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State of Arizona

 

The state of Arizona has adopted specific statutes related to reserve studies, which are set forth in section 33.1255 of the Arizona Condominium Act.
The Arizona Condominium Act (A.R.S. 33-1201, et. seq.) generally state the distribution policy of annual assessments for common expenses.  Common expenses are defined as including any allocations to reserves. There is no provision in the Condominium Act that requires that a reserve study to be prepared by the association, and contains no requirements as to how the reserves are to be calculated.Arizona has no statutory provisions requiring a planned community association to prepare a reserve study or to fund reserves.Arizona does have a statutory requirement for both condominiums and planned communities that requires certain disclosures upon the resale of a unit /lot within an association.  Specifically, the purchaser must receive a statement regarding the total amount of money held by the association as reserves. The purchaser must also be given a copy of the most recent reserve study of the association, if one exists.
The Arizona Condominium Act (A.R.S. 33-1201 through 33-1270) generally states the distribution policy of annual assessments for common expenses.  Common expenses are defined as including any allocations to reserves (A.R.S. 33-1255-c-1). There is no provision in the Condominium Act that requires that a reserve study to be prepared by the association, and contains no requirements as to how the reserves are to be calculated.
Arizona has no statutory provisions requiring a planned community association to prepare a reserve study or to fund reserves.
Arizona does have a statutory requirement for both condominiums and planned communities that requires certain disclosures upon the resale of a unit /lot within an association (A.R.S. 33-1260).  Specifically, the purchaser must be provided with a statement regarding the total amount of money held by the association as reserves. The purchaser must also be provided with a copy of the most recent reserve study of the association, if one exists.
Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice. Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association. A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.
There is little discussion about whether an association should perform a reserve study. The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements. Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles. We believe that 5 years is too long. 3 years may be too long if significant reserve expenditures are being made during the subject time period. However, the association should perform an update without site inspection every year as part of the annual budget process.

The state of Arizona has adopted specific statutes related to reserve studies, which are set forth in section 33.1255 of the Arizona Condominium Act.

The Arizona Condominium Act (A.R.S. 33-1201, et. seq.) generally state the distribution policy of annual assessments for common expenses.  Common expenses are defined as including any allocations to reserves. There is no provision in the Condominium Act that requires that a reserve study to be prepared by the association, and contains no requirements as to how the reserves are to be calculated.Arizona has no statutory provisions requiring a planned community association to prepare a reserve study or to fund reserves.Arizona does have a statutory requirement for both condominiums and planned communities that requires certain disclosures upon the resale of a unit /lot within an association.  Specifically, the purchaser must receive a statement regarding the total amount of money held by the association as reserves. The purchaser must also be given a copy of the most recent reserve study of the association, if one exists.

The Arizona Condominium Act (A.R.S. 33-1201 through 33-1270) generally states the distribution policy of annual assessments for common expenses.  Common expenses are defined as including any allocations to reserves (A.R.S. 33-1255-c-1). There is no provision in the Condominium Act that requires that a reserve study to be prepared by the association, and contains no requirements as to how the reserves are to be calculated.

Arizona has no statutory provisions requiring a planned community association to prepare a reserve study or to fund reserves.

Arizona does have a statutory requirement for both condominiums and planned communities that requires certain disclosures upon the resale of a unit /lot within an association (A.R.S. 33-1260).  Specifically, the purchaser must be provided with a statement regarding the total amount of money held by the association as reserves. The purchaser must also be provided with a copy of the most recent reserve study of the association, if one exists.

Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice. Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association. A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.

There is little discussion about whether an association should perform a reserve study. The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements. Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles. We believe that 5 years is too long. 3 years may be too long if significant reserve expenditures are being made during the subject time period. However, the association should perform an update without site inspection every year as part of the annual budget process.

The full text of The Arizona Condominium Act is available on the Arizona State Web Site. The Condominium Act is included as Chapter 9, Sections 33-1201 through 33-1270.

 33-1242. Powers of unit owners' association; notice to unit owner of violation

A. Subject to the provisions of the declaration, the association may:

1. Adopt and amend bylaws and rules.

2. Adopt and amend budgets for revenues, expenditures and reserves and collect assessments for common expenses from unit owners.

 33-1255. Assessments for common expenses; applicability

A. Until the association makes a common expense assessment, the declarant shall pay all common expenses. After any assessment has been made by the association, assessments shall be made at least annually, based on a budget adopted at least annually by the association.

B. Except for assessments under subsections C, D, E and F of this section, all common expenses shall be assessed against all the units in accordance with the allocations set forth in the declaration pursuant to section 33-1217, subsection A. Any past due common expense assessment or installment bears interest at the rate established by the board subject to the condominium documents.

C. Unless otherwise provided for in the declaration all of the following apply:

1. Any common expense associated with the maintenance, repair or replacement of a limited common element shall be equally assessed against the units to which the limited common element is assigned.

Disclosures required for condominium developments are:


33-1260. Resale of units; information required; fees; civil penalty; applicability; definition

A. For condominiums with fewer than fifty units, a unit owner shall mail or deliver to a purchaser or a purchaser's authorized agent within ten days after receipt of a written notice of a pending sale of the unit, and for condominiums with fifty or more units, the association shall mail or deliver to a purchaser or a purchaser's authorized agent within ten days after receipt of a written notice of a pending sale that contains the name and address of the purchaser all of the following in either paper or electronic format:

1. A copy of the bylaws and the rules of the association.

2. A copy of the declaration.

3. A dated statement containing:

(a) The telephone number and address of a principal contact for the association, which may be an association manager, an association management company, an officer of the association or any other person designated by the board of directors.

(b) The amount of the common expense assessment for the unit and any unpaid common expense assessment, special assessment or other assessment, fee or charge currently due and payable from the selling unit owner. If the request is made by a lienholder, escrow agent, unit owner or person designated by a unit owner pursuant to section 33-1256, failure to provide the information pursuant to this subdivision within the time provided for in this subsection shall extinguish any lien for any unpaid assessment then due against that unit.

(c) A statement as to whether a portion of the unit is covered by insurance maintained by the association.

(d) The total amount of money held by the association as reserves.

(e) If the statement is being furnished by the association, a statement as to whether the records of the association reflect any alterations or improvements to the unit that violate the declaration. The association is not obligated to provide information regarding alterations or improvements that occurred more than six years before the proposed sale. Nothing in this subdivision relieves the seller of a unit from the obligation to disclose alterations or improvements to the unit that violate the declaration, nor precludes the association from taking action against the purchaser of a unit for violations that are apparent at the time of purchase and that are not reflected in the association's records.

(f) If the statement is being furnished by the unit owner, a statement as to whether the unit owner has any knowledge of any alterations or improvements to the unit that violate the declaration.

(g) A statement of case names and case numbers for pending litigation with respect to the unit filed by the association against the unit owner or filed by the unit owner against the association. The unit owner or the association shall not be required to disclose information concerning the pending litigation that would violate any applicable rule of attorney-client privilege under Arizona law.

(h) A statement that provides "I hereby acknowledge that the declaration, bylaws and rules of the association constitute a contract between the association and me (the purchaser). By signing this statement, I acknowledge that I have read and understand the association's contract with me (the purchaser). I also understand that as a matter of Arizona law, if I fail to pay my association assessments, the association may foreclose on my property." The statement shall also include a signature line for the purchaser and shall be returned to the association within fourteen calendar days.

4. A copy of the current operating budget of the association.

5. A copy of the most recent annual financial report of the association. If the report is more than ten pages, the association may provide a summary of the report in lieu of the entire report.

6. A copy of the most recent reserve study of the association, if any.

Disclosures required for planned developments are:

33-1806. Resale of units; information required; fees; civil penalty; definition

A. For planned communities with fewer than fifty units, a member shall mail or deliver to a purchaser or a purchaser's authorized agent within ten days after receipt of a written notice of a pending sale of the unit, and for planned communities with fifty or more units, the association shall mail or deliver to a purchaser or a purchaser's authorized agent within ten days after receipt of a written notice of a pending sale that contains the name and address of the purchaser all of the following in either paper or electronic format:

1. A copy of the bylaws and the rules of the association.

2. A copy of the declaration.

3. A dated statement containing:

(a) The telephone number and address of a principal contact for the association, which may be an association manager, an association management company, an officer of the association or any other person designated by the board of directors.

(b) The amount of the common regular assessment and the unpaid common regular assessment, special assessment or other assessment, fee or charge currently due and payable from the selling member. If the request is made by a lienholder, escrow agent, member or person designated by a member pursuant to section 33-1807, failure to provide the information pursuant to this subdivision within the time provided for in this subsection shall extinguish any lien for any unpaid assessment then due against that property.

(c) A statement as to whether a portion of the unit is covered by insurance maintained by the association.

(d) The total amount of money held by the association as reserves.

(e) If the statement is being furnished by the association, a statement as to whether the records of the association reflect any alterations or improvements to the unit that violate the declaration. The association is not obligated to provide information regarding alterations or improvements that occurred more than six years before the proposed sale. Nothing in this subdivision relieves the seller of a unit from the obligation to disclose alterations or improvements to the unit that violate the declaration, nor precludes the association from taking action against the purchaser of a unit for violations that are apparent at the time of purchase and that are not reflected in the association's records.

(f) If the statement is being furnished by the member, a statement as to whether the member has any knowledge of any alterations or improvements to the unit that violate the declaration.

(g) A statement of case names and case numbers for pending litigation with respect to the unit filed by the association against the member or filed by the member against the association. The member shall not be required to disclose information concerning such pending litigation that would violate any applicable rule of attorney-client privilege under Arizona law.

(h) A statement that provides "I hereby acknowledge that the declaration, bylaws and rules of the association constitute a contract between the association and me (the purchaser). By signing this statement, I acknowledge that I have read and understand the association's contract with me (the purchaser). I also understand that as a matter of Arizona law, if I fail to pay my association assessments, the association may foreclose on my property." The statement shall also include a signature line for the purchaser and shall be returned to the association within fourteen calendar days.

4. A copy of the current operating budget of the association.

5. A copy of the most recent annual financial report of the association. If the report is more than ten pages, the association may provide a summary of the report in lieu of the entire report.

6. A copy of the most recent reserve study of the association, if any.

Additional State Reserve Study Laws