Overview
A proposal to amend A.R.S. §§ 33-1202, 33-1215, 33-1243, 33-1245, 33-1811 to modify the conflict of interest language so that if there is a conflict, it must be declared and recorded in the minutes of the meeting, and the conflicted director cannot vote on the issue; to remove the penalty that any contract entered into in violation of the existing conflict of interest disclosure is void and unenforceable; to add specific duties of directors (to the association and the members), including the duty to act in good faith, comply with governing documents and laws, exercise prudent care, and act in the collective best interest of the members; to provide that directors are presumed to have acted in compliance with these duties unless proven otherwise by clear and convincing evidence; and to provide that if a director violates these duties, the directly is jointly and severally liable for the plaintiff’s damages, including attorneys’ fees and costs.
Key Changes
Proposed Amendment (Inactive)
- Conflict of Interest Disclosure: Modifies existing conflict of interest provisions to require directors with conflicts to declare them and have the declaration recorded in meeting minutes; prohibits conflicted directors from voting on the issue
- Contract Enforceability: Removes the penalty that automatically voids and renders unenforceable any contract entered into in violation of conflict of interest disclosure requirements
- Director Duties: Establishes specific duties of directors to the association and members, including the duty to act in good faith, comply with governing documents and applicable laws, exercise prudent care, and act in the collective best interest of members
- Presumption of Compliance: Provides that directors are presumed to have acted in compliance with their duties unless proven otherwise by clear and convincing evidence
- Personal Liability: Establishes that directors who violate these duties are jointly and severally liable for plaintiff’s damages, including attorneys’ fees and costs
Legislative Timeline
- January 27, 2025: House Second Read
- January 23, 2025: House First Read; Assigned to House Committee on Government and House Committee on Rules
Impact
If passed, this legislation would fundamentally change director liability and accountability standards for both planned communities and condominiums in Arizona. The establishment of specific fiduciary duties would create clearer legal standards for director conduct while the personal liability provision could significantly increase individual director risk exposure. The modified conflict of interest provisions would streamline the disclosure process by focusing on transparency and recusal rather than automatic contract invalidation, potentially reducing unintended consequences from technical disclosure violations. However, the joint and several liability provision combined with the plaintiff’s recovery of attorneys’ fees could make director positions less attractive and potentially increase association insurance costs. Boards would need to ensure rigorous compliance with disclosure requirements and decision-making processes to minimize personal liability risk.