Q & A

Power Ranch sued Woodcrest East, LLC on January 9, 2023.  This was two years after Bela Flor made a presentation to the Power Ranch Board (in January 2021) that Woodcrest East would continue to be condominiums and that the condos would be “leased out.  When Power Ranch sued Woodcrest East, LLC, the condos were already well under construction according to the approved plans which were the two-story luxury condos.

Q: What is the basis for the lawsuit filed by Power Ranch against Woodcrest East?

A:   Candidly, this is a question that should be asked to the Power Ranch Board because we are not sure. The justification for the lawsuit appears to be changing over time. 

Because of the change from three stories to two stories and other minor plat adjustments, new Woodcrest East CC&Rs were filed on October 18, 2022 (Document No. 2022-0782127, records of Maricopa County, Arizona).

(Just to repeat for clarity:  the 2007 Woodcrest CC&Rs (which were prepared by Power Ranch circa 2005-2007) expressly permit the Woodcrest condos to be leased and provide for a leasing office.  This fact is explained in more detail above.  Woodcrest Eastis not seeking a new right or benefit, as the right to lease has always been part of Woodcrest’s legal rights since 2007.) 

When a draft of these 2022 CC&Rs was presented to the Power Ranch Board for approval, Power Ranch Board objected to the New CC&Rs on only one basis—there was no rental prohibition.  The attorneys for Power Ranch and Bela Flor had several discussions on this item. 

Power Ranch asked Bela Flor (through legal counsel) if Woodcrest East was going to be “condos” or “apartments.”  Bela Flor truthfully replied each time, “condos.”  As explained above, condos can be sold or rented.  And though Bela Flor initially (in 2021) requested to be an Apartment Development, Power Ranch rejected this request, and so Bela Flor withdrew the request.  Woodcrest East is not seeking to be an Apartment Development. 

The justification for the lawsuit appears to have changed over time.  Candidly, this is a question that should be asked to the Power Ranch Board.

Because of the change from three stories to two stories and other minor plat adjustments, new Woodcrest East CC&Rs were filed on October 18, 2022 (Document No. 2022-0782127, records of Maricopa County, Arizona).

(Just to repeat for clarity:  the 2007 Woodcrest CC&Rs (which were prepared by Power Ranch circa 2005-2007) expressly permit the Woodcrest condos to be leased and provide for a leasing office.  This is explained in more detail above.  Woodcrest East, LLC is not seeking a new right or benefit, as leasing has been part of Woodcrest’s property rights since 2007.) 

When a draft of these 2022 CC&Rs was presented to Power Ranch for approval, Power Ranch objected to the New CC&Rs on only one basis—there was no rental prohibition.  The attorneys for Power Ranch and Bela Flor had several discussions on this item. 

Power Ranch asked Bela Flor (through legal counsel) if Woodcrest East was going to be “condos” or “apartments.”  Bela Flor truthfully replied each time, “condos.”  As explained above, condos can be sold or rented.  And though Bela Flor initially (in 2021) requested to be an Apartment Development, Power Ranch rejected this request, and so Bela Flor withdrew the request.  Woodcrest East is not seeking to be an Apartment Development. 

No. Let’s lay out the facts and the law, and see what you think:

1. Arizona law provides that condos can be sold or rented, “unless prohibited [in the CC&Rs]”.  Except for federal law, Arizona law supersedes any law or ordinance of a municipality or other entity, such as the Power Ranch HOA.

2. The Power Ranch CC&Rs contain no rental prohibitions. To the contrary, the CC&Rs contain language permitting rentals. This is explained in the FAQs above. 

3. The Woodcrest CC&Rs – both those filed in 2007 and in 2022 – expressly permit rentals. Remember, the 2007 CC&Rs pre-date Bela Flor’s involvement in Woodcrest by over a decade.

4. Today, in Power Ranch, many owners of homes, townhomes and condos lease their dwelling units, with no restrictions. Other than Woodcrest East, there is one other condo community in Power Ranch—The Knoll’s.  Owners of The Knoll’s condos can lease out those condos.

5. In 2005, Power Ranch recorded a Tract Declaration (explained above) that created the condominiums known as Woodcrest East and Woodcrest West. The Tract Declaration provided that further sub-association CC&Rs for Woodcrest could be created. 

Section 5 of the Tract Declaration discusses board approval of any future Sub-Association documents (for example, Woodcrest East’s 2022 CC&R documents), with this important limitation:

“The approval of the Board required by this Section 5 shall not be unreasonably conditioned, withheld, or delayed.”

In 2022, the Power Ranch Board (through its attorneys) withheld its approval of Woodcrest East’s CC&Rs, solely on the basis that Woodcrest East refused to add a rental prohibition to its CC&Rs.  Remember, there is no such rental prohibition anywhere in Power Ranch.  Also remember (and I apologize for the repetition) that the 2007 Woodcrest CC&Rs already in existence expressly permit leasing condos and a condo leasing office.

This attempted prohibition by the Power Ranch Board is clearly unreasonable.  Step back for a moment:  4,000 or so homeowners in Power Ranch can rent out their homes, townhomes or condos, but in all of Power Ranch, it is justified or fair that only Woodcrest East’s 120 units have a rental prohibition? 

It seems that the Power Ranch Board itself has recognized the weakness of this argument, and abandoned it, because we do not see this argument re-appear in Power Ranch’s mediation brief in the April 17, 2024 mediation, discussed below.

There was a mediation by the parties held on April 17, 2024, in front of mediator and attorney Barry Markson. It is hard to know if Power Ranch was serious about the mediation, because as reported by Mr. Markson, only three Power Ranch board members attended, which was less than a quorum (a quorum would require four of the seven board members to attend), and so Power Ranch lacked the authority to resolve the case by mediation.

Since a mediator goes back and forth between the parties during the mediation, I am not privy to the discussions the Power Ranch Board had internally about the mediation. These would be good questions to ask the Board.

Yes, both Becky Cholewka and Matt Dominy have been deposed, and those depositions are publicly available.  Both Ms. Cholewka and Mr. Dominy testified that Woodcrest East is a condominium community, and that condo units can be leased.  Please re-read that last sentence, which makes me wonder why we are in litigation in the first place. However, after those depositions, the attorneys for Power Ranch amended some of their answers significantly and submitted these new transcripts to the court. If the litigation continues, likely all seven board members will have the opportunity to testify in court.

Power Ranch filed a short eight-page mediation brief on April 15, 2024 (“PR Mediation Brief”). These briefs are shared with the other side, so it is public, and I can provide a copy to anyone that wishes to read it. Many of these arguments have been discussed above, but I will cover those again now.

Power Ranch and Woodcrest East entered into a Reduced Assessment Agreement on May 3, 2019 (“RAR”). Power Ranch claims that this RAR somehow binds Woodcrest East to sell its condos, and not rent them. Of course, as typical, Power Ranch can point to no clause or section in the RAR that does that. There is nothing in the RAR that binds Woodcrest East to sell its condos.

The bigger point is this: The RAR with Woodcrest was not a special agreement. It is routine. Section 7.3(c) of the Power Ranch CC&Rs provides for reduced assessments before and during construction for all developers in Power Ranch.  What was provided to Woodcrest East in the RAR is similar to what was provided to other Power Ranch developers during the past 25 years.

As explained above, on May 7, 2019, when Bela Flor first purchased Woodcrest East, our intention was to build three-story condos.  With the many disruptions to the real estate industry caused by Covid-19, Bela Flor changed its plans in 2020, and Woodcrest East is now two-story luxury condos, that for now, we intend to rent. 

Woodcrest East, LLC has the legal right to either rent or sell these condos in Woodcrest East.  To put it another way, Woodcrest Eastcan “change its mind.”  The same is true for any resident in Power Ranch.  You may have purchased a home in Power Ranch in 2023, intending to live there forever, and you may have even told that intention to your neighbors, but you can change your mind in 2024 and decide to rent your home.  Your neighbor may be disappointed, but your neighbor cannot prevent you from renting your home.

Yes.  This question was asked and answered several times, including this email exchange on February 27, 2021:

            Power Ranch Attorney Mr. Ekmark:   “Are you doing condominiums?”

Woodcrest East Attorney Mr. Anderson: “The answer to your questions is yes. These buildings are planned as condominiums.”

This exchange (and there are others like it), should confirm a few things for those reading these FAQ:

1. If anyone states that Woodcrest East is attempting to become an “Apartment Development,” that is false.

2. The Power Ranch attorneys (who are HOA experts) clearly know the following: (a) condominiums in Arizona can be sold or rented, (b) Power Ranch’s 1999 CC&R’s contain no rental prohibitions and have an express rental permission, (c) Woodcrest’s 2007 CC&Rs (which were prepared by Power Ranch) contain no rental prohibitions and have an express rental permission, and (d) many homes, townhomes and condos within Power Ranch today are in fact rented.

What I do not know is whether these items in 2(a)-(d) above have been communicated to the Power Ranch Board. That is a question that should be asked to Board members.

Yes.  This was explained in detail above.  On December 9, 2020, Bela Flor, through its attorneys, submitted to the Town of Gilbert; and on December 22, 2020 submitted plans to the Power Ranch Board, to change the development from a “condo plat to a single lot plat.” 

It is a normal part of the pre-application process for any development to ask the regulatory bodies a wide variety of questions and explore possibilities. This was one of many dozens of questions asked to the Town of Gilbert Planning Staff about Woodcrest East, and they responded with further questions, which in turn were answered, in this back-and-forth exchange.  This pre-application process is part of the normal course of working out what entitlements are available for a particular real estate project.  One reason for this request to have an apartment plat, as explained above, was to reduce the administrative burden of 120 property tax bills, by reducing it to a single tax bill.

The Power Ranch Board rejected this request to have a single apartment plat, so Bela Flor withdrew the request and all subsequent submittals were for a condominium development. One month later, in January 2021, Bela Flor made a presentation to the Power Ranch Board explaining that these condos would be available for rent . Thus, the Power Ranch Board has known since January 2021 about our intention to lease these condos.

Regardless of what the Power Ranch Board thought or hoped, Woodcrest East has always been condominiums, and as such, always retains the right to sell or lease those condos. It seems like the real frustration that Power Ranch has is with its own CC&Rs, and not with Woodcrest East.

No, Woodcrest East is not violating the Power Ranch CC&Rs. 

The full explanation of this requires the reader to have a copy of the 73-page Power Ranch CC&Rs handy.  Those can be downloaded on the Power Ranch HOA website.  I apologize for saying it this way, but it seems to me that the Power Ranch Board is attempting to mix up definitions to confuse people on this issue.

This explanation will require us to wade into some technical issues, so please bear with me.

Power Ranch suggests that Woodcrest East is trying to be an “Apartment Development” without Power Ranch’s approval.  While I’m being redundant on this point, to be clear, Woodcrest East is NOT asking to be an “Apartment Development.”

Power Ranch CC&Rs, Section 1.3 reads as follows:

1.3 “Apartment Development” shall mean a Parcel which is limited by a Tract Declaration to residential use, and contains Rental Apartments and surrounding area which are intended, as shown by the site plan therefor approved by the Town and the Design Review Committee or otherwise, as one integrated apartment operation under the same ownership.”

To be an “Apartment Development,” several elements must be met, but we can cut to the chase on this:  any Apartment Development, among other requirements, must be approved by the Town [of Gilbert] and the [Power Ranch] Design Review Committee or otherwise.” 

Because Woodcrest East has NOT received approval by Power Ranch to be an Apartment Development, Woodcrest East is NOT an Apartment Development. 

Let’s move to the next issue.  The PR Mediation Brief makes this statement:

“In order to operate a Rental Apartment, section 1.3 of the Master Declaration requires a property owner to have a tract declaration that authorizes Apartment Development. Because the Developer does not have a tract declaration that authorizes Apartment Development, it cannot operate Rental Apartments. Thus, the Master Declaration prohibits the Developer from owning all the Units and renting them all out.” (PR Mediation Brief, pp. 5-6).

The statements above are not correct.  Notice the clever mixing up of “Apartment Development” and “Rental Apartments” in the above statement, which may confuse the reader.  The definition of “Rental Apartment” is different than “Apartment Development” above.

Section 1.45 of the Power Ranch CC&Rs defines “Rental Apartments” as follows:

1.45 “Rental Apartments” shall mean four (4) or more Dwelling Units within a building under single ownership, each of which is designed and utilized, otherwise than as a hotel or on some other transient basis, for rental or leased residential purposes to non-owners or a non-cooperative basis.  This term is intended to include rented or leased apartments in the typically regarded sense as of the date hereof, and it is not intended to include unusual or atypical arrangements or any arrangements whereby the apartment occupant is, directly and indirectly, an owner or beneficiary of ownership in his apartment or whereby he occupies his apartment pursuant to some form of reciprocal use agreement, irrespective of whether any such arrangements may otherwise fall within the aforesaid definition.

Read the above definition closely. 

Do you see any mention of the defined term “Apartment Development”?  No.

Do you see any mention of “condos”?  You do not. 

Do you see anything that would suggest that there is a rental restriction in any way for condos or other Dwelling Units?  No.

Do you see anything that requires the Power Ranch Board to approve “Rental Apartments”?  You do not. 

Do you see anything that says you can own three condo units (or “Dwelling Units”) in a building and rent them, but if you own five condo units in a building you cannot rent them?  No.

Section 1.45 is simply a definition of “Rental Apartments,” nothing more, nothing less.  Whether Woodcrest East is “Rental Apartments” is not part of this lawsuit.  However, it is clear to me that Woodcrest East does meet the definition of Rental Apartments. (But, as explained above, Woodcrest East does not meet the definition of “Apartment Development.”)

What Power Ranch asserts is that this Section 1.45 is a “rental prohibition” that gets them around Arizona state law.  You don’t need to be a lawyer to understand this position is not correct.

You may think these are technical legal issues, but I humbly state that technical legal issues do matter.  The actual words matter.

The PR Mediation Brief next attempts to assert that one real estate project cannot meet two definitions within the CC&Rs.  This argument is also false.  Nothing in the Power Ranch CC&Rs prevents a project from being classified in more than one way.  Power Ranch points out no rule or clause that supports this assertion, they just assert it.   

Similarly, one can be a resident of Power Ranch, a resident the Town of Gilbert, a resident in the county of Maricopa, and a resident in the State of Arizona—all at the same time. 

Next, the PR Mediation Brief insinuates that Woodcrest East is not a condominium project!  This assertion is risible, but let’s analyze it anyways:

Let’s look at the Power Ranch CC&Rs in more detail:

1.16 “Condominium Development” shall mean a condominium established under the laws of the State of Arizona which is limited by a Tract Declaration to residential use.

1.17 “Condominium Unit” shall mean a unit, together with any appurtenant interest in all common elements, within a condominium which is created under Arizona law.  Such term shall not include a Rental Apartment in an Apartment Development.

Woodcrest East meets the definition in Section 1.16 shown above. Each of A.R.S. 33-1260.01, the 2005 Woodcrest Tract, the 2007 Woodcrest CC&Rs and the 2022 Woodcrest CC&Rs show that Woodcrest East is a “Condominium Development” under Arizona Law. This has been explained in detail in earlier questions. 

Let’s now turn to Section 1.17.  It states that a Condominium Unit does not include a “Rental Apartment in an Apartment Development.”  That makes complete sense.  One cannot have a condo project (with its ability to have units that can legally be sold separately), legally separate and have the same project also be an “Apartment Development,” where all the units are part of one legal parcel of property and cannot be sold as separate units. The drafters of the 1999 Power Ranch CC&Rs understood that one project couldn’t be both of these two classifications at the same time.

To put it another way, Power Ranch had the right to decide whether Woodcrest would be a “Condominium Development” or an “Apartment Development.”  You can be one or the other (or you can be something else), but you can’t be both.  In this case, Power Ranch decided – in 2005 – that Woodcrest would be a Condominium Development.  That has not changed in 19 years. That also means that Woodcrest has ALL the rights of a Condominium Development—to either sell or lease its units.

Section 1.17 states that such term (“Condominium Unit”) “shall not include a Rental Apartment in an Apartment Development.” As explained above—the same community cannot be a “Condominium Development” and “Apartment Development.”  From this sentence, it is also clear that there can be Rental Apartments that are IN an Apartment Development, and there can also be Rental Apartments that are NOT IN an Apartment Development.  Otherwise, Section 1.17 would have simply had a period after the phrase “….not include a Rental Apartment,” but it did not, it continued with “not include a Rental Apartment in an Apartment Development.”

“Apartment Development” and “Rental Apartment” are two separate definitions, even though some people are trying to mix them up. At times there is an overlap between the two, but not always.  By the way, this extinguishes Power Ranch’s argument in the PR Mediation Brief that Power Ranch has 18 different classified uses, and that these uses (it is suggested by the brief) are mutually exclusive (p.5). Section 1.17 clearly shows that the same community could be both a “Rental Apartment” and “Apartment Development.”  (Woodcrest East, of course, is not an “Apartment Development,” as explained in detail in these FAQs.)

Next, the PR Mediation Brief states the following:

“Furthermore, section 1.16 requires that any condominium must be established under Arizona law. One owner holding and renting all units is contrary to the Arizona Condominium Act in a multitude of ways. For example, the definition of Condominium under the Act is real estate ‘designed for separate ownership.’ Moreover, there would be no point in levying assessments, electing a board, requiring open meetings, etc., if one owner were allowed to own all the Units.”

Let’s answer the statements in this paragraph one by one:

1. It is true that condominiums must be established by Arizona law. Let’s continue.

2. Woodcrest has been established as a condominium since 2005. In fact, it was Power Ranch itself (not a private developer) that established Woodcrest as a condominium. Power Ranch is hinting that Woodcrest East may not even be a condo project. That statement is false.

3. It is not (as asserted in the PR Mediation Brief) “contrary to the Arizona Condominium Act” for one owner to hold and rent out all units. You notice that Power Ranch cites no law, statute or case law in support of this proposition. They just asserted it, without any backing.  This statement is not correct. In fact, there are condo developments within the State of Arizona where 100% of the condo units are owned and rented by one owner.  One example:  bellavictoria.com. 

4. The Act is “designed for separate ownership.” That is true but not complete.  The Arizona Condominium Act PERMITS separate ownership but does not REQUIRE separate ownership. That’s a big difference.  I again ask:  could a person buy a condo in The Knoll’s and rent it out?    Could a person by four condos in The Knoll’s and rent them out? Yes.  Could a person buy all the condos in The Knoll’s and rent them all out?  Yes.  There is no prohibition in Arizona law or the Power Ranch CC&Rs from doing so. Separate ownership simply means that the individual condo units CAN be owned and sold separately, it doesn’t REQUIRE the units to be separately owned.   

Again, this is a question for the Power Ranch Board, but I assume Power Ranch would have used its very best arguments in the PR Mediation Brief (total of 8 pages), and I’ve gone through them one by one.  If there are better arguments, I haven’t heard them.  If you would like a copy of the PR Mediation Brief, I can provide it. 

Yes. Woodcrest East has filed a $13,000,000 counter claim against Power Ranch. If Woodcrest East is successful in its counter claim, Power Ranch would likely become insolvent and forced to file bankruptcy.  Please understand that if this litigation can be resolved, Woodcrest East, LLC will drop its counter claim for $13 million. Our objective is not to have Power Ranch pay any money to Woodcrest East, LLC.  Our objective is to continue with our project as planned.  We only filed the counter claim because Power Ranch first filed litigation against Woodcrest East, LLC.

Perhaps the Power Ranch board hasn’t fully understood all the facts as I have explained them. If so, my request is that you please research this yourself. You may want to seek a second opinion. I am also available to attend a meeting with the Board and answer any questions.

If the lawsuit continues, Woodcrest East will continue its $13 million counterclaim, and both sides will continue to waste thousands of dollars each month in legal fees.  In the end, Woodcrest East will prevail, because we have Arizona law and the Power Ranch CC&Rs on our side.  If I’m delayed by the lawsuit, every month will be another $250,000 in rent damages that I will be countersuing Power Ranch to pay. 

Power Ranch claims that its insurance policy is covering this litigation and paying the legal fees.  L wonder what has been represented to the insurance carrier about the facts and law of this litigation.  If the insurance carrier actually knew what is contained in these FAQs, would it continue to cover this litigation? I wonder. 

My guess is that Power Ranch has a general liability policy for $2 million, but certainly not a big enough policy to handle a $13 million judgment.