HOA - ALJDEC decisions

22F-H2222039-REL · Department of Real Estate - H/C · 2022-10-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Oak Creek Knolls Property Owners Association, Inc.

Petitioner

Kim M. Grill

Respondent

No. 22F-H2222039-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: August 4, 2022, with the record held open to receive additional briefing.

APPEARANCES: Petitioner Oak Creek Knolls Property Owners Association, Inc. was represented by Augustus H. Shaw, IV. Respondent Kim M. Grill was represented by Lawrence J. Felder.

ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer

_____________________________________________________________________

After review of the hearing record in this matter, the undersigned Administrative Law Judge makes the following Findings of Fact and Conclusions of Law, and issues this Administrative Law Judge Decision.

FINDINGS OF FACT

Procedure and Background

The Arizona Department of Real Estate (Department) is authorized by statute to receive and to decide petitions for hearings from members of homeowners’ associations and from homeowners’ associations in Arizona.

On or about March 18, 2022, Petitioner Oak Creek Knolls Property Owners Association, Inc. filed a single-issue petition and paid the $500.00 filing fee with the Department. Petitioner alleged that Respondent Kim M. Grill violated Article 2, Section 2.11 of the Restatement of Declaration of Covenants, Conditions and Restrictions (CC&Rs) “by renting or leasing less than the Respondent’s entire residential property unit.”

On or about April 24, 2022, the Department received Respondent’s reply whereby Respondent denied the alleged violation(s).

Per the May 4, 2022, Notice of Hearing, the Department referred this matter to the Office of Administrative Hearings (OAH), an independent state agency unaffiliated with either party, for an evidentiary hearing regarding the following “Dispute:”

Petitioner stated that Respondent “violated the rental restrictions and ‘Residential Use’ provisions as set forth in Article 2 Section 2.11” of the Restatement of Declaration of Covenants, Conditions and Restrictions for Oak Creek Knolls Subdivision by “renting or leasing less than the entire Property residence...[which] is a breach of the contractual agreement and relationship between Respondent and the Association.”

The Parties and Governing Documents

Petitioner is a homeowners’ association whose members own properties in a residential real estate development located in Sedona, Arizona. Membership for the Association is compromised of the single-family residences located within the parameters of the Oak Creek Knolls Subdivision.

Respondent is an Oak Creek Knolls Subdivision property owner and is therefore a member of the Association.

The Association’s recorded the CC&Rs with the Coconino County Recorder’s Office on March 8, 2017.

The CC&Rs empowered the Association to control certain aspects of property use within the Association. When a party bought a residential unit in the development, they were supposed to receive a copy of the CC&Rs, at which time they agreed to be bound by its terms. Generally, the CC&Rs forms an enforceable contract between the Association and each property owner.

Article 2 of the CC&Rs provides, in pertinent part, as follows:

2.11 Residential Use. All Residential Units shall be used, improved and devoted exclusively to residential use by a Single Family. . . . No Owner shall permit his residential unit to be used for transient purposes or shall lease less than the entire unit. All leases must have a minimum of thirty (30) days.

The CC&Rs define “Single Family” to mean the following:

A group of one or more persons each related to the other by blood, marriage or legal adoption, or a group of not more than three (3) persons not all so related, who maintain a common household in a Residential Unit.

“Common household” is not defined in the CC&Rs.

Hearing Evidence

Lisa Frost, Secretary, and Brenda Keller, Alternate Director, testified on behalf of Petitioner and submitted Exhibits A-I. Respondent testified on her own behalf and submitted Exhibits J-X.

The substantive evidence of record is as follows:

In January 2019, Respondent closed on the purchase a single-family residence in the subdivision. The residence is a 5 bedroom, 5 bathroom home with a separate “in-law suite.” Respondent purchased the property, in part, because of the possibility of rental income.

Respondent was provided a copy of the CC&Rs prior to her purchase. With the CC&Rs, Respondent was also provided a document entitled “Disclosure Statement.” The Disclosure Statement included the following Note:

Per CC&Rs Article 2.11, “All residential units shall be used, improved and devoted exclusively to residential use by a Single family. No Owner . . . shall lease less than the entire unit. All leases must have a minimum of thirty (30) days.” There are NO multi-family units in Oak Creek Knolls. An owner may NOT occupy a home at the same time as renting out the home. Any improper use of a property regarding rentals will not be tolerated and can result in the levy of fines.

The Disclosure Statement included an acknowledgment that provided as follows:

I/we acknowledge that I/we have read and understand the Association’s contract with me/us (Buyer) and have read and understand the Association Documents referenced herein and understand and agree to the nature of the contractual obligations being created.

Respondent signed the Disclosure Statement on December 22, 2018.

At the time Respondent purchased the home, two individuals were renting the home.

When the issue of Respondent living in the home and the tenant having less than full access to the property was raised as a violation of the governing documents, Respondent opted to provide the tenant with a 30 day notice to vacate the premises.

At that time, Respondent proposed an amendment to the CC&Rs to remove the language “or shall lease less than the entire unit” from Article 2, Section 2.11 of the CC&Rs to clearly allow for the rental of the in-law suite in her home and other similar homes in the Association. The proposed amendment ultimately failed.

On or about May 16, 2022, Respondent entered into a “Temporary roommate agreement” (Agreement) with Ken Snyder, a 73 year old semi-retired attorney. The Agreement provided, in pertinent part, as follows:

This roommate agreement is entered into by [Respondent] and Ken Snyder (Renter) as homeowner desires roommate with full access to all living spaces of her residential non-smoking property @ 90 Pinewood Drive Sedona Arizona 86336 for a period of 12 months. . . .

Sharing roommate expenses: On or before the first day of each month beginning on or about May 14, 2021, renter agrees to pay Homeowner without demand or notice a share of the living expenses as the sum of $1700 in person or by personal check. This expense will take care of all utilities including electric, gas, water, sewer, internet and cable TV.

Petitioner received complaints regarding Mr. Snyder. The complaints were not with respect to anything Mr. Snyder did, but that his presence in Respondent’s home was an “illegal rental situation” and that there was a “stranger living there.”

Ms. Frost stated that Mr. Snyder’s presence on the neighboring property was a disruption to the quiet enjoyment of the community.

Ms. Frost acknowledged that if Respondent was not living in the home, she could rent out the home to an entirely new group of people every 30 days and not be in violation of the CC&Rs. Ms. Frost asserted that “would not be a damage or detriment.”

According to Ms. Frost, Respondent’s physical presence in the home at the same time as the renters “is what causes the damage or detriment.”

Ms. Keller stated that she would be fine with a rental of at least 30 days if it was in compliance with the CC&Rs. Ms. Keller asserted that the damage to the community was in the failure to comply with the letter of the law.

Neither Ms. Frost nor Ms. Keller were able to point out any conduct or behavior of Mr. Snyder that disrupted any other residents of the Association.

Respondent maintained that Mr. Snyder was given access to the entire property during the time of the Agreement.

Respondent stated that if she was forced to end the Agreement with Mr. Snyder, she would be unable to afford the home and would have to sell the property.

Respondent questioned how it would be better for the community to have a different group of people renting the property every 30 days without the owner on site to ensure no disruptions or damage occurred.

Respondent denied that evicting the prior tenant was an admission of a violation, but was her “trying to be a good neighbor.”

Conclusions of Law

This matter falls within the Department’s jurisdiction pursuant to Ariz. Rev. Stat. §§ 32-2102 and 32-2199 et seq., regarding a dispute between an owner and a planned community association.

In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated Article 2, Section 2.11 of the CC&Rs. See Ariz. Admin. Code R2-19-119.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960).

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.” Black’s Law Dictionary 1220 (8th ed. 1999).

Article 2 of the CC&Rs provides, in pertinent part, as follows:

The CC&Rs define “Single Family” to mean the following:

The ultimate question in this matter is whether the Agreement was in compliance with the CC&Rs.

By its terms, the Agreement was for a period of greater than 30 days and afforded Mr. Snyder access to the entire unit. There was no argument presented that Respondent and Mr. Snyder were related by blood, marriage, or legal adoption.

Therefore, the Agreement would not be a violation if Respondent and Mr. Snyder “maintain[ed] a common household.”

The term “common household” was not defined in the CC&Rs and is open to different interpretations.

By the terms of the Agreement, Mr. Snyder paid a set amount each month as a share of living expenses including utilities, internet, and cable TV. This arrangement, together with the fact that Mr. Snyder had full access to the entire property, could reasonably be interpreted to constitute evidence of a “common household.”

Therefore, Petitioner failed to establish by a preponderance of the evidence that Respondent’s Agreement with Mr. Snyder was in violation of Article 2, Section 2.11 of the CC&Rs.

ORDER

Based on the foregoing,

IT IS ORDERED that Petitioner’s petition be denied.

NOTICE

Pursuant to A.R.S. §32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to A.R.S. § 32-2199.04. Pursuant to A.R.S. § 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.

-54864001

001

-137160-45720000Done this day, October 3, 2022.

/s/ Tammy L. Eigenheer

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile October 3, 2022 to:

Louis Dettorre, Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Attn:

[email redacted]

Augustus H. Shaw IV

SHAW & LINES LLC

4523 E. Broadway Rd.

Phoenix AZ, 85040

[email redacted]

Kim M. Grill

90 Pinewood Drive

Sedona AZ 86336

[email redacted]

By: Miranda Alvarez

Legal Secretary