Avoiding Law Suits in Arizona

No human interaction is without conflict. As soon as my kids were born, they started demanding things. Now, while we are no experts on raising children, my wife and I are able to address these conflicts before our children sue. In a similar way, conflicts arise and affect HOAs and condominiums, but boards and managers can address these conflicts in a way that prevents expensive lawsuits. In order to do so, boards must take certain steps: (1) Recognize sources of conflict, (2) Minimize conflicts, (3) Address and resolve conflicts properly, and (4) Correct the source of conflict.

RECOGNIZE SOURCES OF CONFLICT

Conflict arises from human interaction. While we always enter situations optimistic that things will work out for everyone, Murphy’s Law states, “Anything that can go wrong will go wrong.” Pipes leak, roofs cave in, computers crash, people lose jobs, and contracts are breached. For HOAs, the most common sources of conflict arise from homeowner complaints and vendor contracts.

For example, a homeowner recently experienced a common pipe break that resulted severe damage to the foundation of his house. The homeowner immediately complained that the association had breached its duty to maintain the common elements and was responsible for all the repairs to his house, regardless of the maintenance obligations in the CC&Rs. In another example, a tenant sued her association because it asked her to prove that the pitbull she kept was a service animal. She sued for a Fair Housing Act (“FHA”) violation.

Vendor lawsuits are also common. An association decided to withhold its final payment from a landscaper because all of the common area trees died. The landscaper sued for payment under the contract. Another association withheld payment when a painter refused to complete warranty work, which resulted in expensive litigation.

Other sources of conflict are government agencies and taxing authorities, neighboring properties, and the declarant/developer. Once an association determines its most common sources of conflict, it can move to the next step.

MINIMIZE CONFLICTS

Most of the conflicts that face an association arise from contracts. Homeowners are contractually bound by the CC&Rs, and vendors are bound by the terms of their service contracts. Because of this fact, associations are well served by having an attorney review its contracts before entering into them. In the case of CC&Rs, it is important to have an attorney review and update them in order to correct terms that put the Association at a disadvantage.

For example, an association’s CC&R amendment contained a provision that made the exterior painting of each house association responsibility, while at the same time limiting the amount by which annual assessments could be raised to cover the costs of painting. The result was costly. The association soon found that it was unable to financially meet its maintenance obligations. It attempted to pass a special assessment, but the homeowners refused. Eventually the association brought the matter to its attorney, who prepared an amendment that eliminated the unit exterior painting obligation altogether. If an attorney had reviewed the amendment prior to its passage, the costly provision may have been eliminated before it was ever passed.

In relation to vendors, one association brought two separate vendor contracts to its attorney for review. The first was very favorable to the association, while the second was very unfavorable. Without an attorney’s eye to see the potential sources of conflict, the association may have simply entered into both contracts without a second thought, but because an attorney reviewed the contracts, the association was able to change the unfavorable terms of the contract and get a better deal.

Another way to minimize conflict is to keep good records of association business. Occasionally, boards enter into long contracts, and decisions made early in the life of the contract may be forgotten or modified through the course of the dealing. Without accurate minutes and business records, a subsequent board may inadvertently breach the contract. It is critical for boards and managers to keep accurate records, and transmit those records to subsequent boards and managers. Using these tools, a board can minimize conflicts.

ADDRESS AND RESOLVE CONFLICTS PROPERLY

Even when an association takes steps to identify and minimize sources of conflict, conflicts still arise. When they do, how the association reacts can affect whether the other party files a lawsuit. In one association, a homeowner suffered severe damage to her unit as a result of a leaky roof. When the unit owner demanded repairs, the association, faced with several options, chose to address the conflict cooperatively, thus avoiding costly litigation. In another association, a homeowner’s dog was attacked by a neighbor’s dog. While the attack occurred on individual property, the homeowner’s attorney demanded that the association’s insurance pay for the dog’s veterinary bills. The association responded with a strongly worded denial that clearly showed the futility of the homeowner’s demand, and the homeowner gave up on his claim against the association.

Although each association addressed their respective conflicts differently, the result was the same: the association avoided a lawsuit. What made the difference? In each case, the legal issues raised by the conflict dictated the appropriate response. In the first example, the association’s maintenance and insurance obligations clearly provided that the association should cover the damage to the unit. Failure to do so would have resulted in costly litigation, and in the end the association would have ended covering the damages anyway. In the second example, without an authoritative denial of the homeowner’s claim, the homeowner may have assumed that he had a legal basis for a claim against the association and filed suit.

Often, addressing such claims requires legal advice. Asking for an attorney to prepare a detailed legal response is often helpful to resolve these conflicts before they become lawsuits. It may also be appropriate to tender demands against the association to insurance in order to limit the association’s financial exposure.

Another way to address and resolve conflicts is through a community dispute resolution procedure. Some communities have CC&R provisions that require homeowners to submit grievances to the board before filing a lawsuit. Under Arizona law, such dispute resolution provisions are strictly enforced, meaning that if a homeowner files a lawsuit before submitting the grievance to the board, his lawsuit may be dismissed. See A.R.S. §§ 12-1501, et seq.

One other method that bears mentioning is known as the “Ostrich Defense.” Contrary to what many of us were taught as children, ignoring a problem can make it go away. Some people are so discouraged enough by non-responsiveness that they give up on claims. While, this option may result in a lawsuit more often than not, the association’s attorney may be able to determine when such an approach is proper.

CORRECT THE SOURCE OF CONFLICT

While every association faces problems, a good board will be able to correct those problems as they arise. It is important for a board to continue to actively correct sources of conflict as they resolve problems. If a homeowner brings an FHA complaint for the association’s process of handling accommodations, the association can then review its process and make corrections to prevent future complaints. When conflict arises, it is an opportunity to improve the association and make it better.

The board, manager, and association attorney should review the community documents and procedures to make any necessary corrections, and thereby prevent future conflicts from arising. The result should be fewer lawsuits, and improved interactions.

Often the greatest key to avoiding lawsuits is to prevent the conflicts that lead to them. By identifying common sources of conflict and minimizing them, an association will be able to avoid most litigation. When conflicts do arise, an appropriate response will help quash imminent lawsuits. Correcting sources of conflict will prevent particular problems from repeating.  Attorney advice is critical in this process to strategize and prevent lawsuits. Be sure to keep the association attorney in the loop at all of these steps, and hopefully, your association will see a reduction in lawsuits against it.