Arizona Court of Appeals Division One Holds That A.R.S. § 33-441, which voids deed restrictions prohibiting the placement of “for sale” and “for rent” signs on real property, is constitutional under the contract clause and applies retroactively to pre-existing CC&Rs.

In 2011, the Hawks posted a “for sale” sign on their lots, and the PC Village Association removed the sign based on the CC&R.  The Hawks sued for declaratory and injunctive relief, asking the court to declare the prohibition unenforceable and to enjoin the Association from removing the sign.  The Association contended that the statute did not apply and was unconstitutional.  After cross-motions for summary judgment, the court ruled in favor of the Hawks and enjoined the Association.  The Association appealed.

The Court of Appeals affirmed, agreeing that A.R.S. § 33-441 superseded the Hawks’ CC&Rs.

The Court rejected the Association’s various textual arguments that the statutory scheme did not apply.  § 33-441 expressly applied to “a covenant, restriction or condition contained in any deed, contract, security agreement or other instrument affecting the transfer or sale of any interest in real property.”  Thus, because the Hawks’ warranty deed “expressly incorporated ‘all . . . covenants, conditions, restrictions, obligations . . . as may appear of record,” there was no room to argue that the text of § 33-441 did not apply to the CC&Rs in this case.  Moreover, the Association could not argue that the statute was prospective only because the statute plainly covered pre-existing CC&Rs: “This section applies to any covenant, restriction or condition without regard to the date [it] was created, signed or recorded.”  A.R.S. § 33-441(B).

The Association also argued that the statute, if applicable, was unconstitutional under the state and federal contract clauses.  “The contract clauses apply when states pass laws that impair the obligations of existing contracts” in a way that changes “the substantive rights of the parties to existing contracts.”  But a statute falling under the contract clause is unconstitutional only if the impairment is “substantial.”

Although the Court held that the contract clauses applied to § 33-441, the statute was nevertheless constitutional because the Association could not show that the impairment was “substantial.”  The CC&Rs themselves stated that signs were prohibited except where “the prohibition . . . is precluded by law.”  Thus, the Court reasoned that the contractual interest in a “sign-free community” was not substantial because the “parties anticipated that the CC&Rs would yield to” changes in laws concerning signs.

Judge Swann authored the unanimous opinion; Judges Orozco and Cattani concurred.

PRACTICE NOTE:

The Association argued that the court abused its discretion when it awarded the Hawks attorneys’ fees in the full amount they requested pursuant to A.R.S. § 12-341.01(A).  The Court disagreed.  When the trial court awarded fees, it stated that the applications were reasonable and supported “under all of the factors necessary for the Court to consider.”  The Association contended that the lower court did not “consider all relevant factors.”  The Court of Appeals disagreed, holding that a court need not make separate findings on the record.  The Court also disagreed (without going into detail) with the Association’s various arguments that the fee applications were unreasonable.  Finally, the Court granted the Hawks’ request for fees on appeal under § 12-341.01(A).