an interest in a unit solely as security for an
obligation.

(b) In the case of a contract for conveyance, as
defined in section 33-741, of real property, the purchaser of the unit.

26. "Unit owner expenses":

(a) Means fees, charges, late charges and monetary
penalties or interest that is imposed pursuant to section 33-1242,
subsection A, paragraphs 10, 11 and 12.

(b) Does not include any amount that is included in
a common expense lien.
END_STATUTE

Sec. 2. Section 33-1215, Arizona Revised
Statutes, is amended to read:

START_STATUTE
33-1215.

Contents of declaration

A. The declaration shall contain:

1. The name of the condominium, which shall include
the word "condominium" or be followed by the words "a
condominium", and the name of the association.

2. The name of every county in which any portion of
the condominium is located.

3. A legal description of the real estate included
in the condominium.

4. A description of the boundaries of each unit
created by the declaration, including each unit's identifying number.

5. A description of any limited common elements,
other than those specified in section 33-1212, paragraphs 2 and 4, but
the declaration shall contain a description of any porches, balconies, patios
and entryways, if any, as provided in section 33-1219, subsection B,
paragraph 11.

6. A description of any development rights and other
special declarant rights, together with a legal description of the real estate
to which each of those rights applies, any time limit within which each of
those rights must be exercised and any other conditions or limitations under
which the rights described in this paragraph may be exercised or will lapse.

7. An allocation to each unit of the allocated
interests in the manner described in section 33-1217.

8. Any restrictions on use, occupancy and alienation
of the units.

9. All matters required by sections 33-1216,
33-1217, 33-1218, 33-1219 and 33-1226 and section 33-1243,
subsection
E
F
.

10. A statement that the assessment obligation of
the unit owner under section 33-1255 is secured by a lien on the owner's
unit in favor of the association pursuant to section 33-1256.

11. If the condominium is a conversion from
multifamily rental to condominiums, a statement containing all of the
following:

(a) A statement that the property is a conversion
from multifamily rental to condominiums.

(b) The date original construction was completed.

(c) The name and address of the original owner,
builder, developer and general contractor as shown on the applicable city, town
or county building permit.

(d) The name and address of each subsequent owner as
determined by a search of the county recorder's records in the county in which
the property is located.

(e) The subdivider's agreement to provide the
following information on request:

(i) The name and address of any builder, developer,
general contractor, subcontractor, architect and engineer who designed or made
improvements to the property immediately before the first condominium was sold.

(ii) A specific description of all improvements
made.

B. If a city, town or county is unable to produce a
building permit as required in subsection A, paragraph 11, subdivision (c) of
this section, the subdivider shall submit a letter from the applicable city,
town or county stating that the information required by subsection A, paragraph
11, subdivision (c) of this section is not available.

C. The declaration may contain any other matters the
declarant deems appropriate.
END_STATUTE

Sec. 3. Section 33-1243, Arizona Revised
Statutes, is amended to read:

START_STATUTE
33-1243.

Board of directors and officers; conflict; powers; limitations;
removal; annual audit; applicability

A. Except as provided in the declaration, the
bylaws, subsection B of this section or other provisions of this chapter, the
board of directors may act in all instances on behalf of the association.

B. The board of directors shall not act on behalf of
the association to amend the declaration, terminate the condominium, elect
members of the board of directors or determine the qualifications, powers and
duties or terms of office of board of directors members.� Except as provided in
subsection
H
I
of this
section, the board of directors may fill vacancies in its membership for the
unexpired portion of any term.

C. If any contract, decision or other action for
compensation taken by or on behalf of the board of directors would benefit any
member of the board of directors or any person who is a parent, grandparent,
spouse, child or sibling of a member of the board of directors or a parent or
spouse of any of those persons, that member of the board of directors shall
declare a conflict of interest for that issue.� The member shall declare the
conflict in an open meeting of the board
of directors
before
the board
of directors
discusses or takes action on that
issue and that member may then vote on that issue. Any contract
entered into in violation of this subsection is void and unenforceable.

D.
NOTWITHSTANDING ANY PROVISION OF THE CONDOMINIUM
DOCUMENTS TO THE CONTRARY, THE ASSOCIATION HAS BOTH THE AUTHORITY AND the DUTY,
WITH REASONABLE DISCRETION, TO ENFORCE THE ASSOCIATION'S GOVERNING DOCUMENTS TO
PROTECT PROPERTY VALUES IN THE CONDOMINIUM. TO BE REASONABLE, THE ASSOCIATION'S
ENFORCEMENT MAY NOT BE OPTIONAL, ARBITRARY, CAPRICIOUS OR SELECTIVE AND MUST
TREAT ALL UNIT OWNERS FAIRLY. ALL ENFORCEMENT ACTIONS TAKEN BY THE ASSOCIATION
ARE A PUBLIC RECORD OF THE ASSOCIATION and are SUBJECT TO THE PROVISIONS OF
SECTION 33
-1258.

D.
E.
Except
as provided in the declaration, within thirty days after adoption of any
proposed budget for the condominium, the board of directors shall provide a
summary of the budget to all the unit owners.� Unless the board of directors is
expressly authorized in the declaration to adopt and amend budgets from time to
time, any budget or amendment shall be ratified by the unit owners in
accordance with the procedures set forth in this subsection. If
ratification is required, the board of directors shall set a date for a meeting
of the unit owners to consider ratification of the budget not fewer than
fourteen or more than thirty days after mailing of the summary.� Unless at that
meeting a majority of all the unit owners or any larger vote specified in the
declaration rejects the budget, the budget is ratified, whether or not a quorum
is present.� If the proposed budget is rejected, the periodic budget last
ratified by the unit owners shall be continued until such time as the unit
owners ratify a subsequent budget proposed by the board of directors.

E.
F.
The
declaration may provide for a period of declarant control of the association,
during which period a declarant or persons designated by the declarant may
appoint and remove the officers and members of the board of
directors. Regardless of the period provided in the declaration, a
period of declarant control terminates not later than the earlier of:

1. Ninety days after conveyance of seventy-five
percent of the units that may be created to unit owners other than a declarant.

2. Four years after all declarants have ceased to
offer units for sale in the ordinary course of business.

F.
G.
A
declarant may voluntarily surrender the right to appoint and remove officers
and members of the board of directors before termination of the period
prescribed in subsection
E
F

of this section, but in that event the declarant may require, for the duration
of the period of declarant control, that specified actions of the association
or board of directors, as described in a recorded instrument executed by the
declarant, be approved by the declarant before they become effective.

G.

H.
Not
later than the termination of any period of declarant control the unit owners
shall elect a board of directors of at least three members, at least a majority
of whom must be unit owners.� The board of directors shall elect the officers.�
The board
of directors
members and officers shall take
office on election.

H.
I.
Notwithstanding
any provision of the declaration or bylaws to the contrary, all of the
following apply to a meeting at which a member of the board of directors, other
than a member appointed by the declarant, is proposed to be removed from the
board of directors:

1. The unit owners who are eligible to vote at the
time of the meeting may remove any member of the board of directors, other than
a member appointed by the declarant, by a majority vote of those voting on the
matter at a meeting of the unit owners.

2. The meeting of the unit owners shall be called
pursuant to this section and action may be taken only if a quorum is present.

3. The unit owners may remove any member of the
board of directors with or without cause, other than a member appointed by the
declarant.�

4. For purposes of calling for removal of a member
of the board of directors, other than a member appointed by the declarant, the
following apply:

(a) In an association with one thousand or fewer
members, on receipt of a petition that calls for removal of a member of the
board of directors and that is signed by the number of persons who are eligible
to vote in the association at the time the person signs the petition equal to
at least twenty-five percent of the votes in the association or by the number
of persons who are eligible to vote in the association at the time the person
signs the petition equal to at least one hundred votes in the association,
whichever is less, the board shall call and provide written notice of a special
meeting of the association as prescribed by section 33-1248, subsection
B.

(b) Notwithstanding section 33-1248,
subsection B, in an association with more than one thousand members, on receipt
of a petition that calls for removal of a member of the board of directors and
that is signed by the number of persons who are eligible to vote in the
association at the time the person signs the petition equal to at least ten
percent of the votes in the association or by the number of persons who are
eligible to vote in the association at the time the person signs the petition
equal to at least one thousand votes in the association, whichever is less, the
board
of directors
shall call and provide written notice
of a special meeting of the association. The board
of
directors
shall provide written notice of a special meeting as
prescribed by section 33-1248, subsection B.

(c) The special meeting shall be called, noticed and
held within thirty days after receipt of the petition.

(d) If all of the requirements of this subsection
for calling a special meeting are met and the board of directors fails to call,
notice and hold a special meeting within thirty days after receipt of the
petition, the members of the board of directors are deemed removed from office
effective at midnight of the thirty-first day.

(e) For purposes of a special meeting called
pursuant to this subsection, a quorum is present if the number of owners who
are eligible to vote in the association at the time the person attends the
meeting equal to at least twenty percent of the votes of the association or the
number of persons who are eligible to vote in the association at the time the
person attends the meeting equal to at least one thousand votes, whichever is
less, is present at the meeting in person or as otherwise allowed by law.

(f) If a civil action is filed regarding the removal
of a board
of directors
member, the prevailing party in
the civil action shall be awarded its reasonable attorney fees and costs.

(g) The board of directors shall retain all
documents and other records relating to the proposed removal of the member of
the board of directors and any election or other action taken for that
director's replacement for at least one year after the date of the special
meeting and shall allow members to inspect those documents and records pursuant
to section 33-1258.

(h) A petition that calls for the removal of the
same member of the board of directors shall not be submitted more than once
during each term of office for that member.

5. On removal of at least one but fewer than a
majority of the members of the board of directors at a special meeting of the
membership called pursuant to this subsection, the vacancies shall be filled as
provided in the condominium documents.

6. On removal of a majority of the members of the
board of directors at a special meeting of the membership called pursuant to
this subsection, or if the condominium documents do not provide a method for
filling board
of directors
vacancies, the association
shall hold an election for the replacement of the removed directors at a
separate meeting of the members of the association that is held not later than
thirty days after the meeting at which the members of the board of directors
were removed.

7. A member of the board of directors who is removed
pursuant to this subsection is not eligible to serve on the board of directors
again until after the expiration of the removed board
of
directors
member's term of office, unless the condominium documents
specifically provide for a longer period of ineligibility.

I.
J.
For
an association in which board
of directors
members are
elected from separately designated voting districts, a member of the board of
directors, other than a member appointed by the declarant, may be removed only
by a vote of the members from that voting district, and only the members from
that voting district are eligible to vote on the matter or be counted for
purposes of determining a quorum.

J.
K.
Unless
any provision in the condominium documents requires an annual audit by a
certified public accountant, the board of directors shall provide for an annual
financial audit, review or compilation of the association.� The audit, review
or compilation shall be completed no later than one hundred eighty days after
the end of the association's fiscal year and shall be made available on request
to the unit owners within thirty days after its completion.

K.
L.
This
section does not apply to timeshare plans or associations, or the period of
declarant control under timeshare instruments, that are subject to chapter 20
of this title.
END_STATUTE

Sec. 4. Section 33-1245, Arizona Revised
Statutes, is amended to read:

START_STATUTE
33-1245.

Termination of contracts and leases of declarant; applicability

A. A contract for any of the following, if entered
into before the board of directors elected by the unit owners pursuant to
section 33-1243, subsection
G

H

takes office, shall contain a provision in the contract that the
contract may be terminated without penalty by the association at any time after
the board of directors elected by the unit owners takes office:

1. Any management contract or employment contract.

2. Any other contract or lease between the
association and a declarant or an affiliate of a declarant.

3. Any contract or lease that is not bona fide or
was unconscionable to the unit owners at the time entered into under the
circumstances then prevailing.

B. The board of directors shall notify the
appropriate contractual party of the termination at least thirty days before
termination.

C. This section does not apply to any lease if the
termination of the lease would terminate the condominium or reduce its size.

D. If a contract covered by this section fails to
contain the provisions required by subsection A of this section, the contract
is voidable at the option of the association.

E. This section does not apply to timeshare plans or
associations that are subject to chapter 20 of this title.
END_STATUTE

Sec. 5. Section 33-1811, Arizona Revised
Statutes, is amended to read:

START_STATUTE
33-1811.

Board of directors; contracts; conflict; duties

A.
If any contract, decision
or other action for compensation taken by or on behalf of the board of
directors would benefit any member of the board of directors or any person who
is a parent, grandparent, spouse, child or sibling of a member of the board of
directors or a parent or spouse of any of those persons, that member of the
board of directors shall declare a conflict of interest for that issue.� The
member shall declare the conflict in an open meeting of the board before the
board discusses or takes action on that issue and that member may then vote on
that issue.� Any contract entered into in violation of this section is void and
unenforceable.

B.
NOTWITHSTANDING ANY PROVISION OF THE COMMUNITY
DOCUMENTS TO THE CONTRARY, THE ASSOCIATION HAS BOTH THE AUTHORITY AND the DUTY,
WITH REASONABLE DISCRETION, TO ENFORCE THE ASSOCIATION'S GOVERNING DOCUMENTS TO
PROTECT PROPERTY VALUES IN THE planned community. TO BE REASONABLE, THE
ASSOCIATION'S ENFORCEMENT MAY NOT BE OPTIONAL, ARBITRARY, CAPRICIOUS OR
SELECTIVE AND MUST TREAT ALL members FAIRLY.� ALL ENFORCEMENT ACTIONS TAKEN BY
THE ASSOCIATION ARE A PUBLIC RECORD OF THE ASSOCIATION and are SUBJECT TO THE PROVISIONS
OF SECTION 33
-1805.
END_STATUTE