Case Summary
| Case ID | 21F-H2120028-REL-RHG |
|---|---|
| Agency | ADRE |
| Tribunal | OAH |
| Decision Date | 2021-07-28 |
| Administrative Law Judge | Velva Moses-Thompson |
| Outcome | loss |
| Filing Fees Refunded | $0.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Lee & Kim Edwards | Counsel | Terry Foster, Esq. |
|---|---|---|---|
| Respondent | Scottsdale Embassy Condominium Association | Counsel | — |
Alleged Violations
A.R.S. § 33-1255
Outcome Summary
The Administrative Law Judge dismissed the petition, finding that the Petitioner failed to prove by a preponderance of the evidence that the Respondent violated its CC&Rs, Bylaws, or A.R.S. § 33-1255, ruling that the statute was inapplicable due to the specific provisions in the Declaration regarding the 1/26 assessment calculation.
Why this result: Petitioner failed to meet the burden of proof, and the ALJ determined A.R.S. § 33-1255 was superseded by the Declaration, which mandated assessments based on the undivided 1/26 interest in the common elements.
Key Issues & Findings
Assessment calculation based on undivided interest in common areas
Petitioner challenged the Association's decision to change assessments from a historical square footage basis to a 1/26 interest calculation, arguing that this method violates A.R.S. § 33-1255 by charging for limited common elements (patios/parking).
Orders: The petition of Lee & Kim Edwards is dismissed; Respondent is deemed the prevailing party.
Filing fee: $0.00, Fee refunded: No
Disposition: respondent_win
- A.R.S. § 33-1255
- Declaration Article I, Section 5
- Declaration Article II, Section 5
- Declaration Article II, Section 7
- Declaration Article IV, Section 4
- Declaration Article VI, Section 9
Analytics Highlights
- A.R.S. § 32-2199(1)
- A.R.S. § 33-1255
- A.A.C. R2-19-119(A)
- A.A.C. R2-19-119(B)(1)
- A.A.C. R2-19-119(B)(2)
- Vazanno v. Superior Court, 74 Ariz. 369
- Powell v. Washburn, 211 Ariz. 553
- Lookout Mountain Paradise Hills Homeowners’ Ass’n v. Viewpoint Assocs., 867 P.2d 70
Video Overview
Audio Overview
Decision Documents
21F-H2120028-REL-RHG Decision – 899379.pdf
21F-H2120028-REL-RHG Decision – ../21F-H2120028-REL/856603.pdf
Assessment Methodology Dispute: Edwards v. Scottsdale Embassy Condominium Association
Executive Summary
This document provides a comprehensive analysis of the legal dispute between homeowners Lee & Kim Edwards (Petitioners) and the Scottsdale Embassy Condominium Association (Respondent) concerning a change in the methodology for calculating homeowner assessments. The core of the conflict was the Association’s decision to shift from a historical practice of assessments based on unit square footage to a uniform rate where each of the 26 units pays an equal 1/26 share of the common expenses.
The dispute was adjudicated by an Administrative Law Judge (ALJ) in two separate hearings. In both instances, the ALJ ruled in favor of the Association, dismissing the petitions filed by the Edwards.
Key Takeaways:
• Change in Methodology: The Association’s Board, acting on legal advice received in January 2020, concluded that its 40-year practice of using a square-footage-based assessment violated the community’s Covenants, Conditions, and Restrictions (CC&Rs). The Board subsequently implemented a 1/26 equal-share assessment method after a majority of homeowners selected this option.
• Initial Ruling on “Uniform Rate”: In the first hearing in February 2021, the Petitioners argued that the historical square footage method was a “uniform rate” and that the Association had waived its right to change the long-standing practice. The ALJ rejected this, finding that the new 1/26 rate complied with the CC&Rs’ requirement for a “uniform rate” (Article VI, Section 9) and aligned with each unit’s specified 1/26 undivided interest in the common elements (Article VI, Section 4(d)).
• Rehearing Ruling on State Statute: The Petitioners were granted a rehearing in July 2021, where they argued that the 1/26 method violated Arizona statute A.R.S. § 33-1255 by improperly charging all owners for “limited common elements” like patios and parking spaces. The ALJ again ruled against the Petitioners, concluding that the state statute did not apply. The ruling was based on a key provision in the statute: “Unless otherwise provided for in the declaration.” The judge found that the Association’s Declaration did provide otherwise by defining patios and parking as general common elements and explicitly mandating that costs be shared based on each unit’s 1/26 interest.
• Final Outcome: The petition was definitively dismissed after the rehearing, making the ALJ’s order binding. The Association’s adoption of the 1/26 assessment rate was upheld as compliant with its governing documents.
——————————————————————————–
Background of the Dispute
The legal conflict originated from a single-issue petition filed on November 20, 2020, by Lee and Kim Edwards, owners of unit 6937 in the Scottsdale Embassy Condominium development. The petition, filed with the Arizona Department of Real Estate, alleged that the Scottsdale Embassy Condominium Association had violated its CC&Rs, specifically Article VI, Section 9, and Article IV, Section 1.
The central issue was the Association Board’s decision to change the long-standing method of calculating homeowner assessments. For over 40 years, assessments had been based on the square footage of each unit. In 2020, the Board implemented a new system where the Association’s annual budget was divided equally among the 26 units, with each owner paying a 1/26 share. The Petitioners sought to enforce the historical calculation method unless and until the CC&Rs were properly amended.
Chronology of the Assessment Change
• Historical Practice: For more than four decades, the Association calculated and charged member assessments based on the square footage of each condominium unit.
• Legal Consultation (January 2020): Two members of the Association’s Board consulted with an attorney regarding the legality of the historical assessment method.
• Attorney Recommendation (January 24, 2020): The attorney advised the Association that, to ensure compliance with the CC&Rs, it should calculate assessments based on each homeowner’s 1/26 interest in the common areas. The attorney’s letter stated:
• Homeowner Consultation: Following the legal advice, the Board informed homeowners that the prior square-footage method violated the CC&Rs. The Board sought input on three potential assessment methods: the 1/26 rate, a variable blended rate, or continuing with the square footage rate. A majority of homeowners selected the 1/26 rate. The Board noted that any method other than the 1/26 rate would require a formal amendment to the CC&Rs.
• Implementation (September 26, 2020): The Board officially notified homeowners that it would begin charging assessments based on the 1/26 rate and that an amendment to the CC&Rs was not necessary to implement this change.
Initial Hearing and Decision (February 2021)
An evidentiary hearing was held on February 9, 2021, before Administrative Law Judge Velva Moses-Thompson.
Arguments Presented
Petitioners (Edwards)
1. The historical square footage rate qualified as a “uniform rate” and was compliant with the CC&Rs.
2. By using the square footage rate for over 40 years, the Association had waived its right to enforce a different method like the 1/26 rate.
Respondent (Association)
1. The plain language of the CC&Rs requires that each homeowner pay an assessment based on the 1/26 rate.
2. It is not legally possible to waive a mandatory CC&R requirement through past practice.
On February 19, 2021, the ALJ issued a decision dismissing the petition. The judge’s conclusions of law were based on a direct interpretation of the CC&Rs:
• Uniform Rate Compliance: The ALJ determined that the “preponderance of the evidence” showed that the Association’s 1/26 rate was a uniform rate that complied with Article VI, Section 9 of the CC&Rs.
• Burden of Proof: The Petitioners failed to meet their burden to prove that the Association had violated its governing documents.
• Outcome: The Association was deemed the prevailing party, and the petition was dismissed.
Rehearing and Final Decision (July 2021)
The Petitioners filed a request for a rehearing on March 30, 2021, which was granted. The rehearing was held on July 8, 2021. The Respondent did not appear at this hearing, as its counsel had withdrawn from representation without formally notifying the tribunal.
In the rehearing, the Petitioners introduced a new argument, alleging that the 1/26 assessment method violated Arizona state law, specifically A.R.S. § 33-1255.
• The core of this argument was that the 1/26 rate improperly included charges for “limited common elements,” such as patios and assigned parking spaces.
• The Petitioners contended that this forced all homeowners to pay for the maintenance of elements that were assigned to and benefited fewer than all units, in direct violation of the statute.
On July 28, 2021, the ALJ issued a final decision, once again dismissing the petition. The ruling hinged on the precise wording of both the state statute and the Association’s Declaration.
• Applicability of A.R.S. § 33-1255: The judge found that the statute did not apply to this matter. The relevant section of the law, A.R.S. § 33-1255(C), begins with the critical phrase: “Unless otherwise provided for in the declaration…”
• Supremacy of the Declaration: The ALJ concluded that the Association’s Declaration did provide otherwise. The CC&Rs explicitly:
◦ Define “Common Elements” broadly to include patios and parking areas (Article I, Section 3).
◦ Establish that each unit has an “undivided interest in the general common areas” of 1/26 (Article I, Section 5).
◦ Mandate that each unit’s share of costs for repair and maintenance of common areas is the “same as its undivided interest in the common elements” (Article IV, Section 4(d)).
• Final Outcome: Because the Declaration’s specific provisions overrode the general terms of the state statute, the Association was found to be in compliance. The petition was dismissed, and the order was deemed binding on the parties.
Key Legal Principles and Definitions
Concept
Definition / Application in Case
Burden of Proof
The Petitioners were required to establish their claim by a “preponderance of the evidence.”
Preponderance of the Evidence
Defined as “proof as convinces the trier of fact that the contention is more probably true than not.” The ALJ found the Petitioners failed to meet this standard in both hearings.
Restrictive Covenants
Arizona law requires that unambiguous restrictive covenants be enforced to give effect to the parties’ intent and be interpreted as a whole. The ALJ’s decisions were based on a direct interpretation of the CC&Rs’ language.
Common Elements (per CC&Rs)
A broad definition including multifamily structures, land, roofs, ceilings, foundations, storage spaces, patios, parking areas, recreational facilities, lawns, pipes, and conduits.
Unit (per CC&Rs)
A freehold estate consisting of the interior space of an apartment. The definition explicitly states that common elements are not part of the unit.
Undivided Interest (per CC&Rs)
Article I, Section 5 clearly establishes that “The undivided interest in the general common areas… which shall be conveyed with each respective units shall be 1/26.” This provision was central to the final ruling.
Study Guide: Edwards v. Scottsdale Embassy Condominium Association
This study guide provides a comprehensive review of the administrative case between Lee & Kim Edwards and the Scottsdale Embassy Condominium Association, based on the provided legal decisions. It includes a short-answer quiz, an answer key, suggested essay questions, and a detailed glossary of key terms.
Short-Answer Quiz
Answer the following questions in two to three sentences each, based on the information provided in the case documents.
1. What was the central conflict between the Petitioners (Lee & Kim Edwards) and the Respondent (Scottsdale Embassy Condominium Association)?
2. For over 40 years, how did the Association historically calculate assessments for homeowners?
3. What specific event in January 2020 prompted the Association’s Board to change the assessment method?
4. In the first hearing on February 9, 2021, what were the two main arguments presented by Mr. Edwards?
5. What was the Administrative Law Judge’s conclusion regarding the “uniform rate” requirement from CC&Rs Article VI, Section 9 in the initial decision?
6. Upon what new legal grounds did the Petitioners base their March 30, 2021, request for a re-hearing?
7. According to the CC&Rs, what is the defined undivided interest in the general common areas for each unit?
8. Why did the Administrative Law Judge ultimately conclude that Arizona Revised Statutes (A.R.S.) § 33-1255 did not apply in this case?
9. What legal standard of proof did the Petitioners need to meet to successfully prove their case?
10. What was the final, binding outcome of the re-hearing held on July 8, 2021?
——————————————————————————–
Answer Key
1. The central conflict concerned the method for calculating homeowner assessments. The Petitioners argued for the historical method based on unit square footage, while the Respondent implemented a new method where each of the 26 units paid an equal share (1/26 rate) of the Association’s costs.
2. For over 40 years, the Association historically calculated assessments based on the square footage of each condominium unit. This practice was changed by the Board in 2020.
3. In January 2020, two Board members met with an attorney who advised that to comply with the CC&Rs, the Association should charge assessments based on each homeowner’s 1/26 interest in the common areas, not on square footage.
4. Mr. Edwards argued that the historical square footage rate was a “uniform rate” that complied with the CC&Rs. He also contended that by using this method for 40 years, the Association had waived its right to enforce a different assessment method like the 1/26 rate.
5. The Judge concluded that the Respondent’s assessment method, based on a uniform rate of 1/26 of the Association’s costs for each unit, did comply with Article VI, Section 9. Therefore, the Petitioners failed to prove the Association had violated the CC&Rs.
6. The Petitioners based their request for a re-hearing on the new allegation that the Respondent had violated Arizona Revised Statutes (A.R.S.) § 33-1255. They argued the 1/26 rate improperly required members to pay for limited common elements, such as patios and parking spaces, not assigned to them.
7. According to Article I, Section 5 of the Declaration (CC&Rs), the undivided interest in the general common areas established and conveyed with each respective unit is 1/26.
8. The Judge concluded that A.R.S. § 33-1255 did not apply because the statute itself contains an exception: “Unless otherwise provided for in the declaration.” In this case, the Association’s Declaration explicitly required that each member be charged an assessment equivalent to their 1/26 interest in the total costs, which included patios and parking areas.
9. The Petitioners bore the burden of proof to establish their claims by a “preponderance of the evidence.” This standard requires proof that convinces the trier of fact that a contention is more probably true than not.
10. Following the re-hearing, the Administrative Law Judge again ordered that the petition of Lee & Kim Edwards be dismissed. The Respondent was deemed the prevailing party, and the order was declared binding on the parties.
——————————————————————————–
Essay Questions
The following questions are designed for longer, essay-style responses. Answers are not provided.
1. Trace the evolution of the Petitioners’ legal strategy from the initial petition filed on November 20, 2020, to the arguments made during the re-hearing on July 8, 2021. How did their core arguments change, and what new evidence or legal statutes were introduced?
2. Analyze the concept of a “uniform rate” as required by Article VI, Section 9 of the CC&Rs. Discuss how both the Petitioners and the Respondent interpreted this phrase to support their respective assessment methods (square footage vs. 1/26 rate).
3. Explain in detail the role of A.R.S. § 33-1255 in the re-hearing. Why did the Petitioners believe it supported their case, and what specific language in both the statute and the Association’s Declaration led the Administrative Law Judge to rule that it did not apply?
4. Evaluate the actions taken by the Association’s Board of Directors in 2020. Consider their consultation with an attorney, their communication with homeowners, and their final decision to implement the 1/26 rate. Discuss whether these actions were consistent with the powers and obligations outlined in the CC&Rs.
5. Discuss the legal argument of “waiver” raised by Mr. Edwards in the first hearing. Explain what he meant by this and why the Association’s 40-year history of using a square-footage-based assessment was central to this claim. Why did this argument ultimately fail?
——————————————————————————–
Glossary of Key Terms
Definition
1/26 Rate
The assessment method where the Association’s annual budget is divided 26 ways, with each unit responsible for paying an equal portion. This is based on each unit’s 1/26 undivided interest in the common areas as specified in the CC&Rs.
Administrative Law Judge (ALJ)
The independent judicial officer who presides over administrative hearings, hears evidence, and issues a decision. In this case, the ALJ was Velva Moses-Thompson.
A.R.S. § 32-2199(1)
The Arizona Revised Statute that permits a condominium unit owner to file a petition with the Department of Real Estate for a hearing regarding alleged violations of the Condominium Act.
A.R.S. § 33-1255
The Arizona Revised Statute concerning common expenses. It states that unless the declaration provides otherwise, expenses for a limited common element shall be assessed against the units to which it is assigned, and expenses benefitting fewer than all units shall be assessed exclusively against the units benefitted.
Arizona Department of Real Estate
The state agency authorized by statute to receive and decide Petitions for Hearings from members of condominium associations in Arizona.
Burden of Proof
The obligation on a party in a legal proceeding to establish its claims by a required standard of evidence. In this case, the Petitioners bore the burden of proof.
CC&Rs (Covenants, Conditions, and Restrictions)
The governing legal documents that set up the guidelines for a planned community or condominium. Also referred to as the “Declaration” in the provided documents.
Common Area / Common Elements
As defined in Article I, Section 3 of the CC&Rs, this includes the multifamily structure (except for the units), land, air space, bearing walls, roofs, storage spaces, patios, recreational facilities, lawns, pipes, and other premises designed for common use.
Declaration
Another term for the Covenants, Conditions, and Restrictions (CC&Rs).
Lee & Kim Edwards
The Petitioners in the case and owners of unit 6937 in the Scottsdale Embassy Condominium development.
Office of Administrative Hearings
An independent state agency to which the Department of Real Estate refers petitions for evidentiary hearings.
Petitioners
The party that initiates a legal action or petition. In this case, Lee & Kim Edwards.
Preponderance of the Evidence
The evidentiary standard required to be met by the Petitioners. It is defined as proof that convinces the trier of fact that a contention is “more probably true than not.”
Respondent
The party against whom a petition is filed. In this case, the Scottsdale Embassy Condominium Association.
Restricted Common Area
As defined in Article I, Section 3(b) of the CC&Rs, this refers to a separately designed and exclusive parking area for each unit as assigned by the Board of Directors.
Scottsdale Embassy Condominium Association
The Respondent in the case; the condominium unit owners’ association for the development.
Square Footage Rate
The historical method of calculating assessments for over 40 years, where each unit’s assessment was based on its square footage.
Uniform Rate
A requirement from Article VI, Section 9 of the CC&Rs that states both regular and special assessments must be fixed at a uniform rate for all units. The interpretation of this term was central to the dispute.
As defined in Article I, Section 4 of the CC&Rs, a separately designated freehold estate consisting of the space bounded by the interior surfaces of the perimeter walls, floors, ceilings, windows, and floors of each apartment. It does not include common elements.
Waiver
A legal argument made by the Petitioners that because the Association had charged assessments based on square footage for 40 years, it had relinquished or “waived” its right to enforce a different method.
4 Shocking Lessons from an HOA Lawsuit That Could Upend How You See Your Fees
Introduction: The 40-Year Mistake
If you live in a condominium or a community governed by a Homeowners Association (HOA), you likely operate under a simple assumption: the way things have always been done is the correct and legal way. Monthly fees, maintenance schedules, and community rules that have been in place for decades feel permanent and unassailable. But what if they aren’t?
This was the central question in the case of Lee & Kim Edwards versus the Scottsdale Embassy Condominium Association. For over 40 years, the Association calculated homeowner fees based on the square footage of each unit—a practice that seemed fair and logical, and one that was never questioned by residents.
Then came the twist. In January 2020, after consulting with an attorney, the HOA board announced a shocking revelation: their 40-year-old assessment method was a direct violation of the community’s own governing documents. The board presented the legal findings to the community and sought their input on how to proceed. After being given the choice between the old method, a blended rate, or a new flat-rate fee that complied with the rules, most homeowners voted for the compliant flat-rate system for every single unit, regardless of its size.
Homeowners sued to keep the old method, sparking a legal battle that went all the way to an administrative court. The resulting decisions offer surprising and crucial lessons for every homeowner paying HOA dues. Here are the four most impactful takeaways from the case that could change how you view your own community’s rules.
1. “Past Practice” Means Nothing if It Violates the Rules
The primary argument made by the petitioners, Mr. and Mrs. Edwards, was that the Association had “waived its right” to change the assessment method. After all, by using the square-footage calculation for four decades, hadn’t they established an unbreakable precedent? It seemed like a common-sense argument rooted in history and consistency.
The court, however, completely rejected this line of reasoning. The Administrative Law Judge’s decision was not based on historical practice but on the clear, written rules found in the community’s Covenants, Conditions, and Restrictions (CC&Rs). The Association argued that it’s “not possible to waive the CC&R requirement,” and the court agreed.
The Lesson: This case powerfully demonstrates that tradition or “how things have always been done” cannot override the explicit language of an HOA’s governing documents. The CC&Rs are a contract. The lesson is clear: if your HOA’s practice contradicts its documents, the practice is invalid. The board has a fiduciary duty to follow the written rules, not a 40-year-old mistake.
2. Your CC&Rs Are a Binding Contract—Read Them
Throughout the legal proceedings, the Administrative Law Judge consistently referred back to the specific text of the CC&Rs to make a final decision. The entire case ultimately hinged on the interpretation of a few key sentences written decades ago.
The most critical passage, which decided the outcome, was from Article VI, Section 4(d) of the community’s governing documents:
“Each unit’s share shall be the same as its undivided interest in the common elements of the total amount determined under the subparagraphs (a), (b), (c), and (d) above.” —Scottsdale Embassy Condominium Association CC&Rs, Article VI, Section 4(d)
This single sentence was the linchpin. It explicitly linked each unit’s assessment share to its “undivided interest in the common elements.” Another section of the document, Article I, Section 5, had already established that interest as an equal 1/26 for all 26 units.
The Lesson: This is a classic example of legal cross-referencing in a contract. Section 4(d) provided the instruction (base fees on “undivided interest”), while Article I, Section 5 provided the specific value (1/26). With both parts present and unambiguous, the court had no choice but to enforce them exactly as written, leaving no room for interpretations based on fairness or history. The contract was the contract.
3. A “Uniform Rate” Might Not Mean What You Think
One of the central points of contention was the term “uniform rate.” Article VI, Section 9 of the CC&Rs required that all assessments “must be fixed at a uniform rate for all units.”
The homeowners argued that the square footage rate was, in fact, a “uniform rate”—a consistent price per square foot applied to every unit. It’s an interpretation many of us might find reasonable.
However, the HOA Board and the court had a different interpretation. The judge found that the flat 1/26 rate was the correct interpretation of a “uniform rate” because it was uniformly applied to every unit’s established 1/26 interest in the common areas. In the court’s view, the “rate” being applied uniformly was the 1/26 fraction of the total budget. The fact that this resulted in different dollar amounts for square-footage fees was irrelevant; the legal share was what had to be uniform.
The Lesson: Common-sense terms like “uniform” can have very specific legal meanings within the context of your governing documents. The true definition is found not in a dictionary, but in how the term is defined and applied by the rest of the document’s provisions.
4. Your HOA’s Rules Can Sometimes Override State Law
In a final attempt to overturn the decision, the petitioners filed for a re-hearing. This time, they cited a specific Arizona state law, A.R.S. 33-1255. This statute says that expenses for “limited common elements”—things like assigned patios or parking spaces that only benefit specific units—should be assessed only against those units that benefit from them. The homeowners argued that the new 1/26 flat fee unfairly forced them to pay for their neighbors’ patios and parking spots, a direct violation of state law.
Surprisingly, this argument also failed. The reason is found in the crucial introductory clause of the state law itself: “Unless otherwise provided for in the declaration…”
Because the Scottsdale Embassy’s Declaration did provide otherwise—by explicitly rolling all general and restricted common area costs into the total budget before calculating each unit’s 1/26 share—the community’s own rules legally superseded the default state statute. The judge concluded that the state law “does not apply to this matter because the Declaration requires” a different method.
The Lesson: This is perhaps the most counter-intuitive lesson of all. This demonstrates a key principle of contract law and planned community governance: state statutes often provide a “default” rule for situations a community’s documents don’t address. However, they also grant communities the power to create their own specific rules, which, if legally permissible, will take precedence. Homeowners cannot assume that a state law automatically protects them if their community’s own governing documents have a more specific rule in place.
Conclusion: Are You Sure You Know What You Agreed To?
The central message from the Scottsdale Embassy case is undeniable: in an HOA, the written word is law. The CC&Rs and other governing documents are a binding contract that dictates the rules, regardless of 40 years of history, common-sense assumptions, or even some default state laws. What you believe is fair or standard practice is irrelevant if the document you agreed to upon purchase says otherwise.
This case was decided by a few sentences written decades ago. When was the last time you read your community’s governing documents from cover to cover?
Case Participants
Petitioner Side
- Lee Edwards (petitioner, witness)
- Kim Edwards (petitioner)
- Teresa H. Foster (petitioner attorney)
Ellis & Baker, P.C.
Also referred to as Terri Foster and Terry Foster
Respondent Side
- Lauren Vie (respondent attorney)
Appeared for initial hearing; withdrew prior to rehearing - Caleb Koch (board member, witness)
Scottsdale Embassy Condominium Association
Board President - Mary Edinburgh (board member, witness)
Scottsdale Embassy Condominium Association - Beth Mulcahy (respondent attorney)
Mulcahy Law Firm, PC
Withdrew prior to rehearing
Neutral Parties
- Velva Moses-Thompson (ALJ)
- Judy Lowe (Commissioner)
Arizona Department of Real Estate
Other Participants
- Miranda Alvarez (unknown)
Listed in transmission records for Petitioner's counsel
