HB2780 - 561R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 33-1228, Arizona Revised Statutes, is amended to read:

START_STATUTE33-1228. Termination of condominium and declaration

A. Except as provided in subsection B of this section, A condominium and its declaration may be terminated only as prescribed in the declaration, if the DECLARATION is available, and if not available, only by the agreement and written consent of unit owners of units to which at least eighty percent of the votes in the association are allocated, or any larger percentage the declaration specifies as otherwise prescribed in the declaration, except:

1. in the case of a taking of all the units by eminent domain.

2. If the declaration specifies a smaller percentage, but only if all of the units in the condominium are restricted exclusively to nonresidential uses.

B. A condominium created on or after September 24, 2022 may be terminated only by agreement of unit owners of units to which ninety-five percent of the votes in the association are allocated, or any larger percentage the declaration specifies, except as provided in subsection A, paragraph 1 or 2 of this section.

C. At least thirty days before recording a termination agreement, the board of directors of the association shall convene a regular or special meeting of the board of directors at which a person or entity that purports to have the agreement of at least the percentage of the votes in the association specified in subsection A or B of this section, as applicable, or any larger percentage if required, shall produce and make available to the unit owners copies of a signed notarized statement that the owner of a unit has executed a termination agreement. The person or entity shall produce copies of a statement for each unit owner who has agreed to the termination, or may produce the signed termination agreement that includes a sufficient number of unit owners. Any meeting called pursuant to this subsection shall be noticed as otherwise provided by law, except that the board may not take action by written consent or any other method that does not provide for an actual meeting that is open to all the unit owners. Any termination agreement that is recorded without full compliance with this subsection is invalid.

B. ANY AGREEMENT TO TERMINATE THE CONDOMINIUM DECLARATION MUST CONTAIN THE REQUISITE NUMBER OF UNIT OWNERS' SIGNATURES as prescribed in subsection A of this section and their PRINTED NAMES AND UNIT NUMBERS. THE TERMINATION AGREEMENT SHALL BE SIGNED AND NOTaRIZED BY THE PERSON OR ENTITY PRESENTING THE TERMINATION AGREEMENT TO BE A TRUE COLLECTION OF SIGNATURES OF OWNERS WHO HAVE READ THE TERMINATION AGREEMENT AND FREELY AGREED TO ITS CONTENT. THE TERMINATION AGREEMENT MUST DESCRIBE THE PROPOSED ORGANIZATIONAL STRUCTURE FOR MAKING DECISIONS AND MANAGING THE COMMON PROPERTY, INCLUDING THE CONTINUED OBLIGATION OF ANY UNIT OWNER TO PAY ASSESSMENTS and the maintenance of THE COMMON PROPERTY FOLLOWING TERMINATION OF THE CURRENT DECLARATION. THE TERMINATION AGREEMENT MUST CLEARLY STATE THAT THE TERMINATION AGREEMENT, ALONG WITH THE EXISTING PLAT, WILL BECOME THE NEW DECLARATION FOR THE CONDOMINIUM. THE TERMINATION AGREEMENT MUST SATISFY THE RELEVANT REQUIREMENTS OF SECTION 33-1215, BUT MAY NOT:

1. CHANGE THE VOTING RIGHTS OR ALLOCATED INTEREST OF THE UNIT OWNERS AS PREVIOUSLY EsTABLISHED IN THE DECLARATION.

2. ADD OR ALTER A RESTRICTION ON THE USE OF PRIVATE OR COMMON PROPERTY UNLESS REASONABLE NOTICE OF THAT RESTRICTION WAS PROVIDED IN THE PRevious DECLARATION.

C. ON NOTIFICATION THAT AN INDIVIDUAL OR ENTITY HAS OBTAINED THE NECESSARY APPROVALS TO TERMINATE THE DECLARATION AND after RECEIVING A COPY OF THAT AGREEMENT, tHE BOARD OF DIRECTORS SHALL CALL AND NOTICE A SPECIAL OPEN MEETING OF THE BOARD PURSUANT TO SECTION 33-1248 TO BE HELD AT LEAST FIFTEEN calendar DAYS BUT NOT MORE THAN THIRTY CALENDAR DAYS AFTER THE date of the NOTIFICATION. AT THE MEETING CALLED FOR THAT PURPOSE, THE INDIVIDUAL OR ENTITY presenting the termination agreement MUST PROVIDE THE ORIGINAL SIGNED AND NOTaRIZED TERMINATION AGREEMENT TO THE BOARD OF DIRECTORS. ANY UNIT OWNER PRESENT AT THE MEETING MUST BE PROVIDED THE OPPORTUNITY TO SPEAK before A VOTE OF THE BOARD TO RATIFY THE TERMINATION AGREeMENT. THE BOARD OF DIRECTORS SHALL confirm THAT THE TERMINATION AGREEMENT CONTAINS THE APPROVAL OF THE REQUISITE NUMBER OF UNIT OWNERS, AND IF NO LEGITIMATE REASON HAS BEEN PRESENTED TO DELAY THE RATIFICATION, the board MUST RATIFY THE AGREEMENT. ONCE RATIFIED, THE ASSOCIATION MUST TAKE THE ACTIONS NECESSARY TO PREPARE FOR AND RECORD THE TERMINATION AGREEMENT WITHIN FIFTY DAYS after the date of ratification.

D. An agreement to terminate shall be evidenced by the execution or ratifications of a termination agreement, in the same manner as a deed, by the requisite number of unit owners. The termination agreement shall specify a date after which the agreement will be void unless it is recorded before that date. A termination agreement and all ratifications of a termination agreement shall be recorded in each county in which a portion of the condominium is situated and is effective only on recordation recording and subsequently providing every UNIT owner a copy of the recorded document.

E. A termination agreement may provide that all the common elements and units of the condominium shall be sold following termination. If, pursuant to the agreement, any real estate in the condominium is to be sold following termination, the termination agreement shall set forth the minimum terms of the sale.

F. The association, on behalf of the unit owners, may contract for the sale of real estate in the condominium, but the contract is not binding on the unit owners until approved pursuant to subsections A, B, C and D of this section. If any real estate in the condominium is to be sold following termination, title to that real estate on termination vests in the association as trustee for the holders of all interest in the units. Thereafter, the association has all powers necessary and appropriate to effect the sale. Until the sale has been concluded and the proceeds of the sale distributed, the association continues in existence with all powers it had before termination. Proceeds of the sale shall be distributed to unit owners and lienholders as their interests may appear, in proportion to the respective interests of unit owners as provided in subsection I of this section. Unless otherwise specified in the termination agreement, as long as the association holds title to the real estate, each unit owner and the unit owner's successors in interest have an exclusive right to occupancy of the portion of the real estate that formerly constituted the unit owner's unit. During the period of that occupancy, each unit owner and the successors in interest remain liable for all assessments and other obligations imposed on unit owners by this chapter or the declaration.

G. E. If the real estate constituting the condominium is not to be sold Following termination, title to all the real estate in the condominium vests in the unit owners on termination as tenants in common in proportion to their respective interests as provided in subsection I of this section, and liens on the units shift accordingly the terminated declaration. While the tenancy in common exists, each unit owner and the unit owner's successors in interest have an exclusive right to occupancy of the portion of the real estate that formerly constituted the unit owner's unit. Each unit owner may sell the unit owner's interest in the individual unit, its real estate and the unit owner's interest in the common property as a single parcel that is subject to the recorded termination agreement.

H. Following termination of the condominium, the proceeds of any sale of real estate, together with the assets of the association, are held by the association as trustee for unit owners and holders of liens on the units as their interests may appear. Following termination, creditors of the association holding liens on the units that were recorded before termination may enforce those liens in the same manner as any lienholder.

I. The respective interests of unit owners referred to in subsections F, G and H of this section are as follows:

1. Except as provided in paragraph 2 of this subsection, the respective interests of unit owners are the fair market values of their units, limited common elements and common element interests immediately before the termination, their pro rata share of any monies in the association's reserve fund and the operating account and an additional five percent of that total amount for relocation costs. An independent appraiser selected by the association shall determine the total fair market values. The determination of the independent appraiser shall be distributed to the unit owners and becomes final unless disapproved within sixty days after distribution to the unit owner. Any unit owner may obtain a second independent appraisal at the unit owner's expense and, if the unit owner's independent appraisal amount differs from the association's independent appraisal amount by five percent or less, the higher appraisal is final. If the total amount of compensation owed as determined by the second appraiser is more than five percent higher than the amount determined by the association's appraiser, the unit owner shall submit to arbitration by an arbitrator affiliated with a national arbitration association and under the rules of that association at the association's expense and the arbitration amount is the final sale amount. As part of the arbitration process, the appraisers shall fully disclose their appraisal methodologies and shall disclose any other transaction occurring between the buyer and the sellers. An additional five percent of the final sale amount shall be added for relocation costs.

2. If any unit or any limited common element is destroyed to the extent that an appraisal of the fair market value of the unit or element before destruction cannot be made, the interests of all unit owners are their respective common element interests immediately before the termination.

F. FOLLOWING TERMINATION of the condominium, ALL FINANCIAL ASSETS AND LOANS OR CONTINUING OBLIGATIONS OF THE PREVIOUS CONDOMINIUM ASSOCIATION, IF ANY, TRANSFER TO THE OWNERS IN COMMON AS ORGANIZED UNDER THE TERMINATION AGREEMENT.

G. RECORDING THE TERMINATION AGREEMENT EXTINGUISHES ALL OF THE FOLLOWING:

1. THE DECLARATION AND ALL AMENDMENTS, EXCEPT THE PLAT DEFINING THE REAL ESTATE.

2. THE PREVIOUS CONDOMINIUM ASSOCIATION HOWEVER ORGANIZED AND ANY POWER OR AUTHORITY OF ITS BOARD OF DIRECTORS. IF THE CONDOMINIUM ASSOCIATION WAS INCORPORATED, THE BOARD OF DIRECTORS is RESPONSIBLE TO TAKE ANY ACTIONS reasonably necessary TO TERMINATE THE CORPORATION PURSUaNT TO TITLE 10 before RECORDING THE TERMINATION AGREEMENT.

3. ALL OTHER CONDOMINIUM DOCUMENTS, INCLUDING ARTICLES OF INCORPORATION, BYLAWS, RULES AND DESIGN CONTROL STANDARDS.

4. ALL EXISTING CONTRACTS ENTERED INTO BY THE PREVIOUS CONDOMINIUM ASSOCIATION, WITHIN THE TERMINATION CLAUSES OF THOSE CONTRACTS.

5. ALL OUTSTANDING FINES, PENALTIES OR FEES that are APPLIED TO INDIVIDUAL UNITS BY THE PREVIOUS CONDOMINIUM ASSOCIATION, OTHER THAN COMMON EXPENSE ASSESSMENTS.

6. ALL NONCOMMON EXPENSE AsSESSMENT LIENS ESTABLISHED BY THE PREVIOUS CONDOMINIUM ASSOCIATION ON INDIVIDUAL UNITS.

H. FOLLOWING TERMINATION, THE COMMUNITY is deemed to SATISFY THE DEFINITION OF A CONDOMINIUM IN SECTION 33-1202 AND REMAINS SUBJECT TO THE PROTECTIONS AND OBLIGATIONS OF THIS CHAPTER. THE RECORDED TERMINATION AGREEMENT, ALONG WITH THE PREVIOUSLY RECORDED PLAT, BECOMES THE NEW DECLARATION FOR THE PROPERTY.

J. I. Except as provided in subsection K J of this section, foreclosure or enforcement of a lien or encumbrance against the entire condominium does not of itself terminate the condominium, and foreclosure or enforcement of a lien or encumbrance against a portion of the condominium does not withdraw that portion from the condominium. Foreclosure or enforcement of a lien or encumbrance against withdrawable real estate does not of itself withdraw that real estate from the condominium, but the person taking title may require from the association, on request, an amendment excluding the real estate from the condominium.

K. J. If a lien or encumbrance against a portion of the real estate comprising the condominium has priority over the declaration, and the lien or encumbrance has not been partially released, the parties foreclosing the lien or encumbrance, on foreclosure, may record an instrument excluding the real estate subject to that lien or encumbrance from the condominium.

L. The provisions of subsections E, F, G, H, J and K of this section do not apply if the original declaration, an amendment to the original declaration recorded before the conveyance of any unit to an owner other than the declarant or an agreement by all of the unit owners contains provisions inconsistent with these subsections.

M. Beginning on August 3, 2018, any provisions in the declaration that conflict with subsection I, paragraph 1 of this section are void as a matter of public policy.

K. A person or entity may purchase the entire CONDOMINIUM property by acquiring title from all unit owners and tenants in common, if any, by negotiating the purchase of each property and either terminating the declaration or without terminating the declaration. On completing the purchase of the entire CONDOMINIUM property, the purchaser may record a DOCUMENT to terminate the declaration for the condominium and any amendments to and restatements of the declaration, and the condominium is thereby terminated. END_STATUTE

Sec. 2. Section 33-1241, Arizona Revised Statutes, is amended to read:

START_STATUTE33-1241. Organization of unit owners' association

A unit owners' association shall be organized no not later than the date the first unit in the condominium is initially conveyed. The membership of the association at all times shall consist exclusively of all the unit owners or, following termination of the condominium, of all former unit owners entitled to distributions of proceeds under section 33-1228, or their heirs, successors or assigns. The association shall be organized as a profit or nonprofit corporation or as an unincorporated association. END_STATUTE

Sec. 3. Section 33-1253, Arizona Revised Statutes, is amended to read:

START_STATUTE33-1253. Insurance

A. Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent reasonably available, both:

1. Property insurance on the common elements insuring against all risks of direct physical loss commonly insured against or, as determined by the board of directors, against fire and extended coverage perils. The total amount of insurance after application of any deductibles shall be not less than eighty per cent percent of the actual cash value of the insured property at the time the insurance is purchased and at each renewal date, exclusive of land, excavations, foundations and other items normally excluded from property policies.

2. Liability insurance in an amount determined by the board of directors but not less than any amount specified in the declaration, covering all occurrences commonly insured against for death, bodily injury and property damage arising out of or in connection with the use, ownership or maintenance of the common elements.

B. To the extent available, the insurance maintained under subsection A, paragraph 1 of this section, if determined by the board, includes the units or any portion of those units but need not include improvements and betterments installed by unit owners or the personal property of unit owners.

C. If the insurance described in subsection A of this section is not reasonably available, the association promptly shall cause notice of that fact to be hand-delivered or sent prepaid by United States mail to all unit owners. The declaration may require the association to carry any other insurance, and the association in any event may carry any other insurance it deems appropriate to protect the association or the unit owners.

D. Insurance policies carried pursuant to subsection A of this section shall provide the following:

1. Each unit owner is an insured person under the policy with respect to liability arising out of his the person's interest in the common elements or membership in the association.

2. The insurer waives its right to subrogation under the policy against any unit owner or members of his the unit owner's household.

3. No act or omission by any unit owner, unless acting within the scope of his the unit owner's authority on behalf of the association, will void the policy or be a condition to recovery under the policy.

4. If, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same property covered by the policy, the association's policy provides primary insurance.

E. Any loss covered by the property policy under subsection A, paragraph 1 and subsection B of this section shall be adjusted with the association, but the insurance proceeds for that loss are payable to any insurance trustee designated for that purpose, or otherwise to the association, and not to any mortgagee or beneficiary under a deed of trust. The insurance trustee or the association shall hold any insurance proceeds in trust for unit owners and lienholders as their interests may appear. Subject to the provisions of subsection H of this section, the proceeds shall be disbursed first for the repair or restoration of the damaged property, and unit owners and lienholders are not entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds after the property has been completely repaired or restored, or the condominium is terminated.

F. An insurance policy issued to the association does not prevent a unit owner from obtaining insurance for his the unit owner's own benefit.

G. An insurer that has issued an insurance policy under this section shall issue certificates or memoranda of insurance to the association and, on written request, to any unit owner, mortgagee or beneficiary under a deed of trust. The insurer issuing the policy shall not cancel or refuse to renew it until thirty days after notice of the proposed cancellation or nonrenewal has been mailed to the association, each unit owner and each mortgagee or beneficiary under a deed of trust to whom a certificate or memorandum of insurance has been issued at their respective last known addresses.

H. Any portion of the condominium for which insurance is required under this section which and that is damaged or destroyed shall be repaired or replaced promptly by the association unless any of the following apply:

1. The condominium is terminated.

2. Repair or replacement would be illegal under any state or local health or safety statute or ordinance.

3. Eighty per cent percent of the unit owners, including every owner of a unit or allocated limited common element which that will not be rebuilt, vote not to rebuild.

I. The cost of repair or replacement in excess of insurance proceeds and reserves is a common expense. If the entire condominium is not repaired or replaced:

1. The insurance proceeds attributable to the damaged common elements in proportion to their common element interests or as otherwise provided in the declaration shall be used to restore the damaged area to a condition compatible with the remainder of the condominium.

2. The insurance proceeds attributable to units and allocated limited common elements which are not rebuilt shall be distributed in proportion to their common element interests or as otherwise provided in the declaration to the owners of those units and the owners of the units to which those limited common elements were allocated, or to lienholders as their interests may appear.

3. The remainder of the proceeds shall be distributed to all the unit owners or lienholders as their interests may appear in proportion to the common element interests of all the units.

J. If the unit owners vote not to rebuild any unit, that unit's allocated interests are automatically reallocated on the vote as if the unit had been condemned under section 33-1206, subsection A, and the association promptly shall prepare, execute and record an amendment to the declaration reflecting the reallocations.

K. Notwithstanding the provisions of subsections H, I and J of this section, section 33-1228 governs the distribution of insurance proceeds shall be distributed in proportion to the unit owners' respective interests in the condominium as prescribed in the terminated declaration if the condominium is terminated.

L. If all units are restricted to nonresidential use, the provisions of a subsection or paragraph of this section do not apply if the declaration, articles of incorporation or amended bylaws contain provisions inconsistent with such subsection or paragraph.

M. This section does not prohibit the declaration from requiring additional or greater amounts of insurance coverage or does not prohibit the board of directors from acquiring additonal additional or greater amounts of coverage as it reasonably deems appropriate. END_STATUTE