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 that their plan to rewrite the laws governing condos would retroactively change the laws under which the buyers obtained their property. That also would interfere with the contractual arrangements those buyers signed, which can’t be done constitutionally, said the attorney, Charles Markle.
But the chief proponent of House Bill 2275 said he is 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 a 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 the owners of the other 20% to sell.
What it also means, however, is that a developer who wants to convert 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. 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 last week from several condos being targeted who asked the Senate Commerce Committee 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 their condo 12 years ago and retired 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 died.
“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. There are no comparable properties available in this area, and I would be required to pay a much higher price for another home.”
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.
Now, she said, her daughter has leukemia. “So the last thing I want to do is worry about losing my home,” Desimone said.
Only thing is, 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 the 80% rule.
That contract remains enforceable, and lawmakers are powerless to void or alter it, Markle said.
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, 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. We didn’t realize it was going to protect a company that would force us to sell our home.”
That’s an oversimplification, said Greg Patterson, lobbyist for Rockwell Properties, which has bought up condo projects in Arizona.
“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 lLegislature makes laws on how they can be formed as well as how they can be dissolved.
Patterson said that’s important because condos don’t last forever and some 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.”
Markle, an attorney for Rockwell, told lawmakers the 2021 partial collapse of the Champlain Towers South in Surfside, Florida, which killed 98, shows what can happen in situations where condo owners lose interest in paying major assessments for improvements.
He 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 80%.
The question remains of what, if anything, lawmakers can do.
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%. He said that law could be applied to any condo where a single entity has not yet acquired 80% of the units.
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 they own.
But Markle, whose client has about $450 million in pending deals in Arizona, said it doesn’t matter how you phrase it. He said the CC&Rs are binding and enforceable.
He 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 last 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.
The measure, already approved by the House, faces an uncertain future when it now goes to the full Senate.
