SB 1450

Overview

SB 1450 proposes several significant changes to Arizona law regarding construction defect claims for condominiums. First, it shortens the statute of repose for contract-based actions reducing it from 8 years to 5 years after substantial completion, with special tolling provisions and a maximum of 6 years in cases where defects are discovered in the fifth year. The bill adds specific, detailed pre-litigation procedures for condominium defect claims, requiring condominium associations and unit owners to provide maintenance records or certify their absence when notifying developers of alleged defects and establishing a rebuttable presumption against condominium associations and unit owners who fail to maintain affected systems. Additionally, it mandates that condominium associations obtain at least a two-thirds affirmative vote of unit owners before initiating construction defect litigation, with stringent notice and meeting requirements involving both unit owners and developers.

Key Changes

• Amending A.R.S. 12-552 as follows:
  • For condominium projects, reducing the timeframe (i.e., the statute of repose) within which a construction defect claim based in contract may be brought against a person who develops or develops and sells real property, or performs or furnishes the design, specifications, surveying, planning, supervision, testing, construction, or observation of construction of an improvement to real property from 8 years to 5 years;
  • Allowing an additional sixth year within which to bring a construction defect claim if the injury occurred during the fifth year, or a latent defect was discussed during the fifth year after substantial completion, but provided that no claim may be brought more than 6 years after substantial completion.
  • Subjecting any complaints pending under A.R.S. 32-1155 for injury to real property or an improvement to real property to the 6 year limitation.
• Amending A.R.S. 12-1361 as follows:
  • Defining “maintenance records” as “receipts, logs, reports, service documentation or other material that is in the purchaser’s or association’s possession or control and that relates to routine or recommended maintenance of any building system or component identified in the notice of claim;”
  • Defining “remedy offer” as “a written offer by a seller or construction professional to repair, replace or provide monetary compensation to resolve an alleged construction defect under this article;”
• Amending A.R.S. 12-1362 to reference proposed new statutes and make non-substantive changes to existing language;
• Adding A.R.S. 12-1363.01, which specifically addresses construction defect actions for condominiums and includes, but is not limited to, the following:
  • Establishing a notice of claim and right to repair process as a prerequisite to filing a dwelling or construction defect action;
  • The notice of claim must include copies of all maintenance records relating to any system or component in the notice of claim, or a certification that such records do not exist;
  • The absence of maintenance records creates a rebuttable presumption that any alleged defect affecting a system or component that requires routine maintenance was caused by the claimant’s failure to perform ordinary maintenance;
• Amending A.R.S. 32-1162 to establish that condominium projects are subject to a 5 year statute of limitations for claims that may be filed with the Registrar of Contractors; the 5 year statute of limitations begins to run after the earlier of the close of escrow or actual occupancy;
• Adding A.R.S. 33-1242.01 to establish a unit owner meeting and approval process for a condominium association’s construction defect claims; this process includes, but is not limited to the following:
  • Two-thirds of the unit owners must approve a condominium’s construction defect claim;
  • Before holding a meeting of the unit owners to vote on proceeding with a construction defect claim, the association must:
    • Describe the specific units or common elements subject to the alleged construction defect;
    • Describe the physical condition of the units of the common elements subject to the claim;
    • Describe any modifications, maintenance, or repairs to the owners that were performed by the unit owners or the association;
    • Provide copies of any written inspection reports; and
    • Provide copies of any written cash offers, completed repairs, or offered repairs to remedy the alleged defects;
  • Before a vote of the unit owners on proceeding with a construction defect claim, the association must provide written notice of the anticipated commencement of a construction defect action to each unit owner, the developer of the condominium, and any construction professional identified in the proposed construction defect action;
  • The notice of the unit owner meeting to vote on proceeding with a construction defect claim must include the following:
    • A description of the nature of the construction defect claim, a description of the alleged defect(s), and the relief sought;
    • A disclosure that the construction defect claim may result in an increase in maintenance or repair costs for the association and an increase in assessments or special assessments to cover the cost of repairs;
    • A disclosure that the construction defect claim may result in increased costs to the association to cover litigation costs, including attorneys’ fees;
    • The fee arrangement with the attorneys’ representing the association;
  • The unit owner meeting must include a presentation by the association or its attorneys on the alleged construction defect(s);
  • The developer of the condominium and any construction professional identified in the proposed construction defect action has the right to attend and participate in the unit owner meeting, to include making a presentation, answering unit owner questions, requesting access for additional inspections, and requesting a subsequent vote on any remedy offer.

Legislative Timeline

• Senate First Reading TBD

Impact

Overall, SB 1450 emphasizes transparency, accountability, and collaboration in handling construction defect claims for condominium associations, but it also imposes additional administrative and procedural responsibilities on boards of directors and managers. These changes aim to ensure that construction defect actions are thoroughly vetted and supported by the unit owners while providing developers and construction professionals an opportunity to address issues before litigation.