When AAR created the new Residential Lease Owner’s Property Disclosure Statement, many property managers raised concerns about how their owner clients would respond to any requirement to fill out this document. Each broker needs to consider use of the new form and institute a consistent policy in their office to avoid fair housing concerns. A brief analysis of the form may help guide brokers through this discussion.

While it is true that Arizona state law does not require the use of any specific forms for disclosing information about the property, case law and R4-28-1101B (which governs real estate licensees), do require a landlord to disclose any known material issues that affect the property. The balancing act becomes the question of what has to be disclosed, what should be disclosed and what is protected from disclosure. The analysis is not always easily made, and reasonable minds may differ. The follow-up question also then becomes what potential liability the owner and the real estate licensee have if they fail to disclose something that the court subsequently deems should have been disclosed.

What to disclose?

To begin the analysis, we need to first discuss what the law requires the landlord to disclose. The Arizona Residential Landlord and Tenant Act (ARLTA) generally governs all residential leases. The ARLTA requires all essential terms of the lease to be disclosed including: the amount of the monthly rent, when and where rent is to be paid, who is responsible for utilities, and the formula the landlord uses if they charge separately for utilities. The ARLTA also requires the disclosure of the name of the person authorized to manage the property, and the owner’s information or the person who is authorized to accept notices, demands and service of process on behalf of the owner. Finally, the ARLTA requires the landlord to provide the tenant a copy of the executed lease upon move-in and a move-in form for specifying any existing damages to the property to be filled out by the tenant.

What does not need to be disclosed?

The next step in the analysis is the discussion of what information is not necessarily required to be disclosed — but that really should be disclosed — and what information is protected from disclosure. Stigmatized properties are statutorily protected from disclosure of otherwise material information. Death, in any manner, is but one example of protected information. Once again, in layman’s terms, this law protects the owner of the property from being required to disclose certain information that would make the home un-rentable. When determining what should be disclosed, it is interesting to note that the ARLTA does not require the landlord to provide the tenant with a list of all known issues, including repairs. The ARLTA does, however, impose an obligation of good faith in the performance and enforcement of every action that is covered by the Act. This means that every landlord and tenant is required to act honestly in their dealings with each other.

Disclose fully and often

A good rule of thumb is to disclose fully, disclose often and update the disclosure form with each new tenant. In closing, brokers must determine for themselves if they are willing to accept the potential liability for undisclosed material facts if their owners refuse to complete the disclosure forms. They must also consider whether they can protect their company by crafting specific language in their property management agreement that will indemnify them for any breach of the disclosure duty, and whether their E&O policy will cover those specific sets of facts.

Arizona REALTOR® Magazine — December 2012