Let’s have a reality check on Property Management and the Laws and Regulations in AZ

Key Points: Property Management and Investment in Arizona

• In Arizona, leases for 12 months or longer are required to be in writing per the state’s statute of frauds.
• The Arizona Residential Landlord and Tenant Act calls for landlords to provide tenants with a signed copy of the lease [A.R.S. 33-1321(C)].
• The purpose of the lease agreement is to identify the terms and conditions under which the lease agreement between the landlord and tenant will be executed.
• Either the landlord or the tenant may terminate a week-to-week tenancy by giving written notice to the other party at least 10 days before the termination date in that notice. To terminate a month-to-month tenancy in Arizona, the landlord or tenant must give written notice to the other party at least 30 days before the periodic rental date specified in the notice.
• If a tenant abandons a property or is evicted and leaves behind personal property, the landlord must store the belongings for 14 days. After that period of time, the landlord may donate the tenant’s property to a nonprofit charitable organization or sell the property. If the tenant’s property is donated, the tax benefits must be awarded to the tenant.
• A landlord is under no obligation to store the tenant’s perishable items, plants, or animals. The landlord may remove or dispose of perishable, contaminated items, and anything considered a biohazard or health/safety risk.
• A landlord has three options for abandoned pets: shelter, animal control, or safekeeping for 14 days.
• The landlord is not liable for loss to the tenant or any third party resulting from the move, storage, or donation of property that was left in a dwelling unit.
• If a tenant returns the keys and there is still personal property in the unit, the 14-day storage period no longer applies; the landlord is free to immediately remove and dispose of the personal property without any liability to the tenant or third party (unless otherwise agreed to in writing).
• The Arizona Residential Landlord and Tenant Act doesn’t apply to condo owners, mobile homes, transient occupancy in a hotel or motel, occupancy by an employee of a landlord as custodian, members living in a structure operating for the benefit of a fraternal or social organization (e.g., a frat house), or residence at an institution (e.g., detention facility, institution for provision of medical services, etc.).
• If a tenant doesn’t dispute the deductions within 60 days after the itemized list of deductions is mailed to the tenant, the amount due the tenant is deemed valid, and the tenant waives any rights to further claims.
• A landlord may not withhold a tenant’s security deposit for early termination of the lease if the tenant provides to the landlord a copy of a protective order or written law enforcement report due to a sexual assault on the premises.
• Property management firms are required to keep residential lease agreements and associated documents for one year after the lease expires or until the lease and documents are given to the owner once the property management agreement expires.
• Designated brokers are required to keep transaction records for a period of five years for all real estate transactions. Rejected property offers are kept for one year, unless they eventually become a binding contract, in which case they must be kept for five years.
• Licensees must be able to produce any ADRE-requested record within 24 hours.
• Escrow and transaction records (including property management records) may be retained at an off-site record storage center (including secure electronic storage) or at the designated broker’s office.
• According to the Americans with Disabilities Act, service animals are dogs that have been trained to perform tasks directly related to an individual’s disability.
• Dogs and miniature horses may qualify as service animals. ARS Section 11-1024 prohibits fraudulently misrepresenting that an animal is a service animal. Violators may be fined $250 fine per violation.
• “Commingling of funds” means mixing client funds with personal funds. This is illegal When funds are commingled, it’s difficult to trace which funds belong to the client and which are personal. They must be kept separate.
• No matter the justification or the perceived hardship of doing it otherwise, placing client funds into a personal account is a no-no every time.
• After receiving a cease-and-desist order, the respondent must first demonstrate full compliance with all laws and rules before the respondent may return to real estate activities.
• Property owners are responsible for any pets they own that live on their premises, or the pet that belongs to someone they treat like a family member. However, a tenant living on the premises who owns a pet is the party responsible for that pet.
• Per Arizona state law, if someone keeps a dog for six consecutive days, that person is considered the dog’s owner. This makes them liable for any injuries or damages that the dog causes.
• When the ADRE sends a letter requesting brokerage records, this is known as a desk audit. The records must be provided in a timely manner to be in compliance.
• ARS 9-500.39 defines a “vacation rental” or “short-term rental” as “any individually or collectively owned single-family or one-to-four-family house or dwelling unit or any unit or group of units in a condominium, cooperative, or timeshare, that is also a transient public lodging establishment or owner-occupied residential home offered for transient use if the accommodations are not classified for property taxation.”
• Vacation or short-term rentals don’t include units being used for any non-residential purposes, such as spaces used for retail, events, restaurant, etc.
• ARS 9-500.39 states that an Arizona city or town may not prohibit vacation rentals or other short-term rentals, nor may it restrict the use of or otherwise regulate vacation rentals or short-term rentals based on their classification, occupancy, or use.
• SB1168, signed into law in July 2022, further expanded the regulations related to vacation and short-term rentals.
• Vacation rental and short-term rental owners can be required to obtain and maintain a local regulatory permit or license. A fee of $250 or less may be assessed. Note that cities or towns requiring permits must issue or deny them within seven business days of receipt of the required information.
• Cities and towns can require emergency contact information from the owner or a short-term rental or vacation rental, or the owner’s designee. Failure to provide this information can result in a civil penalty against the owner of up to $1,000 for every 30 days he fails to provide the information.
• Cities and towns can require notification. Before renting a property for the first time, owners of vacation rentals and short-term rentals must notify all single-family residential properties located “adjacent to, directly and diagonally across the street from the vacation rental or short-term rental.”
• Cities and towns may limit or prohibit using a vacation rental or short-term rental for certain purposes. These purposes include housing sex offenders, operating a sober living home, selling illegal drugs, allowing nude/topless dancing, or operating other adult-oriented businesses.
• Cities and towns may require liability insurance. Owners of short-term rentals and vacation rentals may be required to maintain liability insurance “appropriate to cover the vacation rental or short-term rental in the aggregate of at least $500, or to advertise and offer each vacation rental or short-term rental through an online lodging marketplace that provides equal or greater coverage.”
• Cities and towns may adopt and enforce residential use and zoning ordinances. This includes those related to noise, property maintenance, protection of welfare, and other nuisance issues, provided the ordinance is applied the same way it’s applied to other properties.
• Short-term rental and vacation rental owners may be required to include permit numbers in any advertisements. If a city or town doesn’t require permits, then owners can include the transaction privilege tax license required by § 42-5042.
• Cities and towns may pass laws to protect the public’s health and safety as related to short-term rentals and vacation rentals. This includes rules and regulations regarding everything from fire and building codes, to health and sanitation, to waste and pollution control, provided the city or town can demonstrate that such rule or regulation exists for the primary purpose of protecting the public’s health and safety.
• A city or town that requires vacation rental or short-term rental permits must adopt an ordinance that allows such permits to be suspended for up to 12 months for verified violations.
• Per SB1168, a city or town may impose a civil penalty of against an owner of a vacation rental or short-term rental if the owner receives one or more verified violations related to the same property within a 12-month period. The fine can range from up to $500 to $3,500 or up the amount of the first, second, or third nights’ rent.
• HB 2672 clarified the definition of an “online lodging operator” to specifically include owners of vacation rentals or short-term rentals who offer those properties for rent online.
• Timeshare estates are pieces of real estate owned by multiple, unrelated individuals who, in addition to their ownership rights, each hold the right to occupy the dwelling unit in one- to two-week intervals during the year.
• Like other forms of fee simple ownership, timeshare estates can be sold or passed down to heirs.
• A timeshare estate is fee simple ownership, conveying all the rights of ownership. In fact, most of the timeshare market is fee simple: 70% fee simple, 30% right-to-use.
• A right to use timeshare (also called a timeshare use) doesn’t convey ownership, but simply the right to occupy the property for one or two weeks a year, continuing for a specified number of years. The week or weeks to be used are specified in advance, with buyers of high-season dates paying more than low-season purchasers. Some timeshares allow owners to swap out their weeks if for some reason they can’t use their designated week.
• Arizona law gives timeshare purchasers the freedom to choose to cancel for any reason within 10 days after contract signing, without penalty. The rescission must be in writing and is effective on the date that it is sent to the seller.
• The handyman exemption in Arizona protects consumers from unqualified and dishonest people posing as knowledgeable contractors and requires that work totaling more than $1,000 be performed by a licensed contractor.
• A homeowner can use the handyman exemption if the total price for the complete job, including labor, materials, and everything else, is less than $1,000.
• The AZ ROC won’t issue a license to someone who’s been convicted of contracting without a license within 12 months of the conviction.
• Contractors who are repeatedly found to be contracting without a license face a maximum fine of $2,500, plus an 83% surcharge.
• For the first violation of contracting without a license, the AZ ROC has the ability to impose a maximum fine of $1,000, plus an 83% surcharge.
• In addition to penalties and possible jail time, AZ ROC may order an unlicensed contractor to pay restitution to anyone who suffered an economic loss as a result of the contracting without a license.
• Splitting jobs into parts so that each part has a contract price of less than $1,000 is a violation of the handyman exemption.
• When working with buyers who are purchasing a fix-and-flip property, always recommend that they obtain copies of receipts from licensed contractors, and also recommend that they have a home inspection performed.
• Any work that requires a permit or involves a casualty loss, landscaping, alarm systems, connections to a natural gas, propane, or other petroleum or gaseous fuel supply requires a licensed contractor.
• The recently passed HB 2747 addresses disclosure requirements for wholesale buyers and sellers. Wholesale situations occur when the wholesaler acquires a contract from the seller. The wholesaler then signs the contract over to a buyer. In this situation, the wholesaler never actually purchases the property. The wholesaler makes money from a wholesaling fee.
• Wholesale properties are usually distressed or off market.
• “Wholesale buyer” means a person or entity that enters into a purchase contract for residential real property as the buyer and assigns the same contract to another person or entity.
• A “wholesale seller” is a person or entity that enters into a purchase contract for residential real property as the seller, does not hold legal title to that real property, and assigns that same contract to another person or entity.
• “Residential real property” is real property with fewer than five dwelling units.
• HB 2747 requires a wholesale buyer of residential real property, before entering into a binding agreement, to provide a disclosure in writing to the seller that the buyer is a wholesale buyer.
• HB 2747 stipulates if a wholesale buyer violates the disclosure requirement, the seller may cancel the contract for sale at any time prior to the close of escrow without penalty and may retain any earnest money the wholesale buyer paid.
• HB 2747 requires a wholesale seller of residential real property, before entering into a binding agreement, to provide a disclosure in writing to the buyer that the seller is a wholesale seller who holds an equitable interest in the property, and that the seller may not be able to convey title to the property.
• HB 2747 stipulates if a wholesale seller violates the disclosure requirement, the buyer may cancel the contract for sale at any time prior to the close of escrow without penalty and may retain any earnest money the buyer paid.
• HB 2240 increased the judgment effective period to 10 years, and also increased the judgment renewal period to 10 years. The 10-year time period automatically applies to judgments entered into on or after August 3, 2018.
• HB 2686 prohibits a city, town, or county from restricting permits or prohibiting construction of buildings based on the utility provider that will be used for the new building. The law also prohibits these entities from imposing higher fees for the use of a particular utility provider.
• The statute of limitations does not apply to cases in which the builder or developer willfully, recklessly, or fraudulently concealed violations of city or county requirements, nor does it prevent a city or city or municipality from suing a builder or developer under its own laws.
• HB 2240 established an eight-year statute of limitations for cities or municipalities who wish to bring lawsuits or other legal actions against a builder or developer. The eight-year window begins on the date the entire project (e.g., house) is complete.
• When filing a default money judgment, it must include an information statement. The required information statement must be recorded at the same time as a default money judgment, or the priority of the lien can be affected.
• When it comes to a duty of care to a subsequent homeowner to prevent economic harm, a homebuilder doesn’t owe one. Homebuilders have no duty of care owed to subsequent homeowners. Non-original homeowners can’t sue homebuilders for construction defect claims.
• If owner-occupants use a dwelling as their primary residence, they are entitled to owner-occupant status, and a subcontractor can’t bring a lien against them. If it’s not their primary residence, they are not entitled to that status.
• Subcontractors do not have lien rights against an owner-occupant even if they do own title under a business entity. The owner is still entitled to the owner-occupant status and protections.
• If a subsequent purchaser acquires an interest in a property after a judgment lien has been recorded, but before the required information statement has been attached, the judgment lien loses its priority.

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Linda Gerchick, CCIM  602-688-9279