Lease Options often seem like a good fix.  Seller wants to sell, but wants a higher price.  Buyer wants to buy, but needs time…

  Sellers in Lease Option scenarios  should consult with an attorney.  A seller in a Lease Option runs a risk of not being able to evict the Buyer under Arizona’s evictions laws.

  Normally to evict in Arizona a landlord  can use the “special detainer action” under the Arizona residential property owners’ rights and obligations with respect to tenants are governed by the “Arizona Residential Landlord and Tenant Act” found in A.R.S. § 33, beginning at A.R.S. § 33-1301.  The ARLT uses the same process as the “forcible detainer” laws found in A.R.S. § 12, beginning at § 12-1171.  Generally, the purpose of a forcible detainer or special detainer action is to provide a speedy, summary remedy for a landlord to obtain possession of property being wrongly withheld by a tenant. United Effort Plan Trust v. Holm, 209 Ariz. 347, 351, ¶ 21, 101 P.3d 641, 645 (App.2004)

Typical Residential Eviction In Arizona When Tenant Does Not Pay Rent.

Whether a Landlord hires an attorney is a personal choice.  An eviction can be done without an attorney.  The Tenant must be served with a Five Day Notice demanding the rent, late fees etc.  If the Tenant does not cure the outstanding balance, or other breach, the Landlord may then proceed to the actual eviction process.  The Arizona Supreme Court provides the following sample justice court eviction forms: Summons; Complaint; Affidavit / Certificate of Service. The Maricopa County Justice Court has a good website with additional forms.  But beware; the special detainer action is limited in scope. The only issue that the court will decide is “possession” of the unit.

Why Lease Option Evictions Fail

Assuming the documents described above are filed and there is a trial as to the special detainer.  If a tenant argues that he/she is an equitable owner of the Property, in other words a part owner, not merely a tenant and this is proven to the Court, the special detainer fails.  You cannot merely evict a title holder.  The Court in a special detainer cannot hear matters of title, only possession.  Examples that may cause the court to classify the lease as a sale and not just a pure lease with an option to purchase:

  • Who is responsible for maintaining property? Is the Landlord passing responsibility for maintaining the property? (A.R.S. § 33-1324a)
  • How much is the rental deposit?  Collection of more than 1.5 times is a violation of Arizona law, and can look like a down payment. (A.R.S. § 33-1321a)
  • Did the Seller collect an option deposit or are they granting rental credits?  Again, it can look like a down payment.
  • Is the price known?  This can look like a long escrow, simply a sale disguised as a lease.

What If the Eviction Fails Due to a Tenant Showing Ownership Via a Lease Option?

If the eviction is deemed a question of title, it is dismissed.  The only way the Landlord can get possession is via a Judicial Foreclosure. This is a formal lawsuit.  It is more cumbersome than a non-judicial foreclosure.  A non-judicial foreclosure is what consumers are used to, a “Trust Deed” and a “note”.  The note outlines the terms of the loan and the trust deed is a lien placed against the property and is the instrument that is used to force the defaulting party out the property and to sell it.  A judicial foreclosure does not have the statutory time periods easily marked out.   In the case of a Judicial Foreclosure, there is no trust deed, and because there were no legally recognized terms spelled out in the agreement in case of default, a judge has to decide the issue.  This can be expensive and take many months.

Darren Welsh, General Counsel

Prudential Arizona Properties