HB 2397

Overview

HB 2397 would expand and clarify the grounds for deeming private property covenants unenforceable, explicitly targeting those violating public policy or constitutional rights, and allow property owners to directly challenge such covenants in court. Disclosure requirements for condominium and planned community sales would become significantly broader and more detailed, with buyers gaining enhanced rights to review, object to, or rescind their purchase offers based on these materials. The bill imposes clear caps and limitations on disclosure-related fees, specifies that these fees can only be charged once per transaction, and sets civil penalties for violations. Mandatory assessments for the benefit or maintenance of property not owned by the association (such as private clubs or separate recreation land) are rendered invalid and unenforceable, and associations may expend member resources on non-association property only during emergencies and must seek reimbursement. The proposal also sharpens the statutory definitions and scope of key terms to improve clarity and modernize coverage for community associations and their managing agents.

Key Changes

• Amending A.R.S. 33-440 to provide that property owners may enter into private covenants regarding real property:
  • If the private covenant does not violate public policy;
  • To establish that a covenant violates public policy when it:
    • Is arbitrary, spiteful, or capricious;
      • Defining “spiteful” as the purpose of the covenant was to cause harm to another rather than to secure a benefit;
    • Unreasonably burdens a fundamental right under the Constitution;
    • Imposes an unreasonable restraint on alienation of property;
      • Defining “unreasonable restraint on alienation” as any restraint on alienation to which the injurious consequences of the restraint outweigh the utility of the restraint or any restraint that has no rational justification or is unconscionable;
    • Imposes an unreasonable restraint on trade or competition; or
    • Is unconscionable.
  • To allow property owners who are subject to a private covenant to challenge the validity of that private covenant.
• Amending A.R.S. 33-1260 and A.R.S. 33-1806 as follows:
  • Resale disclosures must either be electronically transmitted or delivered to a purchaser within 10 calendar days;
  • For community associations with fewer than 50 properties, the seller must provide the resale disclosure to the purchaser within 10 calendar days of acceptance of the purchaser’s offer to purchase, and the seller may request the association to provide the seller the resale disclosure;
  • For community associations with 50 or more properties, the association must provide the resale disclosure to the purchaser within 10 calendar days after receipt of a written notice of pending sale that contains the name, email address, and mailing address of the purchaser;
  • The resale disclosure must include the following:
    • Current bylaws, rules, recorded declaration, and plat;
    • Detailed statement containing or identifying:
      • The amount of the annual common expense assessment, the required installment and payments schedules of any approved special assessment, and any remaining installments on the special assessment, if any;
      • The estimated dollar amount and purpose of any contemplated and either approved and ratified or anticipated to be approved and ratified special assessment or financing being developed by the association for assessment within the subsequent six months, if any;
      • Any known material deficiency or condition of the limited common elements associated with the unit or common elements for which the purchaser will be liable for the directly assessed repair costs within six months of the purchase, if any;
      • The current amount of any unpaid common expense assessment lien or judgment lien on the property and any lis pendens recorded by the association against the property;
      • The amount and purpose of any title transfer fee or other similar fee;
      • A copy of the association’s most recent income and expenses financial statement for all operating and reserve accounts;
      • Any outstanding and unresolved violation cited against the property that the seller is responsible for appealing, resolving, or arranging for the resolution of;
    • Current operating budget;
    • More recent annual audit, review, or compilation;
    • Most recent reserve study or long-range plan and associated funding strategy;
    • A statement summarizing any pending lawsuits, except those relating to the collection of assessments owed by unit owners other than the selling unit owner, in which the association is a named party, including the amount of any money claimed; 
    • For condominium associations, a statement to whether a portion of the unit is covered by insurance maintained by the association and a copy of all insurance certificates identifying the coverage limits and deductibles maintained by the association pursuant to A.R.S. 33-1253;
    • A statement as to whether the association is under declarant control and the percentage of units/lots identified on the recorded plat that are currently owned by the declarant; 
    • A statement identifying whether any owner or entity other than the declarant owns 25% or more of the units; 
    • A statement that, for any report provided in summary format pursuant to this subsection, the purchaser may request to view the entire report from the association directly, and the association shall provide access to that report within three business days after a written request;
    • A statement to be signed by the purchaser at the close of escrow that provides “I hereby acknowledge that with the purchase of this home or property, I will be contractually bound to the valid covenants, conditions and restrictions of the recorded declaration, and will be bound to pay all common expense assessments applied to my home or property as authorized in the declaration and Title 33, Chapter 9 or 16, Arizona Revised Statutes, as applicable.  If I fail to pay common expense assessments, I may be subject to collection activity by the association up to and including foreclosure action, without the equity protection of the homestead act pursuant to Title 33, Chapter 8, Arizona Revised Statutes.”
  • A purchaser shall have 5 calendar days after receipt of the resale disclosure to accept the information, propose a cure to address any concerns identified, or withdraw the purchase offer without penalty or loss of earnest money;
  • A seller or purchaser damaged by the failure to disclose the documents and information required or by the provision of materially false or misleading statements may pursue the seller, the managing agent for the association, or the association for damages, including reasonable attorneys’ fees as awarded by a court;
  • Associations must provide licensed escrow agents any requested information relevant to the close of escrow at no cost to the escrow agent or additional cost to the seller or buyer;
  • If an association is not requested to provide the resale disclosure, the association may only charge a nominal fee to the purchaser to compensate the association for the cost of updating the new owner information in the association records;
  • Payment for the resale disclosure may only be made directly to the association;
  • Upon the initial sale of a property by the developer, the developer must provide the resale disclosure;
  • For planned communities, defining “association” as including “any master and local association with recorded covenants affecting the property.”
• Amending A.R.S. 33-1802 to define “member” as “the owner of record of any individually owned property that is subject to the declaration in a planned community,” and to clarify that a planned community includes real estate that is subject to a declaration.
• Amending A.R.S. 33-1803 to add the following:
  • Any provision of a declaration that would impose mandatory assessments for membership in a private recreational club or for the maintenance or use of separate public or private property that is not owned by the association is invalid and unenforceable as a matter of law. Any provision prescribed by this subsection creates both an unreasonable restraint on alienation and an unreasonable restraint on trade or competition and the following apply: 
    • On the effective date of this amendment to this section, the board of directors of any association that has a declaration that contains such a provision shall remove that provision by amendment to the declaration. 
    • Notwithstanding any provision of the community documents, the association may not use common expense assessments for the maintenance, use or subsidy of third-party public or private property that is not directly owned by the association. 
    • If emergency measures must be taken with respect to third-party public or private property to maintain access to the association’s property, the association may authorize the use of association resources or monies to effect the emergency repairs, but shall bill the public or private entity that owns the separate property for the costs of the repairs. 
    • The association may provide for voluntary assessments on individual property for the use of third-party property, recreational facilities or other facilities.

Legislative Timeline

• January 26, 2026 – House Second Reading
• January 22, 2026 – Introduced; House First Reading; Assigned to House Commerce and Rules Committees

Impact

Overall, the bill increases transparency, strengthens property owner rights, and imposes stricter regulations on community associations regarding covenants, disclosures, fees, and assessments. It aims to protect property owners from unreasonable or unfair practices while ensuring accountability and compliance by associations.