February 2023 IAC HOA News Digest: Condo, HOA living is getting a lot more expensive
By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com
Owners of homes in Arizona HOA-governed communities have reason to celebrate two significant legal victories in 2022.
First, Governor Doug Ducey recently signed a new law upholding free speech and the right of homeowners to peacefully assemble to discuss important issues in their communities. Second, the Arizona Supreme Court recently ruled that an HOA board has no right to substantially change the terms of Covenants and Restrictions, even with a majority vote of its members.
Let’s take a closer look at both of these recent changes, and their impact on a growing movement to regulate and reform HOAs.
Protecting free speech and freedom of assembly
Arizona HOA and condo laws were amended in 2021 to allow owners and residents to display, on their private property, political signs for public candidates and referendum measures. Those amendments also asserted the right of the people to gather on HOA common property (such as a park or clubhouse) to meet candidates or discuss political issues.
This year, House Rep. John Kavanagh (R-23) sponsored a bill to extend similar rights to HOA members and residents with regard to association-specific elections, recall attempts, and HOA referenda that require a vote of all lot or unit owners. The bill received overwhelming support in both chambers of the Legislature, and was recently signed by the Governor.
As written in state law, HOA boards are bestowed with relatively broad power to establish budgets, operating and reserve accounts, and regular or special assessments. At the same time, owners have very limited rights to weigh in on board actions, and, at best, only once-a-year opportunities to vote on who manages their community and how their money is spent.
Finally, Arizona lawmakers have shown that they recognize the fact that owners of HOA-governed property must have the power and liberty to speak freely about community issues, and to gather together in support of their rights.
HB 2158 (2022)
A few of the notable details about HB 2158:
- The law applies to both planned community homeowners associations and condominium associations.
- Homeowners have the right to display HOA-specific political signs on their lots. And condominium associations must allow political signs to be posted or displayed on limited common elements, including doors, windows, or balconies.
- HOAs cannot require that political signs be commercially printed. Sign displays must be allowed from the time ballots are distributed to three days after the election.
- HOA rules cannot limit the number of candidates or issues addressed on each sign, but can limit the total area occupied by political signs on a single property to nine square feet.
- HOA members must be permitted to assemble to meet board candidates, discuss potential important HOA-specific issues, which would include recalls, budget approvals, amendments to governing documents, building or community infrastructure health and safety issues. This is not an exclusive list.
- Each homeowner has the right to invite one guest to speak at an assembly of members. When this right is exercised properly, it enables owners to invite HOA or public office candidates, current lawmakers, or other experts to speak about or educate owners on HOA-specific issues.
The new law was enacted, in large part, due to the efforts of members of the Arizona Homeowners’ Coalition (AZHOC), led by Dennis Legere. Legere has spent many hours discussing the finer details of the bill with Legislators, and why it is so important for owners and residents to be able to assert their rights in their HOA-governed communities.
Most importantly, 154 homeowners and fellow advocates in Arizona took the time to offer their written support and testimony for HB 2158. No homeowner-consumer friendly bill can succeed without enthusiastic support from voting constituents.
Only 3 individuals opposed the bill. Members of HOA management trade groups did not actively support owner rights. Presumably, given the overwhelming public support for fundamental rights, the professional HOA industry groups took a neutral stance on HB 2158.
Arizona finally has a law protecting homeowners right to participate in the governance of their communities and affirming their fundamental rights of free speech and freedom to assemble peacefully.
Dennis Legere, Arizona Homeowners Coalition (AZHOC)
The greatest power you have in your community is the power to vote, but often you are asked to do that without much time to consider the ramification of that vote or are only provided the association’s or the association’s attorney’s side of the issue. This bill will insure that opposing views or perspectives from informed homeowners will be allowed to be aired and exposed so that homeowners get the full picture of what is being asked and can provide informed votes on the issue.
Kalway v. Calabria Ranch HOA LLC, et al.
Homeowners often challenge HOA rules enacted by their board, especially when those rules are not specifically spelled out in the official Declaration of Covenants and Restrictions (CC&Rs) for their community.
Maarten Kalway, the owner of a property in a 5-member planned development, sued Calabria Ranch HOA when it enacted several new property use restrictions without his consent. Some of the new restrictions changed setback requirements for improvements, voting rights assigned to lot subdivisions, and ownership of livestock. Both the trial and appeals courts upheld a portion of those new restrictions, based upon the HOA’s proof that a majority (4 members) of the association voted in favor of them.
But the Arizona Supreme Court reversed the Appellate Court decision, and ultimately declared all of the HOA’s new restrictions invalid and unenforceable. The court opined that a property owner can not be expected to adhere to new use restrictions or rules that are either materially changed or not authorized in the original CC&Rs.
Although owners are effectively put ‘on notice’ that their Covenants and Restrictions can be amended in the future, that does not mean that HOAs can create entirely new restrictions or change the fundamental contractual rights of owners.
In Kalway’s case, for example, the court ruled that Calabria Ranch HOA’s amendments were invalid. One of the amendments would have diluted voting rights for owners of subdivided lots, and the other substantially reduced the total allowable number of livestock for each ranch property.
The Kalway decision has implications for other HOA-governed communities or any landowners bound by deed restrictions.
By example, one hot-button issue is that of rental restrictions. In the past decade, many HOAs in Arizona have enacted — and are now enforcing — restrictions on who can rent their home or condo units, when they can do so, and under what conditions. But, if the original declarations, covenants, and restrictions do not state that the association may choose to restrict or regulate rentals in the community, owners can now challenge their HOAs in court, citing Kalway v. Calabria Ranch, LLC.
The same principles also apply to some new HOA architectural standards, the addition of unreasonable parking restrictions or expanding the HOA’s power to issue traffic tickets. The new litmus test: If an owner would not be able to predict the HOA’s newly amended restrictions, then the owner would probably have a valid legal basis to challenge the validity of amendments.
Readers should note that, even though a majority of owners might actually vote in favor a particular amendment (such as prohibiting short term rentals), ultimately, it might not be legally binding on all members. That’s why it is so important to read and understand your HOA governing documents, preferably before you own any HOA-governed property. But if you have never read your HOA documents, now is a good time to do so.
Caution: keep in mind that it’s also possible that developers and the HOA management and legal industries will establish new HOA-governed communities with more specific, more onerous, covenants and restrictions. Newly written CC&Rs will likely include less ambiguous language designed to withstand future challenges to amendments.
Kalway brings housing advocates one step closer to preserving the rights of property owners. In the future, Plaintiffs may seek to challenge the validity (Constitutionality or reasonableness) of underlying property and deed restrictions, instead of merely challenging the HOA’s contractual rights to alter the original intent of its original governing documents.
Sources:
AZ HB 2158 (2022), full text, as enacted. (Bill overview and vote status)
AZHOC Legislative Update #14, April 12, 2022
Arizona Supreme Court Rejects Unforeseeable HOA Amendments Jill Casson Owen, Chase Colwell, Snell & Wilmer (April 4, 2022)
AZHOC Significant Court Decisions, April 2022
Amending CC&RS – Lessons From Kalway V. Calabria Ranch HOA Travis Law, April 8, 2022
Kalway v. Calabria Ranch HOA, LLC (Justia)