What’s Good for Commercial, Doesn’t Work for Residential

by Mark Zinman

Landlords transferring from the residential market into the commercial market, or vice versa, are always surprised to learn that there are significant differences in their rights.  What works in commercial real estate is almost never legal in the residential realm.  When drafting the different landlord tenant acts (“Residential Act v. Commercial Act”), the legislature made the policy decision that landlords and tenants in commercial transactions are on equal footing and thus can negotiate the majority of their rights.  However, in the residential world, the legislature determined that the parties do not have equal bargaining power and thus the legislature set forth a much more comprehensive set of statutes to serve as the minimum rights of the parties.

Before noting the differences in the Acts, what must be remembered is that the Residential Act specifies in A.R.S 33-1315 that “a rental agreement shall not provide that the tenant…agrees to waive or to forego rights or remedies under this chapter.”  In other words, it doesn’t matter what provisions you think to put in a residential lease, if the terms violate the Residential Act, they are unenforceable.  The Residential Act even provides sanctions for using a provision that the landlord knows is unenforceable.  Therefore, the differences in the Act below are significant, because they cannot be overcome by adopting lease provisions.

The first main difference deals with a landlord’s rights when a tenant has defaulted.  For example, I often have new clients trying to convince me that they can just lock out a tenant if the tenant failed to pay the rent for the month.  They cite A.R.S 33-361 which provides that when a tenant defaults in rent, “the landlord or person to whom the rent is due, or the agent of the landlord or person to whom the rent is due, may reenter and take possession, or, without formal demand or reentry, commence an action for recovery of possession of the premises.”  This language clearly allows a landlord to do a lock-out or start an eviction, even without notice.  While the title to these statutes is “Landlord and Tenant” this only deals with commercial matters and doesn’t apply to residential tenancy.  In the residential realm, when a tenant breaches a lease, a landlord can never re-enter and take possession, file an eviction or turn off utilities.  (Never, never, never turn off the utilities…never)  A.R.S. 33-1368 specifies the notices that must be given and that an eviction can only be filed if the breach isn’t cured in the applicable time period.

The next major difference relates to the maintenance responsibilities of the parties.  The Commercial Act is relatively silent as to who has what maintenance responsibilities, and as a result it is up to the parties to negotiate such terms.  On the other hand, all major maintenance, such as the fitness and habitability of the rental property, remain with a residential landlord.  The Residential Act requires a landlord to “maintain in good and safe working order and condition all electrical, plumbing, sanitary, heating, ventilating, air-conditioning and other facilities and appliances.”  This provision specifically precludes a residential landlord from attempting to enter into a NNN lease whereby the tenant is liable for all upkeep of the property.

A landlord and tenant of a single family house can agree, however, for consideration for the tenant to make “specific repairs, maintenance tasks, alterations and remodeling” as long as it is not for the purpose of avoiding the landlord’s obligations.  This provision has been the subject of a lot of litigation, and it is generally understood that this allows the parties to agree that the tenant can be liable for inexpensive maintenance, if specified in the lease.  For example, a resident can be required to pay for monthly pool and landscaping.  It is unclear what obligations beyond that, however, can be assumed by the tenant.  A landlord must be careful when shifting responsibilities to a tenant as it may invoke the sanctions of using prohibited lease provisions.