THE ONE, TWO AND THREE FOR LANDLORDS AND PROPERTY MANAGEMENT-EVICTIONS IN TODAY’S WORLD

Reason for Eviction

Evictions in Arizona are subject to the Arizona Rules of Procedure for Eviction Actions (RPEA). Landlords wishing to evict a tenant must serve the tenant (and file in court) the following documents:

• Tenant court summons
• Eviction complaint with a notice explaining why the tenant is being evicted
• Residential Eviction Information Sheet

Beginning in 2020, RPEA also requires landlords to serve the tenant with a copy of the portions of the lease, including any applicable addenda, that are related to the tenant’s eviction. For example, if the tenant is being evicted for smoking in a non-smoking unit, the landlord must provide the tenant with a copy of the portion of the lease that provides for this. If the tenant is being evicted due to non-payment of rent, the landlord must provide a copy of tenant charges and payments for the previous six months.

Some landlords provide a copy of the entire lease to the tenant in the case of an eviction; if the landlord chooses to serve relevant pages only, the landlord must remember to include pages that list the detail, as well as the tenant’s name, unit number, signature page, etc.

Landlord Repossession

The law states that if a tenant abandons a rental unit, or is evicted and leaves behind personal property, the landlord may repossess the unit in compliance with the laws of abandonment pertaining to the tenant’s property the day after issuance of the writ of restitution of execution. The landlord must, after retaking possession of the rental unit, inventory the abandoned property and notify the tenant of its location and storage costs.

The tenant’s personal property must be stored for 14 days. After that period of time, a 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.

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).

Subsidized Housing Evictions

In some cases, a landlord may arrange with a tenant to accept a partial payment of rent, enabling the lease to continue. For example, if a tenant experiences a temporary financial hardship, such as medical bills, the landlord could arrange with the tenant to reduce the rent by $200 a month for six months.

Voucher systems—in which a government entity subsidizes a portion of a tenant’s rent, based on their income level—enable low-income residents to secure rental housing. For example, a voucher recipient’s monthly rent may comprise $800 from the government and $300 from the tenant, with the landlord receiving $1,100 total per month for that unit.

House Bill (HB) 2358, an Arizona law that went into effect in August 2019 clarified that the landlord’s acceptance of the government-subsidized portion of the monthly rent for a unit does NOT constitute an acceptance of partial payment from the tenant, or a waiver of the landlord’s right to evict the tenant for non-payment of rent.

In short: A subsidized-housing tenant may still be evicted if he doesn’t pay his portion of the rent every month.

Perishable Items, Plants, and Animals

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.

Regarding abandoned animals, a landlord may use his/her discretion, to include any of the following:

• Immediately place the animal in a shelter or boarding location, retaining records of the name and location
• Provide for the animal’s reasonable care for 14 days
• Notify the county enforcement agency or animal control officer of the abandoned animal(s) to be seized

A landlord taking one of the above actions in good faith is relieved of any responsibility for the removal, release, seizure, or care of the abandoned animals.

Property Management Issues

Being a landlord isn’t as simple as finding tenants and collecting their rent every month. Property management requires knowledge of laws regarding security deposit handling, rent increases, tax changes, recordkeeping, and compliance with fair housing and Americans with Disabilities Act guidelines—just to name a few. The Arizona Legislature routinely enacts laws that impact the property management industry. We’ll spend the rest of this lesson reviewing some of the more of these recent legal updates.

Security Deposit Disputes

Security deposit disposition often leads to disputes between the tenant and landlord, and unresolved disputes may end up in court. Laws regarding appropriate handling and disposition of security deposits has evolved to meet the needs of both landlords and tenants and to clarify processes. HB 2651 changed Chapter 323 of Arizona Revised Statutes pertaining to security deposits.

When a tenant vacates a unit, the landlord is required to send the tenant an itemized list of any deductions the landlord is making from the tenant’s security deposit. The updated law states that if a tenant doesn’t dispute the deductions or the remaining amount due and payable to the tenant within 60 days, the amount due the tenant is deemed valid, and the tenant waives any rights to further claims.

Example

Ruthe moved out of her apartment at the end of her lease term and provided a forwarding address to her landlord, Pete. Pete made a list of deductions that would be taken from her security deposit to cover items beyond ordinary wear and tear and mailed the list and a check to Ruthe. If Ruthe doesn’t dispute the amount within 60 days, she’s waived her right to do so.

If a landlord illegally withholds a tenant’s security deposit or any amount from it, the tenant may dispute the withholding with no limit to the time period to do so.

Lease Termination Due to Sexual Assault

As we mentioned earlier in your course, a tenant who is a victim of domestic violence may terminate a lease early without penalty (e.g., automatic withholding of the security deposit). A recent update to this law added language granting the same early-termination privileges to victims of sexual assault. ARS 33-1318 states that the assault must have occurred in the tenant’s dwelling, and the tenant must make the request for early termination within the 30 days immediately following the assault.

The tenant must provide the landlord with written notice requesting release from the lease agreement within the following 30 days, on a date mutually agreed to with the landlord, as well as either of the following:

• A copy of any issued protective order (or receipt that the protective order has been submitted)
• A copy of the written law enforcement report stating that the tenant reported being a victim of sexual assault.

The landlord is permitted to request from the tenant the name and address of the person named in the protective order or law enforcement report, if known by the tenant.

Example

Becky was sexually assaulted by her ex in her apartment. She now feels unsafe in the apartment and wants to move, terminating her lease early. Her landlord, Marvin, may not withhold her security deposit for early termination as long as Becky provides him with a copy of either a protective order or a written law enforcement report about the incident.

A landlord may still withhold from a tenant’s security deposit amounts sufficient to pay for damage to the unit. Using the previous example, if Becky had caused damage to the unit in her tenure there, Marvin may withhold from her security deposit funds sufficient to repair those damages.

TPT Rental Tax Increases

Everyone’s heard of sales tax as it applies to retail, grocery stores, etc., but what about rental properties? ARS 42-6011 permits cities and towns to apply a sales tax—technically referred to as a transaction privilege tax (TPT)—to “the business of renting or leasing real property for residential purposes.” A city or town is only permitted to levy this tax if the population votes for the measure at any regular municipal election.

According to the Arizona Department of Revenue (ADOR), residential rental is defined as the rental of property for a period of 30 consecutive days or more. Not every rental property owner is subject to this taxation, even if the city taxes residential rental properties. According to ADOR: “Individual owners of taxable rental properties are required by law to obtain a TPT license with ADOR regardless if the owners rent the property themselves or employ a property management company (PMC). A license is only required for cities that impose a tax on residential rental activity. To determine if a city tax license is required, taxpayers can use the Residential Rental Licensing Matrix.” We’ve included a link to the licensing matrix in your optional resources.

HB 2445 updated this section of the law to state that cities and municipalities must provide at least 60 days’ written notice to the TPT licensee before a new or increased tax rate is applied.

Property Management Recordkeeping

In 2020, the enactment of SB 1096 clarified the recordkeeping requirements for property managers. 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. The associated documents include:

• Rental applications that include tenant identifying information
• Move-in forms
• Any default notices

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. Brokers who keep records at an off-site storage location must provide the ADRE with written notification of the street address of the off-site storage location.

Service Animals

The next legal update pertains more strongly to fair housing, but it’s worth mentioning here in the property management-related updates. Thanks to HB 2776, it is now illegal in Arizona to misrepresent that an animal is a service animal in a public place. ARS 11-1024 dictates that the crime is now punishable by a civil penalty of as much as $250 per violation. This update doesn’t directly impact property managers and landlords, since it isn’t an update to the Arizona Fair Housing Act, but property managers should be aware of it nonetheless.

To review, service animals, unlike assistance animals, are covered under the Americans with Disabilities Act (ADA), which defines them as:

“Any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual, or other mental disability. The work or tasks performed by a service animal must be directly related to the handler´s disability.”

Under this definition of service animals, other species of animals, whether wild or domestic, trained or untrained, aren’t considered to be service animals. Also, ADA regulations specifically state that “the crime deterrent effects of an animal’s presence and the provision of emotional support, well-being, comfort, or companionship do not constitute work or tasks for the purposes” of determining whether an animal is a service animal.

Unlicensed Activity

Dolores Sullivan was an unlicensed individual and sole manager and statutory agent for Arizonavacationrentals.com, LLC (AVR), which did business under the trade name Arizona Vacation Rentals, an unlicensed domestic entity. The ADRE issued a cease-and-desist order to both Arizona Vacation Rentals and Sullivan, as well as a notice of right to request a hearing. The complaint? Sullivan was engaging in unlicensed real estate activity—specifically, property management without a valid, active Arizona real estate broker’s license for her and a domestic entity license for her company. The ADRE confirmed this via a search of licensing records.

On the AVR website, Sullivan advertised the company as “offering the very finest professionally managed vacation homes in Arizona.” In addition, more than 100 rental properties were listed on the site, and the agreement that was used stated the company was in the business of “marketing” short-term rental properties, and that AVR would receive a leasing fee and set-up fee.

In short, Sullivan was marketing herself and her company as a real estate entity and receiving payments for activities that, under Arizona law, require a real estate license.

Sullivan failed to appear when the ADRE summoned her to an investigational interview regarding the unlicensed real estate activity. The cease-and-desist order was issued for Sullivan and AVR to refrain from any further engagement in real estate activity without first complying with the statutory requirements and rules for doing so.

Improper Recordkeeping

Karen King was a real estate broker and statutory agent for Horizon Property Management, LLC. The ADRE sent the company a letter requesting brokerage records (aka a desk audit). Unfortunately, according to King, she was embroiled in an IRS audit at the same time and was unable to comply in a timely manner with providing those records. When she did eventually provide them, they were incomplete and were deemed insufficient to satisfy the desk audit. This prompted an onsite ADRE audit of King’s records.

When the ADRE auditing team arrived, King was unavailable, and the onsite audit therefore couldn’t be performed. Next, the ADRE issued King a subpoena for an investigational interview, requiring her to produce certain brokerage records. When King arrived for the interview, she brought records with her, but they were still insufficient. The ADRE granted King more time (about a week) to produce the required records. King stated she wasn’t familiar with bookkeeping requirements because a bookkeeper took care of those activities for her.

In all, the audit turned up multiple violations. This is just a sampling of total list. According to the ADRE, King failed to:

1. Maintain/provide a sales and property management log
2. Maintain all property management financial records for three years
3. Maintain/provide an owner or tenant fund ledger showing funds due to owners for audited months or what was being held as tenant security deposits
4. Maintain/provide complete copies of transaction records, including:

• Earnest money receipts
• Settlement statements
• Disclosures of status as an owner/agent in the sale of personally owned property
• All required clauses in the proprietary property management agreements

In addition, King was commingling trust funds in her regular business account, mixing personal expenses with security deposits and collected rents. The commissioner issued a cease-and-desist order (we’ve linked to it in your optional resources if you’d like to give it a read.)

In the Dog House

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. In our next case study, property manager Browne owned a home in which he rented out two rooms to the Mayeses, who owned a dog. The dog got loose from the backyard while under the care of Browne’s girlfriend (Ms. Russell) and bit the Spirlongs’ son.

The Spirlongs sued Browne, the Mayeses, and Russell, stating that all three were strictly liable under the “dog bite statutes” (i.e., ARS 11-1020 and 11-1025) for the injuries to their son. The issue was whether or not Browne, the homeowner, was the dog’s owner. This argument hinged on the statute defining an owner as “any person keeping an animal other than livestock for more than six consecutive days.” When the case came before the superior court, its finding was that the word “keeping” was ambiguous and came to the conclusion that “to ‘keep’ a dog … an individual must exercise a substantial degree of care, custody, and control over the animal.” Therefore, the superior court found that owner Browne met this requirement because he:

• Allowed the dog to live in his home
• Controlled the condition, maintenance, and upkeep of the physical structures
• A Vacation Hotspot. According to the Arizona Office of Tourism, Arizona welcomed more than 40 million visitors in 2021. With Arizona being a hotspot—quite literally, in the summer months—for tourism (Grand Canyon, anyone?), there is constant demand for short-term rentals, vacation rentals, and timeshares. Since these types of properties make up a very specific subset of the real estate industry, they’re also specifically regulated. Let’s review some of the basics of timeshare, vacation rental, and short-term rental law in Arizona, as well as some recent updates that you need to know about.
• Vacation and Short-Term Rentals
• 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.
  • To protect the public’s health and safety: 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.
  • To 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.
  • To 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, nude/topless dancing, or operating other adult-oriented businesses.
  • Vacation and Short-Term Rentals (continued)SB1168, signed into law on July 2022, further expanded the regulations related to vacation and short-term rentals. Cities and towns may now regulate vacation rentals and short-term rentals for the following:
    • To require emergency contact information from the owner 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 the information is not provided.
    • To require owners to obtain and maintain a local regulatory permit or license: A fee not exceeding $250 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.
    • To require notification: Before renting a property for the first time, owners must notify all single-family residential properties located “adjacent to, directly and diagonally across the street from the vacation rental or short-term rental.”
    • To require 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.
    • To require liability insurance: Owners must 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.”

    Enforcing Vacation and Short-Term Rental Laws

  • The recently passed SB1168 also restructures the civil penalties for verified violations.
    • Three verified violations within a 12-month period. This does not include any verified violation based on an aesthetic, solid waste disposal, or vehicle parking violation that is not also a serious threat to public health and safety.
    • A felony offense committed at or in the vicinity of the rental by the owner or owner’s designee.
    • A serious physical injury or wrongful death at or related to a vacation rental or short-term rental resulting from the knowing, intentional, or reckless conduct by the owner or owner’s designee.
    • An owner or owner’s designee knowingly or intentionally housing a sex offender, allowing offenses related to adult-oriented businesses, sexual offenses or prostitution, or operating or maintaining a sober living home.
    • An owner or owner’s designee knowingly or intentionally allowing the use of a vacation rental or short-term rental for a special event that would otherwise require a permit.

    Note that “any attempted or completed felony act, arising from the occupancy or use of a vacation rental or short-term rental, that results in a death, or actual or attempted serious physical injury, shall be grounds for judicial relief in the form of a suspension of the property’s use as a vacation rental or short-term rental for a period of time that shall not exceed twelve months.”

  • For instance, 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 the following verified violations:
  • Finally, 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:
    • Up to $500 or up to an amount equal to one night’s rent for the vacation rental or short-term rental as advertised, whichever is greater, for the first verified violation.
    • Up to $1,000 or up to an amount equal to two nights’ rent for the vacation rental or short-term rental as advertised, whichever is greater, for the second verified violation.
    • Up to $3,500 or up to an amount equal to three nights’ rent for the vacation rental or short-term rental as advertised, whichever is greater, for a third and any subsequent verified violation.
    • Taxing Short-Term Rentals An update to tax law in Arizona, 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. Why is this important? Because online lodging operators have to be registered with the state and hold a transaction privilege tax (TPT) license.
    • The law also requires owners of vacation and short-term rentals to list their TPT license number on every advertisement for their rental accommodation, including online listings or ads.
• 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.
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