ARIZONA STATE SENATE
Phoenix, Arizona
homeowners’
associations; condominiums
(NOW: condominiums; homeowners’ associations)
Purpose
Makes widespread
changes to homeowner association (HOA) open meeting laws, board member removal,
document disclosure, voting and elections, assessments and liens and
prospective purchaser notice requirements.
Creates an internal HOA appeals process.
Background
Currently, state law provides for planned community HOA’s and for condominium HOA’s. Condominium HOA’s and their board of directors have been regulated in Arizona since 1986, while Laws 1994, Chapter 310 established regulations pertaining to the formation and operation of master planned communities’ HOA’s. H.B. 2604, in part, standardizes the two areas of law.
Other than potential for an increase caseload for state courts, there is no anticipated fiscal impact to the state general fund associated with this measure.
Provisions
1. Allows a HOA member to appeal a monetary penalty to a separate HOA appeal committee.
2. Provides for selection of members of the HOA appeal committee, as follows:
a) One person chosen by the HOA member.
b) One person chosen by the HOA board.
c) One person chosen by the two persons named by the HOA board and member.
3. Requires the HOA appeal committee to provide the HOA member with notice and a hearing, and make a determination and report to the HOA board and the affected HOA member.
4. Allows the HOA appeal committee decision to be overturned by a unanimous vote of the HOA board at an open meeting. Stipulates that the HOA board’s decision is final unless an action is filed in a justice court to determine the matter.
5. Requires justices of the peace to provide for expedited and simplified resolution of disputes between a HOA member and the HOA or its board. Excludes actions relating to foreclosures, injunctive relief, declaratory relief and against the declarant.
6. Disallows the closure of regular and special HOA board meetings for actions taken by the HOA board with respect to an employee or independent contractor for the board or the enforcement of HOA documents, including a decision to file a civil action. Requires such actions to be subject to a formal vote of the board during an open meeting.
7. Removes from items of discussion that allow for the closure of regular and special HOA board meetings pending, past or contemplated litigation and matters relating to enforcement of HOA documents and rules.
8. Requires all HOA and board meetings to be held in this state, regardless of any contrary provisions in the HOA documents.
9. Removes ability for HOA bylaws to provide alternatives to statutory meeting notice requirements.
10. Requires HOA boards to provide a comment period for HOA members to comment on HOA matters during regular and special HOA board meetings. Allows HOA boards to limit the number of comments and length of comments.
11. Requires all HOA board meeting notices to include the specific agenda item for the meeting.
12. Requires HOA boards to provide a summary of its actions to HOA members by newsletter, posting or other reasonable means on a quarterly basis.
13. Requires HOA boards to allow unit owners and lessees to attend and observe the counting of written ballots, proxies and the announcement of the results.
14. Prohibits proxy votes allocated to a unit from being cast by a lessee.
15. Requires HOA boards to retain written ballots and proxies for at least 30 days following the announcement of results.
16. Requires proxy votes to be signed. Allows proxy votes to include the unit number.
17. Voids planned community HOA proxy votes that do not contain the HOA unit owner’s address.
18. Allows revocation of a proxy vote by written notice provided before or at the meeting or by the public, verbal revocation of the proxy by the unit owner during the unit owner’s attendance at a meeting.
19. Allows HOA members to run for a position on the HOA board by submitting a written notice of candidacy to the HOA board and presenting it at the time designated for receipt of other nominations for election to the board.
20. Prohibits HOAs from imposing a regular assessment that is more than 20 percent higher than the immediately preceding fiscal year’s assessment without the approval of a majority of the votes cast at a HOA meeting at which a quorum is present.
21. Removes consideration of penalties stemming from violations of the HOA declaration, bylaws and rules of HOA as liens without court action.
22. Prohibits the enforcement of fees, charges and monetary penalties charged as assessments and liens. Removes ability of HOA declaration to provide otherwise.
23. Requires HOAs to furnish a statement of unpaid assessments to an escrow agent upon request.
24. Requires HOAs, on satisfaction of a lien, to promptly release any recorded lien and applies existing law governing wrongful liens and liability.
25. Prohibits HOAs from terminating utility services to a unit owner.
26. Removes ability of a declaration to provide alternative method for adopting and amending the budget.
27. Stipulates that the annual budget is adopted unless rejected by a majority of all the HOA owners.
28. Requires HOA records to be physically maintained in this state, regardless of any contrary provisions in the community document.
29. Allows unit owners to inspect and copy HOA records after five-business days notice to the HOA.
30. Allows HOAs to withhold records that relate to employment or personnel matters and legal advice from the HOA’s or HOA board's attorney. Excludes records of action taken by the HOA with respect to an employee or independent contractor for the HOA or board and the names of a complainant to the board or the subject of a complaint.
31. Allows a HOA to charge based on the courts' charge per page copying fee for costs of preparing and reproducing the documents.
32. Allows HOAs to refuse to disclose financial and other records if the disclosure violates any local, state or federal law.
33. Confirms the right of a HOA member to inspect records pursuant to court action and the power of the court to examine records.
34. Requires a unit owner in a condominium with fewer than 50 units to furnish a copy of the disclosure statement within ten days of a pending sale to a purchaser agent.
35. Requires the articles of incorporation of an HOA to be disclosed to a prospective purchaser.
36. Requires a statement as to whether a reserve fund is required by the HOA and if so, in what amount, be made available by a HOA for review by prospective purchasers.
37. Requires HOAs to record in the county recorder’s office a notice stating the name of the HOA, designated agent or management company and contact information. Requires HOAs to amend its notice or record within 90 days if there is a change in address or management company.
38. Requires HOAs to furnish a copy of the disclosure statement within ten days of a pending sale, regardless of the number of units in the HOA.
39. Allows the HOA to provide a summary of the budget to prospective purchasers in lieu of the entire budget if it is more than ten pages, but is required provide a copy of the entire budget on request and on payment of a copying fee.
40. Requires HOAs to provide a copy of the entire annual financial report to a prospective purchaser on request and on payment on a copying fee.
41. Allows a prospective purchaser or seller to pursue an action against an owner’s agent for failure to disclose required information.
42. Applies condominium HOA statutory element to planned community HOAs relating to the ability of the HOA owners, by a two-thirds vote of all persons present and entitled to vote at a meeting at which a quorum is present, to remove any HOA board member, with or without cause, other than a member appointed by the declarant.
43. Requires HOA boards to provide notice of a special meeting regarding the removal of a HOA board member within 30 days after receiving a petition.
44. Prohibits removal of a board member at any meeting unless notice of the proposed removal is included in the general board meeting notice.
45. Prohibits the removal of a HOA board member without a quorum of the unit owners to whom at least 25 percent of the votes are allocated in person or by proxy at the meeting.
46. Requires HOA boards to retain for one year voting records on the removal and allow HOA members to inspect those records.
47. Entitles a prevailing party in a civil action filed regarding the removal to reasonable attorney fees and costs.
48. Stipulates for a HOA in which board members are elected from separately specified voting districts, a HOA director may only be removed by a vote of the members from a voting district.
49. Requires the HOA board to maintain separate accounts for monies that belong to the HOA or HOA board. Prohibits commingling of HOA or HOA board monies with personal monies of any HOA board member.
50. Stipulates that a HOA board member employed as an employee or independent contractor or compensated by a management company employed by the HOA board or HOA is an unlawful conflict of interest.
51. Prohibits a HOA board from employing or contracting with a management company unless a majority of the board approves the selection of the company.
52. Generally applies condominium HOA statutory elements to planned community HOAs relating to amending the declaration, budget and ballot and proxy voting.
53. Requires HOAs to provide notice of an amendment to the declaration to all HOA members.
54. Specifies an amendment to the declaration is effective on the recording of the amendment, unless a later effective date is designated.
55. Deems an amendment adopted if a sufficient number of members votes for or consents in writing to the amendment. Requires the community documents to prescribe the number of members required for voting for or consenting to the amendment.
56. Requires HOAs to retain the documents relating to the amendment with the other HOA records for at least two years.
57. Allows a planned community developer to amend a declaration when exercising its development rights.
58. Allows planned community HOA declarations to be amended by greater than 67 percent of possible votes if specified in the declaration.
59. Prohibits planned community HOA declarations from being amended without the written consent of the developer, if the declaration so provides. Specifies that such a provision is enforceable only during the period of developer control of the planned community HOA, except with respect to amendments that would affect any special declarant rights, that would increase the developer’s share of assessments to the HOA or that would otherwise adversely affect the developer or the developer’s successor.
60. Allows a HOA to assign its right to future income, including the right to receive common expense assessment if approved by a majority of the membership.
61. Allows for termination of planned community HOA contracts entered into after the effective date of this act but before termination of any period of declarant control by an HOA without penalty at any time after the termination of any period of declarant control.
62. Prohibits planned community HOAs from prohibiting or treating as a commercial activity music instruction provided in a unit and that occurs 20 or fewer times per week.
63. Requires HOA boards and appeal committee members to act in good faith and in accordance with HOA documents, including enforcement decisions, imposition of fines and penalties and maintenance of HOA assets.
64. Repeals existing record restrictions for nonprofit corporations.
65. Exempts proceedings in which a HOA member challenges the actions of a HOA board from the ability to challenge the validity of a corporate action under the nonprofit corporation laws.
66. Makes technical and conforming changes.
67. Provides for a general effective date.
1. Provides for the creation of an HOA appeals process for disputes, by way of an internal appeals committee or resolution by a justice of the peace.
2. Stipulates that the annual budget is adopted unless rejected by the majority of all the HOA owners and applies parallel changes to the planned community statutes.
3. Modifies the open meeting laws with respect to closure of regular and special board meetings.
4. Requires all HOA and board meetings to be held in this state.
5. Requires HOA boards to include the specific agenda item for the meeting in their meeting notices and provide a summary of their actions to HOA members by newsletter, posting or other reasonable means on a quarterly basis.
6. Modifies election and voting laws, that includes requiring HOA boards to allow unit owners and lessees to attend and observe the counting of ballots, proxies and announcement of results, allows for revocation of proxy votes and allows an HOA member to run for a board position upon submittal of a written notice of candidacy.
7. Prohibits HOAs from imposing a regular assessment that is more than 20 percent higher than the immediately preceding fiscal year’s assessment without the approval of a majority of the votes cast at a HOA meeting at which a quorum is present.
8. Outlines the procedure for imposing a lien on an HOA member’s unit for a monetary penalty, fee or charge for a violation of HOA documents.
9. Requires HOAs to promptly release any recorded lien upon satisfaction and applies existing law governing wrongful liens and liability.
10. Prohibits HOAs from terminating utility service to a unit owner.
11. Replaces the proposed manner for inspecting and copying HOA records and financial information with the following:
a) Requires five-days’ notice to an HOA to inspect and copy HOA records.
b) Requires records to be physically maintained in this state.
c) Replaces the items with which an HOA may withhold records with items that warrant the closure of regular and special HOA board meetings.
d) Specifies the charge for costs of preparing and reproducing documents is based on the courts’ charge per page copying fee.
12. Requires a unit owner in a condominium with fewer than 50 units to furnish a disclosure statement within ten days of a pending sale to a purchaser agent.
13. Modifies the required disclosure statement for review by a prospective purchaser to include the articles of incorporation of an HOA, a statement about the reserve fund and a statement about any alterations or improvements that violate the HOA declaration (restoration of current law).
14. Extends the liability to an owner’s agent for failure to disclose the required disclosure statement to prospective purchasers.
15. Outlines procedure for amending planned community HOA declarations and removes the stipulation that a member’s written consent to amendments to condominium HOA declarations need not be notarized or acknowledged.
16. Allows for the termination of planned community HOA contracts that are entered into after the effective date of this act.
17. Requires HOA boards and appeal committee members to act in good faith and in accordance with HOA documents, including enforcement decisions, imposition of fines and penalties and maintenance of HOA assets.
18. Removes the application for removal of elected directors under the nonprofit corporation laws to the removal of HOA directors.
19. Removes the ability of an HOA member to appeal to the HOA board any decision adverse to the member made by a body appointed by the board.
20. Prohibits a HOA board from employing or contracting with a management company unless a majority of the board approves the selection of the company.
21. Exempts proceedings in which a HOA member challenges the actions of a HOA board from the ability to challenge the validity of a corporate action under the nonprofit corporation laws.
22. Removes proposed modifications to HOA dwelling actions that require that an HOA prior to filing such an action to have approval by the HOA members.
23. Removes the language relating to display of flags on a unit owner’s property.
24. Prohibits planned community HOAs from prohibiting or treating as a commercial activity music instruction in a unit and that occurs 20 or fewer time per week.
25. Makes parallel, conforming and technical changes.
CED 3/25/02 DPA/SE 6-1-1-2 COM 4/24/02 DPA 6-0-0-0
3rd Read 4/09/02 32-20-8-0
Prepared by Senate Staff
April 25, 2002