A discussion of the Arizona statute that went into effect
Here is a brief summary
of the construction defect litigation statute. The statute was effective as of
August 23, 2002, and was modified slightly in April 2015.
What is controlled and
A.R.S. § 12-1361(4) (the
definitions section) shows that the statute seeks to control any action
 (court or arbitration) brought by a purchaser of a
"dwelling" (as defined) against the seller related to "the design, construction,
condition, or sale  of the dwelling." This is called a
A "dwelling" is any (i)
single or (ii) multi-family unit designed for residential use, including any
common area improvements owned by an association or members of an association.
"Association" is defined as an entity or unincorporated group created under
A.R.S. § 33-1243 ("condominium unit owners association") or by a declaration
(does not need to be a recorded declaration, apparently), which group can assess
dues to carry out the "operations of a planned community."
For this statute to
apply, the seller who is being sued has to be a person or entity "engaged in the
business of designing, constructing, or selling dwellings."
A purchaser’s "dwelling
action" or suit against a seller for misdeeds related to design, construction,
condition of the dwelling, or sale of the dwelling can occur only after
the purchaser has followed the Statute’s requirements. If the purchaser-litigant
fails to leap over the hurdles correctly, he may be stayed 
under A.R.S. § 12-1362 for up to 90 days so that compliance can be performed.
What are "the hurdles" to
be jumped by a purchaser-litigant?
(i ) Under A.R.S. §
12-1632(A), 90 days before filing any suit or arbitration, the purchaser who
wants to litigate must give the seller (by certified mail, return receipt
requested) a written notice specifying in "reasonable detail" the bases for his
dwelling action, which he wants to initiate. If it is a "multi-unit dwelling
action" (5 or more owners joining in per A.R.S. § 12-1361(5)), the description
may list defects in "sample units."
(ii) The purchaser has to
make the unit(s) available in not less than 10 days after the original notice to
a seller who sends the purchaser a demand to inspect such. That inspection can
only be done after "reasonable" notice, at a "reasonable" time of day, and in a
"reasonable" fashion TO DETERMINE: IF DEFECTS EXIST; THEIR CAUSE, i.e., WHO IS
RESPONSIBLE; and, WHAT REPAIRS, ETC. CAN BE DONE "TO REMEDY" the situation.
(iii) By 60 days from the
purchaser’s notice of defects, the seller has to have sent the to the purchaser
(by certified mail, return receipt requested) a "good faith written response"
offering repairs or replacement or compensation therefore. The written
offer/response has to describe "in reasonable detail" what is to be done AND a
"reasonable" estimate of when it will be done. If the seller fails to do this
response by 60 days, the purchaser can stop waiting and just file his
proceedings. A.R.S. § 12-1632(E).
(iv) If the seller
presents a timely offer/response, then the purchaser has to make a good faith
written response (sent certified mail, return receipt requested) within 20 days
after receipt of the seller’s response. If the purchaser rejects the seller’s
response, the purchaser has to explain why and may make a counteroffer.
(v) If there is a
rejection or a counteroffer, the seller has to make a "best and final offer" in
writing to the purchaser (sent certified mail, return receipt requested).
(vi) In summary, this is
an elaborate and choreographed bidding "dance" :
Day 1: purchaser’s notice
Day X: (up to day 60)
seller’s offer/response, done with or without inspection.
Day Y: (x plus up to 20
days) reply by purchaser, which can be a rejection or a counteroffer.
Day Z: (Y plus up to 10
days) seller’s acceptance or "best and final offer" to purchaser.
Day 90: purchase can now
commence arbitration or the Complaint filed in court.
None of the elaborate
dance steps, i.e., certified mail notices, offers, rejections, etc., can be
later used in litigation or arbitration, unless there is a failure to take part
in the dance by someone.
However, the failure of a
seller or purchaser to make a response at any stage can be used in the
arbitration or court proceedings, so no smart party is going to fail to
"perform" all the requirements and do so timely.
When the "dance"
commences, that occurrence tolls any applicable statute of limitations period,
but not for more than 90 days.
Under A.R.S. § 12-1363(I)
and (K), during the "dance," a purchaser can amend his list of defects by adding
those discovered "in good faith" after his original notice. If he is in court or
arbitration, he can add items he did not get on his original notice of defects
if they were "in good faith" discovered after his original notice. I foresee a
wealth of litigation when well-meaning homeowners try to do a layman’s original
notice and do some sort of a vague or half-baked original notice. The seller
will then argue that they are "frozen" in the parameters stated in their
original notice when the purchaser’s new lawyer and new expert later try to make
the court case into a good one.
The statute says that, in
any contested dwelling action, "the court" can award the successful party:
expert witness fees, attorneys’ fees, and costs. Query: Will arbitrators soon
see demandants and respondents making this request for attorneys’ fees in
arbitration proceedings? This Statute (although it expressly mentions a
court’s award) means an arbitrator can award
fees under this Statute and the RUAA, A.R.S. § 12-3021.
Incredibly, the entire
described "dance" per the statute simply does not apply to a dwelling action at
all if the sale contract (or the Association’s "Community Documents," i.e.,
Bylaws, Rules, CCRs, declaration, Articles of Incorporation) PROVIDE FOR
"commercially reasonable" ADR procedures." See A.R.S. § 12-1366 on exclusions.
This is crazy! What
developer would fail to write CCRs for the Association that did not co-opt this?
It is very likely that the developer’s pre-emptive strike in crafting the
Association’s documents will benefit the contractor, broker, and protect such
Exclusion (4) in A.R.S. §
12-1366 says that all consequential damages (damages to rugs, personal property,
and appliances) resulting from consequential defects are outside the effect of
this Statute. You could sue for your consequential damages to contents while
being delayed from suing on the defects.
Anyone looking at this
set of hurdles and contemplating the "dance" should look ahead to A.R.S. §
12-2602, so that when, on the 90th day, a "dwelling action" is ready to be
filed, the purchaser-litigant complies with that Statute which requires notice
at the time of filing a complaint if the complainant thinks expert testimony is
necessary in a case against a licensed professional, architect, contractor,
This well-meaning Statute is
designed to cut down on litigation, but, as shown above,
it may well turn into a trap for homeowners who think they can just "dabble" in
this dance without using a claim expert or lawyer. There will still be ADR in these "dwelling case"
word "action" is not expressly defined in the Statute, but the absence of the
term "court action" tells me that the law seeks to control arbitration as
well as court proceedings.
is a very broad definition that will result in cases against brokers for selling
units with latent or other defects to have to go through these hurdles described
in this article.
Unless there is a life-safety threat to occupants or visitors, such that no stay
should delay actions.
parties, by agreement, can alter the timeline. A.R.S. § 12-1363(N).