Daily Development for
Thursday, July 31, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD/TENANT; COOPERATIVE CORPORATION; EVICTION: The Arizona Court of Appeals holds that the relationship between a shareholder and a cooperative corporation is best treated as one involving a fee ownership of real property, rather than a landlord-tenant relationship, notwithstanding the Department of Housing and Urban Development's characterization of such relationship; thus, summary proceedings under state landlord-tenant law to evict a shareholder are inappropriate.

Kadera v. Superior Court, 931 P.2d 1067 (Ariz. App. Div. 1 1996).

The cooperative corporation in this case brought suit against two of its shareholders in an effort to evict them, attempting to use summary proceedings contained in the Arizona Residential Landlord and Tenant Act (the "ARLTA"). The corporation argued that the Housing and Urban Development characterization of the relationship as a landlord/tenant relationship for purposes of administering its national federal mortgage insurance program acted to preempt any other designation or characterization of the relationship. The Arizona Court of Appeals, however, ruled that there was no actual conflict between Arizona and federal law and that the landlord/tenant designation for limited federal purposes had no effect on the relationship's characterization under Arizona law. Therefore, the court held that it had the right to independently determine the nature of the shareholders' interest. It held that shareholders' interest was in the nature of a fee ownership of real property. Therefore that the corporation had any and all of its rights under Arizona real property law, but did not have the right to summary proceedings under Arizona landlord-tenant law, including the ARLTA.

Comment: This ruling is a two edged sword. In some states, eviction laws favor tenants; in others, they are more favorable to landlords. But in the final analysis, the decision probably is better for the interests of the cooperative associations rather than for the individual owners. The cooperative associations likely now will be able to structure deals with future coop purchasers that will reflect a desirable balance of interests (at least from the corporation's perspective). Many landlord/tenant statutes - particularly those favoring tenants - create rights that cannot be amended by contract. Thus, although in landlord favorable states that follow this ruling, coops may have to contract for their protection, whereas before they could rely on statute; in tenant favorable states, coops will be able to establish a contract relationship whereas before they were stuck with the statute.

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