The Arizona Supreme Court has ruled that homeowners' associations (HOAs) can sue builders for breaches of the implied warranty of workmanship and habitability. This decision, filed on July 29, 2026, affects how HOAs can address construction defects in residential communities. The ruling is significant as it clarifies the legal standing of HOAs in construction-related lawsuits.
The case, Gallery Community Association v. K. Hovnanian at Gallery, LLC, No. CV-24-0252-PR, originated from a dispute between Gallery Community Association and K. Hovnanian, a homebuilder. The ruling allows the Gallery Community Association to pursue legal action against Hovnanian for alleged defects in the construction of both common areas and the exteriors of individual residential units.
The Gallery Community Association, a homeowners' association, was created by K. Hovnanian to manage a residential community consisting of eighteen units. After discovering various defects in the community's common areas and some residential units, the association filed a lawsuit against Hovnanian. However, the trial court initially ruled that the association did not have the right to sue for breach of the implied warranty of workmanship and habitability, as the common areas were not residences and the association did not own the individual units.
Following the trial court's decision, the Gallery Community Association appealed. The Arizona Court of Appeals reversed the trial court's ruling, stating that the plain language of Arizona Revised Statutes (A.R.S.) § 33-2002 allows an HOA to file a dwelling action. The appeals court found that the association's complaint adequately alleged defects in workmanship, which fell under the definition of a construction defect.
The Arizona Supreme Court agreed to hear the case, recognizing the importance of determining whether an HOA can bring such actions. In its ruling, the court emphasized that the Arizona Legislature had modified common law to allow HOAs to sue for construction defects. Justice William Montgomery authored the opinion, stating, "Because § 33-2002 and related statutes encompass a cause of action for construction defects arising out of a failure to adhere to community workmanship standards, the Legislature has modified the common law to authorize homeowners’ associations to bring what constitutes an implied warranty suit."
The court's decision clarifies that the implied warranty of workmanship and habitability can be enforced by HOAs, even if they do not own the individual units. This ruling is expected to have significant implications for HOAs across Arizona, as it empowers them to take legal action against builders for construction defects affecting their communities.
The impact of this ruling is substantial. It sets a precedent that allows HOAs to protect the interests of their members by holding builders accountable for construction defects. This decision may encourage more HOAs to pursue legal action against builders, potentially leading to improved construction standards and accountability in the homebuilding industry.
Moving forward, this ruling may change how disputes between HOAs and builders are handled in Arizona. It opens the door for more litigation related to construction defects, which could lead to increased scrutiny of builders' practices and the quality of construction in residential communities.
As for what’s next, it is unclear whether Hovnanian will appeal the Arizona Supreme Court's decision. The ruling establishes a clear legal framework for HOAs to pursue construction defect claims, but Hovnanian may seek further clarification or challenge specific aspects of the ruling in future cases. For now, the decision stands as a landmark ruling for homeowners' associations in Arizona.