What it changes for boards and managers

Arizona courts have applied reasonableness standards to association conduct for years, drawing on the business judgment rule and on the covenant of good faith and fair dealing implied in every contract. What changes on September 12 is that the duty is now statutory, specific and universal, and it does not depend on how a particular declaration was drafted.

“Without favoritism” is the operative phrase for enforcement practice. The most common complaint Arizona homeowners bring is not that a rule exists but that it is enforced against them and not against a neighbour. Selective enforcement was already a defence in Arizona; it is now framed as a breach of an affirmative statutory duty owed by the association. Boards that cannot produce a consistent record of how a rule has been applied across the community are exposed in a way they were not before.

“Nonarbitrary” puts weight on written reasons. An architectural committee that denies an application without recording why has no evidence that the decision was anything other than arbitrary. The cheapest compliance step available to most boards is a standing practice of minuting the reason for every discretionary denial, approval condition, fine, and variance.

The duty runs to discretion, which is where most disputes live. Approving or refusing a paint colour, granting or refusing a variance, choosing whether to fine or to warn, deciding which of several delinquent accounts to send to counsel — these are discretionary. Levying the assessment the budget requires is not.

How it is likely to be enforced

The bill creates no new cause of action, no penalty and no fee-shifting provision of its own. That is a deliberate feature of its brevity, and it means the duty will be raised through the channels that already exist: as a claim or defence in superior court, and in petitions to the Arizona Department of Real Estate under A.R.S. § 33-2199.01, where an administrative law judge hears alleged violations of the condominium and planned community statutes.

That second channel is the more likely one in volume terms, because it is where individual owners go. A duty written into §§ 33-1242 and 33-1821 is a violation of “the statutes that regulate condominiums or planned communities” within the meaning of the ADRE petition process — which is to say, it is the kind of allegation that process exists to hear.

What to watch next

No Arizona appellate decision has yet construed either new provision, and none can until disputes arising after September 12 work their way up. Three questions are open on the face of the text.

Whether the duty adds anything to the business judgment rule. Associations will argue the statute codifies existing law and changes nothing. Owners will argue “neutrally, fairly, without favoritism” is more demanding than a rule that asks only whether a decision was made in good faith on an informed basis.

What “includes” admits. The definition is expressly non-exhaustive, and the four adverbs are not a closed list.

Whether it reaches rulemaking as well as rule application. Adopting and amending rules is itself a discretionary power under § 33-1242(A)(1), which suggests the duty attaches to the content of new rules and not only to how existing ones are enforced.