Briefing: Administrative Law Judge Decision in Lord v. The Boulders at La Reserve Condominium Association

Executive Summary

This document synthesizes the findings and conclusions of the Administrative Law Judge in Case No. 19F-H1918013-REL, a dispute between unit owner George E. Lord (Petitioner) and The Boulders at La Reserve Condominium Association (Respondent). The Petitioner alleged that the Respondent violated multiple Arizona statutes and its own governing documents by suspending amenity access and levying fees related to a complex leasing arrangement. The Judge ultimately dismissed the petition in its entirety, finding that the Petitioner failed to prove any violations. The central issue revolved around the Petitioner’s tenant, Barrie Shepley, who leased three units to house clients for his commercial fitness camps. The Judge concluded this arrangement constituted a prohibited business use and a form of subletting, justifying the Association’s enforcement actions, including the suspension of amenities. The ruling affirmed the Association’s right to regulate occupancy to prevent an “itinerant population” and upheld its procedural actions regarding violation notices and the charging of attorney’s fees.

——————————————————————————–

Case Overview

This matter was brought before the Arizona Office of Administrative Hearings to resolve a dispute between a condominium unit owner and the homeowners association (HOA) regarding alleged violations of leasing policies and state law.

Case Number

19F-H1918013-REL

Petitioner

George E. Lord

Respondent

The Boulders at La Reserve Condominium Association

Hearing Date

November 26, 2018

Decision Date

December 17, 2018

Presiding Judge

Administrative Law Judge Tammy L. Eigenheer

Procedural Background

1. On August 31, 2018, George Lord filed a petition with the Arizona Department of Real Estate alleging that The Boulders HOA had violated Arizona Revised Statutes (A.R.S.) § 33-1242, A.R.S. § 33-1260.01, and the association’s Covenants, Conditions, and Restrictions (CC&Rs).

2. The Respondent filed an answer on September 25, 2018, denying all allegations.

3. A hearing was conducted by the Office of Administrative Hearings on November 26, 2018, where both parties presented evidence and arguments.

——————————————————————————–

Core Dispute and Factual Background

The dispute originated from leases for three condominium units owned by the Petitioner. The central conflict was whether the occupants were legitimate guests of a primary lessee or participants in a short-term rental business that violated the community’s governing documents.

The Leasing Arrangement

• Lessee: The Petitioner, George Lord, leased two units to Barrie Shepley on December 4, 2017, for a term of March 7, 2018, to April 30, 2018. A third lease was transferred to a unit owned by the Petitioner on January 15, 2018.

• Lessee’s Business: Mr. Shepley operated a Canadian fitness business named “Personal Best,” which offered training camps in the Tucson area.

• Use of Units: The leased units at The Boulders were used to provide accommodations for clients attending six fitness camps scheduled between March 8 and April 29, 2018.

• Pricing Structure: The cost of the camp varied based on the living arrangements. The price per person decreased as more campers shared a single condo:

◦ Four campers per condo: $950.00 each

◦ Three campers per condo: $1,075.00 each

◦ Two campers per condo: $1,299.00 each

• It was noted that no fitness instruction was scheduled to occur on The Boulders’ property.

HOA Intervention and Consequences

• Initial Action: On March 9, 2018, The Boulders’ Community Manager, Danielle Morris, emailed the Petitioner expressing concern that Mr. Shepley was “subleasing your units out to different people in violation of the CC&R’s” for terms less than the 30-day minimum. The HOA deactivated the amenity access cards for all three units.

• Escalation: After email exchanges where the Petitioner argued the occupants were merely “guests,” the HOA maintained that it required the names of all occupants and proof of a minimum 30-day stay for each.

• Notices of Violation: On March 18, 2018, the Petitioner received formal Notices of Violations for the three units. The notices stated that amenity access was suspended because the HOA had not been provided “the names of the adult occupants residing in the unit or the timeframes of the occupant’s stay.” The notice warned that a $300 fine could be applied.

• Legal Fees: On March 22, 2018, the Petitioner received a letter from the Respondent’s counsel asserting the HOA’s legal position and stating that $250.00 in attorney’s fees had already been incurred and were due from the Petitioner.

• Financial Loss: On April 2, 2018, Mr. Shepley canceled the remainder of the leases due to the lack of amenity access for his clients. The Petitioner claimed a resulting loss of $6,900.00 in rental income for April 2018.

——————————————————————————–

Judicial Findings and Legal Conclusions

The Administrative Law Judge analyzed three distinct allegations made by the Petitioner and found that he failed to meet the burden of proof for any of them. The petition was ultimately dismissed.

Alleged Violation 1: A.R.S. § 33-1242 (Adequacy of Violation Notice)

• Petitioner’s Claim: The HOA violated the statute because its initial Notices of Violations failed to cite the specific provision of the governing documents that had allegedly been violated.

• Judge’s Conclusion: The Judge found no violation. A.R.S. § 33-1242(C) requires an association to provide the specific provision only after the unit owner has sent a written response to the initial notice via certified mail. The Petitioner admitted he did not respond to the Notices of Violations. Therefore, the HOA’s obligation to provide a specific citation was never triggered.

Alleged Violation 2: A.R.S. § 33-1260.01 & CC&Rs (Leasing and Business Use)

• Petitioner’s Claim: The HOA improperly demanded the dates of each occupant’s stay and incorrectly insisted that each occupant must stay for a minimum of 30 days. He argued that since he had a valid 30-day lease with Mr. Shepley, the occupants were simply guests.

• Governing Documents:

◦ CC&R Section 7.21: Requires all leases to be for a term of not less than 30 days.

◦ CC&R Section 7.3: Prohibits any “gainful occupation, profession, trade or other nonresidential use” in a unit if “the business activity does not involve persons coming to the Unit.”

• Judge’s Conclusion: The Judge rejected the Petitioner’s “guest” argument. The arrangement was determined to be a form of subletting for a business.

◦ The variable pricing structure, where the camp fee changed based on the number of people in a unit, demonstrated that accommodation was being sold, not merely provided to guests.

◦ Mr. Shepley was operating a business from the units in a manner that required people (his clients) to come to the unit, a direct violation of CC&R Section 7.3.

◦ The Judge noted the situation fell “between the cracks of the specific language of the statutes,” but concluded that “the spirit and purpose of the applicable rules is to allow an association to know who is in the community and to prevent an itinerant population.”

Alleged Violation 3: A.R.S. § 33-1260.01(E) (Improper Fees)

• Petitioner’s Claim: The $250 charge from the HOA’s counsel constituted an illegal fee, penalty, or assessment. The HOA’s policy allows for a $300 fine for lease violations.

• Judge’s Conclusion: The Judge found no violation. The evidence showed that the HOA had not actually assessed the $300 fine. The $250 charge was “clearly for attorney fees related to the possible collection of assessments.” The Judge stated that “Nothing in the cited statute or the CC&Rs prohibits such a charge being implemented.”

——————————————————————————–

Final Order

Based on the failure of the Petitioner to prove by a preponderance of the evidence that the Respondent violated any statutes or its CC&Rs, the Judge issued a final order:

“IT IS ORDERED that the Petition be dismissed.”

The decision is binding unless a rehearing is requested with the Commissioner of the Department of Real Estate within 30 days of the service of the order.