HB2768 (HB2768 Committee Amendment), if enacted, would render unenforceable, provisions in Declarations or covenants (“CC&Rs”) that obligate the transferee (the buyer) or the transferor (the seller) to pay a fee or other charge to a declarant (the developer of the real estate or condominium project) or a “third person” upon the transfer or for permitting the transfer of ownership of the property. There is an exception. If the fee is to an “association” it can be used for the purposes set forth in the “document” (presumably the CC&Rs) so long as the money does not go to a third party. HB2768, in its Introduced Version, limits this to $500 but the $500 cap was removed by the House Government Committee at a hearing on February 16, 2010. So what is HB2768’s potential impact? (Here is an interesting ABA article on the topic that HB2768 is apparently attempting to address. Thank you to Andrew Fortin, Vice President, Government & Public Affairs, Community Associations Institute,www. caionline.org, for forwarding the article).
Currently, there are three types of fees that are charged in the sale of condominium units and planned community lots in Arizona:
1. “Resale Disclosure Statement Fees.” These fees are charged to reimburse the condominium or planned community association for the cost incurred in providing a resale disclosure statement to potential buyers. The fee must be reasonable and the information required is mandated by statute. See A.R.S. 33-1260(c) and 33-1806(c). Since this fee is charged pursuant to and explicitly authorized by statute and is not charged pursuant to what is in a “Declaration” or “covenant”, it is doubtful that HB2768 would restrict these fees charged in routine sale transactions.
2. “Transfer Fees.” After or at a typical sale transaction closing, many community associations charge a “transfer fee” that is separate and apart from the “resale disclosure fee” set forth above. The transfer fee is authorized pursuant to A.R.S. 10-3302(16) to reimburse the condominium or planned community association for the costs of completing the transfer (sending the new owner a welcome packet, changing the ownership records, etc.) Because this fee is authorized by statute, it is doubtful that HB2768 would restrict these fees charged in routine sale transactions.
3. “Resale Assessments.” These assessments, payable to a condominium or planned community association, are found in “Declarations” or CC&Rs and would be prohibited by HB2768 unless they are $500 or less (or unless the amendment to HB2768 suggested by the House Government Committee removing the $500 cap is adopted). “Resale Assessments” rarely go by the name “Resale Assessments” in Declarations or CC&Rs and are more commonly referred to as, “Working Capital Assessments”, “Community Enhancement Fees”, Capital Improvement Fees”, “Reserve Assessments”, etc.
Planned community and condominium associations are “third parties” to the typical sales transaction (the seller is the “first party” and the buyer is the “second party”). Therefore, planned community and condominium associations are justifiably concerned about HB2768. Professional community association management companies, likewise, are “third parties” and are legitimately concerned that HB2768 is an attempt to force the preparation of statutorily required resale disclosure statements and the work involved in facilitating a transfer for no compensation. However, with the removal of the $500 cap on payments directly to community associations, and with the arguable inapplicability of HB2768 to statutorily permitted fees for facilitating a transfer (A.R.S. Section 10-3302(16)) and for the preparation of a resale disclosure statement (required by A.R.S. 33-1260 and 33-1806), the impact of HB2768 on community associations and their professional management companies, if adopted, is unknown. Given that uncertainty, poor drafting of HB2768 and its lack of reference to the statutorily permitted fees, it will not be surprising that community associations and professional community association management companies will likely argue against HB2768 at the Arizona Legislature.