Client Alert:  Arizona Court of Appeals Extends Homeowner Implied Warranty Claims to Homeowner’s Associations

In its recent decision, Gallery Community Ass’n v. K. Hovnanian At Gallery, LLC, the Arizona Court of Appeals extended the protections of the Arizona purchaser dwelling act to non-dwelling owner homeowners’ associations.

In that case, Gallery Community Association, which is an homeowners’ association managing common areas for a townhome community and created by recorded declaration of covenants, conditions, restrictions and easements, sued the original developer and general contractor for alleged construction defects in the common areas and structural components of the development owned and maintained by the association. These components, including the exterior building walls, were not owned by or the responsibility of the individual townhome owners (e.g. the residents).

In the Superior Court proceeding, the trial court granted summary judgment in favor of the defendant contractor/developer, finding that the HOA was not a “homeowner” and, therefore, held no “implied warranty” for damage to common areas within the development. The developer argued that only the owner of a dwelling unit (e.g. home) can sue a builder under the implied warranty theory and that Arizona’s Homeowners’ Association Dwelling Action statutes do not create aright of action for violation of an implied warranty.

Generally, Arizona recognizes an implied warranty of workmanship and habitability associated with home construction. This implied warranty protects homeowners from latent defects that are normally undiscoverable by a pre-purchase inspection. This implied warranty extends to the original purchaser as well as subsequent purchasers.

Until now, it was unclear whether the implied warranty extended to common areas or external portions of homes that homeowners’ associations are required to maintain. In many aspects, A.R.S. § 12-1361 effectively codified the procedure to initiate an action for breach of the implied warranty of workmanship associated with construction defects in home construction.  A.R.S. § 33-2001 extended the right of an homeowners’ association to sue for construction defects as a “homeowners’ association dwelling action.”  The Court of Appeals rejected the builder’s argument that the implied warranty, as codified, only extends to “dwelling actions” and the alleged defects here are not related to a dwelling. Because the legislature included in its definition of “dwelling” contained in A.R.S. § 33-2002(2) the common areas an external portions of homes maintained by an HOA, the Court of Appeals concluded that the implied warranty of habitability extended to the workmanship issues in those areas.

The Court of Appeals concluded that the enactment of A.R.S. §§ 33-2001 and 33-2002 created the rules that authorize HOAs to bring causes of action for implied warranties arising from construction defects.

As a result, to the extent the issue was previously unclear, in Arizona, homeowners’ associations have the right to sue developers and builders for breaches of implied warranties of habitability and workmanlike construction for those portions of a development the HOA is obligated to maintain.

A copy of the Court of Appeals’ decision can be found here:

https://www.azcourts.gov/Portals/0/OpinionFiles/Div1/2024/1%20CA-CV%2023-0375%20Gallery%20v.%20K.%20Hovnanian.pdf