Arizona Court of Appeals Division One holds that in the forced sale of a condominium, the individual unit owners’ rights are determined by the version of the Arizona Condominium Act in place at the time of their purchase.

When an investment company purchased a majority of the units in a Tempe condominium complex in November 2018, A.R.S. § 33-1228 authorized the company to force a termination and sale of the property.  The company exercised that authority in April 2019, selling the remaining units to itself, over individual unit-owners’ objections.  The company then excised the remaining owners.

Two of the individual unit owners sued the company and the condominium association, asserting that the transaction resulted in an invalid or unconstitutional forced sale of their unit.  The superior court found the forced sale was permissible under the current version of the Arizona Condominium Act and dismissed the case.

Two individual unit owners appealed, arguing the condominium termination provision of the Act, A.R.S. § 33-1228, was a taking of their private property in violation of the Arizona Constitution.  And, to the extent authority for the sale arose from the Declaration, the Declaration incorporated the 1986 version of the statute in effect when they bought their unit, not the current 2018 amended version.

The Court of Appeals held that A.R.S. § 33-1228 is unconstitutional on its face, but found that when the individual unit owners purchased their unit, they agreed to be bound by the property’s Declaration, which referenced the statute.  But, because the statute’s later amendments were so substantial that they exceed the purchaser’s reasonable expectation of future changes, the amendments are not incorporated into the agreement without the owners’ renewed consent.  As such, the Court reversed and remanded, holding that the 1986 version of the statute in effect when the unit owners bought their unit—which held potentially stronger protections for individual unit owners in a forced sale—applies.

The Court also found that the permissive language of the statute allows for a termination and forced sale of less than the entire condominium.  However, the Court remanded the question of whether the condominium association breached its fiduciary duties as trustee for individual unit owners during the disputed transaction, to be determined under the 1986 version of the statute.

Judge McMurdie authored the opinion of the Court, in which Judge Cattani and Vice Chief Judge Gass joined.

Disclosure: Osborn Maledon attorneys were involved in this case.