Forced from Home: Analyzing the Constitutionality of the Arizona Condominium Act’s Forced Sale Provision

By Reece Tack. 

In a controversial case of property rights versus corporate control, Jie Cao and Haining Xia’s (“Plaintiffs”) ownership of their condominium at Dorsey Place in Tempe, Arizona, has been put to the test. Plaintiffs purchased a condominium at Dorsey Place in Tempe, Arizona, in 2018. The complex contains ninety-six units, and Pathfinder Partners (“PFP”) acquired ninety of them. Pursuant to the covenants, conditions, and restrictions (“CC&Rs”) that apply to this complex, each unit has one vote in the association, so PFP controls ninety of the ninety-six votes (or 94%). The Arizona Condominium Act specified a condominium agreement may be terminated by an 80% affirmative vote (“80 Percent Rule”). Unsurprisingly, PFP exercised its votes to force the remaining individual owners out of their units, so it could own them all. This included forcing Plaintiffs out. Unhappy with having to leave, they subsequently sued, arguing that PFP’s forced sale amounted to a taking.

When Plaintiffs originally bought their unit in 2018, they agreed to boilerplate language that stated their condominium was subject to the 80 Percent Rule. In an unfavorable decision to Plaintiffs, the appellate court reasoned “[a] forced termination and sale under the statute is unconstitutional but for an owner’s contractual agreement.” So, because Plaintiffs had signed off and accepted this rule, the court found Plaintiffs must abide by their contractual agreement. Plaintiffs then appealed to the Arizona Supreme Court. 

The Supreme Court will answer two primary questions: (1) Does the 80 Percent Rule constitute a taking of private property for private use in violation of the Arizona Constitution? (2) If a contract incorporates an unconstitutional statute by reference, are the terms of that statute enforceable on the contracting parties?

Should Private Parties Be Held to Their Private Agreements in All Instances?

Defendants argue that private parties can contract to do things the Constitution does not authorize. For instance, members of a homeowner’s association may sign an agreement waiving their rights to display certain signs in their front yards, whereas the restriction by statute would be a violation of their First Amendment rights. This case, from PFP’s point of view, should be no different, and Plaintiffs should be held to what they contractually agreed to. 

In support of this finding, PFP primarily argues the provision allowing condominium owners to squeeze out property owners helps avoid a “holdout problem.” The holdout problem can be described in the following hypothetical: A developer is interested in buying a property for a significant project, but the property owner is not willing to sell it at the current market value. Consequently, the developer is faced with two choices: either pay more than the market price for the property or choose not to buy it. Purchasing the property at a higher price will result in a decreased net economic benefit for the project. On the other hand, if the developer decides against buying the property at this elevated price, it will necessitate altering the project, diminishing its worth to the developer. If these compromises are substantial enough, they could lead to the developer abandoning the project altogether. The primary public benefit safeguarded by the forced sale provision is economic efficiency, cloaking what many believe is a pure private benefit as something that satisfies the Fifth Amendments “public use” requirement.

Are Property Rights Deteriorating in Arizona? 

Plaintiffs argue that parties cannot contractually agree to an unconstitutional law incorporated by reference, via boilerplate language, and that PFP’s actions violate the Arizona Constitution’s Takings Clause. Plaintiffs agree that two private parties may contract to do something that could not be statutorily required as discussed above, but the issue here is that boilerplate language enabled PFP to exercise powers that originated in an invalid statute, not their private agreement.

The Arizona Constitution states that “[p]rivate property shall not be taken for private use,” except for a limited list of exceptions that are inapplicable to this case. Courts in Arizona generally adhere to the principle that “[t]aking one person’s property for another person’s private use is plainly prohibited.”

Plaintiffs acknowledge that they agreed to the CC&Rs, which referenced the Arizona Condominium Act’s provisions, but they argue that because the law incorporated in the contractual agreement is unconstitutional, they are not subject to it.

Plaintiffs rest their argument primarily on the notion that property rights are critical for economic prosperity, and abuses (like this one) cause more harm than the holdout problem. The authors of an amicus brief in support of Plaintiffs argue that the United States Constitution’s Founders “were particularly interested in protecting property rights from ‘oppressive majorities, special interests, and government officials.’” Numerous studies have demonstrated a significant correlation between stronger protections of property rights and higher per capita income. For example, one would expect Finland and Estonia to have a similar level of prosperity, because they are geographically similar, have languages that share a common root, and have similar culture and values. In fact, both had a similar level of prosperity in the 1930s. In 2000, however, after fifty years of Communist rule in Estonia, the average Finn earned anywhere from three to seven times more than the average Estonian. Additional examples include North and South Korea, East and West Germany, and Taiwan and China. Thus, a nation that respects property rights seems to have greater prosperity. Under this argument, the public benefit of strong private property rights protections outweighs any costs caused by the holdout problem.

Deciding the Issues

The Arizona Supreme Court should side with the plaintiffs, reversing the appellate court’s decision, and deem the 80 Percent Rule unconstitutional. Private property rights are of paramount importance in Arizona. In the controversial case Kelo v. City of New London, O’Connor dissented, arguing that seizing private property for economic development violated the Fifth Amendment’s public use requirement. This led Arizonans to enact the Private Property Rights Protection Act, which strengthened property rights and limited the government’s ability to use eminent domain. PFP’s ability to squeeze out the remaining condominium owners like Plaintiffs is primarily for a private benefit, not sufficient to satisfy the public use requirement. The holdout problem is outweighed by the potential deterioration of private property rights, a right that is at the heart of Arizona law. The Supreme Court should protect condominium owners like Plaintiffs and recognize the 80 Percent Rule as unconstitutional.

The Arizona Supreme Court heard oral arguments in late November but has yet to issue a final decision.

Tack Blog
“Bay21 Condominium” by Jason Thien is licensed under CC BY 2.0 Deed.

By Reece Tack

J.D. Candidate, 2025

Reece Tack is a 2L Staff Writer at the Arizona State Law Journal. He is originally from Washington State and earned a degree in Finance and Economics from Grand Canyon University prior to starting law school. He is currently considering a career in corporate law.