ALJDEC decisions subject to certification as final

21F-H2120028-REL · Department of Real Estate - H/C · 2021-02-19

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Lee & Kim Edwards,

PetitionerS,

vs.

Scottsdale Embassy Condominium Association,

Respondent.

No. 21F-H2120028-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: February 9, 2021

APPEARANCES: Terri Foster, Esq. appeared on behalf of Petitioners Lee & Kim Edwards. Lauren Vie, Esq. appeared on behalf of Respondent Scottsdale Embassy Condominium Association.

ADMINISTRATIVE LAW JUDGE: Velva Moses-Thompson

_____________________________________________________________________

FINDINGS OF FACT

1. The Arizona Department of Real Estate (Department) is authorized by

statute to receive and to decide Petitions for Hearings from members of condominium unit owners’ associations and from unit owners’ associations in Arizona.

2. Respondent is a condominium unit owners’ association whose members own condominiums in the Scottsdale Embassy Condominium development in Scottsdale, Arizona.

3. Petitioners own unit 6937 in Scottsdale Embassy Condominium.

4. On or about November 20, 2020, Petitioners filed a single-issue petition with the Department that alleged that Respondent had violated its Covenants, Conditions, and Restrictions (CC&Rs) Article VI, Section 9, and Article IV, Section 1. The November 20, 2020 petition provided, in relevant part, as follows:

Petitioners seek to enforce Article VI, Section 9 and Article IV, Section 1, of the CC&Rs and the By Laws and to require that the assessments be in compliance with the CC&R’s, including the historical calculations for the past 40 plus years unless and until the CC&Rs are properly amended to reflect the Board’s improper change to the historical calculations.

Petitioners continued to explain in the petition that the assessments were historically based on the square footage of each unit.

5. Respondent filed a written answer to the petition, denying that it had violated any CC&Rs.

6. The Department referred the petition to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing.

7. On January 5, 2021, the Department issued a Notice of Hearing setting the matter for hearing on February 9, 2021.

8. A hearing was held on February 9, 2021. Petitioner Lee Edwards testified on his own behalf and submitted exhibits 1 through 14. Respondent presented the testimony of Board President, Caleb Koch, and Board member Mary Edinburgh. Respondent submitted exhibits 1 through 10.

9. In or around January of 2020, two Board members met with an attorney regarding the method historically used by the Board to calculate assessments. See Respondent’s Exhibit 3. On or about January 24, 2020, the attorney notified the homeowners that to ensure compliance with the CC&Rs, the Association should charge an assessment based on each homeowners 1/26 interest in the common areas of the Association. The January 24, 2020 letter provided, in relevant part, as follows:

Pursuant to Article II, Section 5 each unit has a 1/26 interest in the common areas of the Association. This essentially means that the annual budget is divided 26 ways and each unit is responsible for paying an equal portion of the budget.

It is my understanding that in the past the Association has partially based each unit’s annual assessment on the square footage of the unit. Going forward it is my recommendation that the Association comply with the sections cited above and charge each unit equally for the annual assessments.

10. The Board subsequently advised the homeowners that the prior method of calculating assessments based on the square foot of each unit violated the CC&Rs.

See Respondent’s Exhibit 5. The Board sought the input of the homeowners regarding whether they desired an assessment based on 1/26 of the Association costs (1/26 rate), a variable blended rate, or an assessment based on the square footage of each unit (square footage rate). Most of the homeowners chose the 1/26 rate. The Board notified the members that if any method other than the 1/26 rate was chosen, the CC&Rs would needed to be amended. See id.

11. On September 26, 2020, the Board notified the homeowners that it would begin charging an assessment based on the 1/26 rate going forward because the majority of the homeowners chose the rate. The Board notified the homeowners that an amendment would not be necessary. See Respondent’s Exhibit 7.

12. At hearing, Mr. Edwards argued that the square footage rate was a uniform rate that complied with the CC&Rs. Furthermore, Mr. Edwards contended that the Association waived its right to enforce a 1/26 rate because the Association has charged an assessment based on the square footage rate for the past 40 years.

13. Respondent contended that the CC&Rs require that each homeowner pay an assessment based on the1/26 rate. Respondent contended that it is not possible to waive the CC&R requirement.

14. Article II, Sections 5 and 7, Article VI, Sections 4 and 9 of the CC&Rs provide in relevant part as follows:

Article II, Section 5 provides, as follows:

The proportionate shares of the separate owners of the separate condominium in the profits and common expenses in the common areas, shall be the same as their respective interest in the common areas as set forth in Article II, Section 5.

Article II, Section 7 provides, as follows:

Article VI, Section 4 provides, as follows:

Declarant and the owner of each such unit, for themselves, their heirs, successors and assigns, further covenant that each unit shall be subject to an assessment in an amount to be determined by the Association in the following manner:

(a) such units share of the actual cost to the Association of all repair, construction, replacement and maintenance of the general and restricted common areas, and other facilities and activities including but not limited to, mowing grass, caring for the grounds, sprinkler system, and other charges required by this Declaration of Covenants, Conditions and Restrictions;

(b) such units share of the actual cost to the Association of such recreational facilities as may from time to time be provided by the Association;

(c) such townhouse units share of such sum as the Board of Directors of the Association shall determine to be fair and prudent for the establishment and maintenance of a reserve for repair, maintenance, and other charges as hereinafter provided, fire and extended coverage insurance of the common areas, and a liability insurance policy in the fact amount of not less than $500,000.00, which in addition to public liability shall cover repair and construction work to all of the assets and property to be maintained by the Association. The disposition of liability insurance proceeds shall be made upon majority vote of the Board of Directors but in all events shall be used to and for the purpose of the Association.

(d) such units share of such additional sum as the Board of Directors of the Association shall determine to be necessary to meet the primary purposes of the Association. Each unit’s share shall be the same as its undivided interest in the common elements of the total amount determined under the subparagraphs (a), (b), (c), and (d) above.

Article VI, Section 9 provides, as follows:

Both regular fees, assessments and special assessments must be fixed at a uniform rate for all units.

CONCLUSIONS OF LAW

1. A.R.S. § 32-2199(1) permits a condominium unit owner to file a petition with the Department for a hearing concerning the condominium association’s alleged violations of the Condominium Act set forth in Title 33, Chapter 9. This matter lies within the Department’s jurisdiction.

2. Petitioners bear the burden of proof to establish that Respondent violated the CC&Rs by a preponderance of the evidence. Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.

3. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

4. In Arizona, if a restrictive covenant is unambiguous, it is enforced to give effect to the intent of the parties. “Restrictive covenants must be construed as a whole and interpreted in view of their underlying purposes, giving effect to all provisions contained therein.” CC&R Article VI, Section 9 requires that assessments be charged at a uniform rate for all units. The preponderance of the evidence shows that Respondent’s assessment based on a uniform rate of 1/26 of the costs of the Association complies with Article VI, section 9. Petitioners have failed to meet their burden to establish that Respondent violated the CC&Rs and Bylaws.

5. Consequently, the petition should be dismissed and Respondent is deemed to be the prevailing party in this matter.

ORDER

IT IS ORDERED that the petition of Lee & Kim Edwards is dismissed.

NOTICE

Pursuant to Ariz. Rev. Stat. section 32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to Ariz. Rev. Stat. section 32-2199.04. Pursuant to Ariz. Rev. Stat. section 41-1092.09, a request for rehearing in this matter must be filed with the Commissioner of the Department of Real Estate within 30 days of the service of this Order upon the parties.

Done this day, February 19, 2021.

/s/ Velva Moses-Thompson

Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner

Arizona Department of Real Estate

Transmitted US Mail to:

Teresa H. Foster, ESQ.

Ellis & Baker, P.C.

6245 N 24th Parkway, Ste 100

Phoenix, AZ 85016

Beth Mulcahy, Esq.

Mulcahy Law Firm, PC

3001 E. Camelback Rd., Ste 130

Phoenix, AZ 85016