Arizona Commercial Real Estate Claims

This article summarizes the most common commercial real estate related causes of action available in Arizona on the bases of breach of contract, tort, and other real estate causes actions.

To create an enforceable contract, there must be an offer, acceptance, and consideration. Tabler v. Indus. Comm'n of Arizona, 202 Ariz. 518, 520, ¶ 8, 47 P.3d 1156, 1158 (App. 2002). Contracts may either be express or implied, and there is no difference in the legal effect between an express or implied contract. Swingle v. Myerson, 19 Ariz. App. 607, 609, 509 P.2d 738, 740 (1973). If an agreement can be shown by the direct words of the parties, verbal or written, it is an express contract. Id. If an agreement can only be inferred from the acts and conduct of the parties, it is an implied contract. Id.

Breach of an Express Contract. An express contract is created by the direct verbal or written words of the parties. Id. Like all contracts, a party must show an offer, acceptance, and consideration to show that an express contract is enforceable. Tabler, 202 Ariz. at 520, ¶ 8, 47 P.3d at 1158. If, however, a party seeks to establish a breach of contract, he must allege: “(1) a contract existed, (2) it was breached, and (3) the breach resulted in damages.” Steinberger v. McVey ex rel. Cnty. of Maricopa, 234 Ariz. 125, 140, ¶ 67, 318 P.3d 419, 434 (App. 2014) (citing Thunderbird Metallurgical, Inc. v. Ariz. Testing Labs., 5 Ariz.App. 48, 50, 423 P.2d 124, 126 (1967)).

Under the statute of frauds, “[n]o action shall be brought in any court in [certain] cases unless the promise or agreement upon which the action is brought, or some memorandum thereof, is in writing and signed by the party to be charged, or by some person by him thereunto lawfully authorized.” A.R.S. § 44-101. As for commercial real estate transactions, the statute of frauds often requires express contracts to be made because it prohibits the “enforcement of an oral agreement for the conveyance of land.” Owens v. M.E. Schepp Ltd. P'ship, 218 Ariz. 222, 228, ¶ 24, 182 P.3d 664, 670 (2008). Furthermore, it requires express, written contracts for leasing agreements lasting longer than one year and agreements “authorizing or employing an agent or broker to purchase or sell real property … for compensation or a commission.” A.R.S. § 44-101(6)-(7).

Breach of an Implied Contract. There are two kinds of implied contracts: contracts implied-in-fact and contracts implied-in-law. Premium Cigars Intern., Ltd. v. Farmer-Butler-Leavitt Ins. Agency, 96 P.3d 555, 208 Ariz. 557 (Ct. App. 2004). A contract implied-in-fact is an enforceable contract that is inferred from the statements or conduct of the parties. Marsh v. Digital Equipment. Corp., 675 F.Supp. 1186 (D. Ariz. 1987); Beaudry v. Insurance Co. of the West, 203 Ariz. 86, 50 P.3d 836 (Ct. App. 2002). The elements of an implied-in-fact contract are the same as that of an express contract. Donaldson v. McNew, 1 CA-CV 09-0689, 2011 WL 2464204, at *4 (App. June 21, 2011) (citing 17 C.J.S. Contracts § 6 (2010)). Both require an offer, acceptance, and consideration to be enforceable. Id. The only difference is that an implied-in-fact contract is established by circumstantial evidence rather than direct, express written or oral terms. Pyeatte v. Pyeatte, 135 Ariz. 346, 353, 661 P.2d 196, 203 (App. 1982).

In contrast, a contract implied-in-law is “an obligation ‘created by the law without regard to expressions of assent by either words or acts,’” and it is not a “true contract.” Ponderosa Plaza v. Siplast, 181 Ariz. 128, 131, 888 P.2d 1315, 1318 (App. 1993) (quoting Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519, 521, 747 P.2d 1218, 1220 (1987)). For this reason, contracts implied-in-law are frequently called “quasi contract[s].” Barmat, 155 Ariz. at 522, 747 P.2d at 1221. “[A] quasi-contractual obligation may be imposed without regard to the intent of the parties … only if the circumstances are such that it would be unjust to allow retention of the benefit without compensating the one who conferred it.” Pyeatte, 135 Ariz. at 353, 661 P.2d at 203. Implied-in-law contracts often appear in certain relationships, both professional and nonprofessional. Ponderosa Plaza, 181 Ariz. at 131, 888 P.2d at 1318.

Breach of Fiduciary Duty. Fiduciary relationships are “something approximating business agency, professional relationship, or family tie impelling or inducing the trusting party to relax the care and vigilance he would ordinarily exercise.” Cook v. Orkin Exterminating Co., Inc., 227 Ariz. 331, 334, ¶ 14, 258 P.3d 149, 152 (App. 2011). Commercial transactions generally do not create a fiduciary relationship unless one party agrees to serve as a fiduciary to the other. Id. Arizona courts recognize two types of fiduciary relationships: 1) those created by contract or formal legal proceedings, and 2) those implied by law due to the relationship of the parties and factual circumstances of the transaction. Burkons v. Ticor Title Ins. Co. of California, 165 Ariz. 299, 303, 798 P.2d 1308, 1312 (App. 1989), vacated, 168 Ariz. 345, 813 P.2d 710 (1991).

Professionals generally owe a special legal duty to clients, and a breach of such duties may typically establish an action in tort. Barmat, 155 Ariz. at 523, 747 P.2d at 1222. In special professional relationships, a duty is owed to those “within the foreseeable range of harm as a matter of public policy, regardless of whether there is a contract, express or implied, and generally regardless of what its covenants may be.” Id. at 522, 747 P.2d at 1221.

Fiduciary duties in commercial real estate transactions, are generally governed by Arizona’s Administrative Code § R4-28-1101. Specifically, a fiduciary duty is owed to the client to protect and promote the client’s interests and to deal fairly with other parties to the transaction. Id. at A.A.C. R4-28-1101(A); Haldiman v. Gosnell Dev. Corp., 155 Ariz. 585, 588, 748 P.2d 1209, 1212 (App. 1987). In doing so, the agent must “exercise reasonable due care and diligence to effect a sale to the principal's best advantage.” Id. Additionally, the agent must “disclose … information they possess pertaining to the transaction involved.” Id. at A.A.C. R4-28-1101(B); See also Manley v. Ticor Title Ins. Co. of California, 168 Ariz. 568, 572, 816 P.2d 225, 229 (1991) (“As a real estate broker, [the agent] had a fiduciary obligation to reveal all material facts about the transaction to his principals.”).

Nondisclosure, Misrepresentation, and Fraud. Where a seller of property knows of facts which materially affect the value of the property, and the facts are not known or readily ascertainable by the buyer, the seller has a duty to disclose such material facts to the buyer. Hill v. Jones, 151 Ariz. 81, 85, 725 P.2d 1115, 1119 (App. 1986) (discussing the “duty to disclose”). Facts are material if “a reasonable person would attach importance in determining his choice of action in the transaction in question.” Formento v. Encanto Bus. Park, 154 Ariz. 495, 499, 744 P.2d 22, 26 (App. 1987), supplemented (Aug. 4, 1987) Nondisclosure may be likened to and given the same legal effect as misrepresentation and fraud. Id.

Misrepresentation includes the nondisclosure of true facts as well as an assertion of what is false. Sigmen v. Arizona Dept. of Real Estate, 169 Ariz. 383, 387, 819 P.2d 969, 973 (App. 1991). Arizona relies on the Restatement (Second) of Torts § 552 for negligent misrepresentation claims. Mur-Ray Mgmt. Corp. v. Founders Title Co., 169 Ariz. 417, 422, 819 P.2d 1003, 1008 (App. 1991). To establish a claim for negligent misrepresentation, a plaintiff must show: 1) the defendant provided false information to the plaintiff in a business transaction; 2) the defendant intended for the plaintiff to rely on the false information or knew that the plaintiff would reasonably rely; 3) the defendant did not use reasonable care in obtaining or communicating the information; 4) the plaintiff justifiably relied upon the false information; and 5) the plaintiff suffered resulting damages. KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326, 333 n.7, 340 P.3d 405, 412 (App. 2014).

Similarly, Arizona recognizes an action in tort for fraudulent misrepresentation. Arizona courts have adopted the same elements for “fraud” and “fraudulent misrepresentation.” See 3 Mag Group, L.L.C. v. Lewis & Walraven Enterprises, Inc., 1 CA-CV 10-0168, 2010 WL 5059622, at *3 (App. Oct. 28, 2010); Zuniga v. Cowie, 1 CA-CV 06-0744, 2007 WL 5462169, at *3 (App. Dec. 13, 2007). To establish a claim for fraudulent misrepresentation, a plaintiff must show:

1. a representation;
2. the falsity of the representation;
3. the materiality of the representation;
4. the defendant’s knowledge of its falsity or ignorance of its truth;
5. the defendant intended the representation be acted upon by the plaintiff in a manner reasonably expected;
6. the plaintiff’s ignorance of its falsity;
7. the plaintiff’s reliance on its truth;
8. the plaintiff’s right to rely on the representation; and
9. resulting damages to the plaintiff.

Duncan v. Pub. Storage, Inc., 253 Ariz. 15, ¶ 20, 507 P.3d 509, 514–15 (App. 2022).

Where a party is induced by fraudulent misrepresentations to enter a contract, and the party justifiably relied on the misrepresentations, the contract may be voided by the party. Id. Regardless of whether the contract is voided, the party has an action in tort for fraudulent inducement. Id. ; John Munic Enterprises, Inc. v. Laos, 235 Ariz. 12, 16, ¶ 10, 326 P.3d 279, 283 (App. 2014).

Likewise, Arizona has adopted a statute, A.R.S. § 44-1522, implying a private cause of action for consumer fraud. Watts v. Medicis Pharm. Corp., 236 Ariz. 511, ¶ 24, 342 P.3d 847, 852 (App. 2015), opinion aff'd in part, vacated in part, 239 Ariz. 19, ¶ 24, 365 P.3d 944 (2016) (citing A.R.S. § 44-1522). The elements of a private action for consumer fraud are as follows: 1) a false promise or misrepresentation; 2) the false promise or misrepresentation was made in connection with the sale or advertisement of merchandise; 3) the plaintiff relied on the promise or misrepresentation; and 4) the plaintiff suffered injury resulting from his reliance. Id. The plaintiff’s reliance does not need to be reasonable. Id.

Trespass and Nuisance. “Trespass is any unauthorized physical presence on another's property.” Ranch 57 v. City of Yuma, 152 Ariz. 218, 221, 731 P.2d 113, 116 (App. 1986). A party does not need to prove actual damages to support a trespass claim. SWC Baseline & Crismon Inv'rs, L.L.C. v. Augusta Ranch Ltd. P'ship, 228 Ariz. 271, 292, ¶ 95, 265 P.3d 1070, 1091 (App. 2011) (citing Restatement (Second) of Torts § 158 (1965): “One is subject to liability to another for trespass, irrespective of whether he thereby causes harm to any legally protected interest of the other, if he intentionally: (a) enters land in the possession of the other, or causes a thing or a third person to do so, or (b) remains on the land, or (c) fails to remove from the land a thing which he is under a duty to remove.”; see also Restatement (Second) of Torts § 163 (1965) (liability for intentional trespass despite causing no harm)). Trespass often results in permanent injury to land, and the measure of damages is generally the difference in market value immediately before and immediately after the injury. Blanton & Co. v. Transamerica Title Ins. Co., 24 Ariz. App. 185, 188, 536 P.2d 1077, 1080 (1975).

Nuisance is defined as “a condition which represents an unreasonable interference with another person’s use and enjoyment of his property and causes damage.” Armory Park Neighborhood Ass’n v. Episcopal Community Services in Arizona, 148 Ariz. 1, 8, 712 P.2d 914, 921 (1985). The alleged interference must be “substantial, intentional and unreasonable under the circumstances,” and it must be greater than a “slight inconvenience or petty annoyance.” Nolan v. Starlight Pines Homeowners Ass'n, 216 Ariz. 482, 489, ¶ 32, 167 P.3d 1277, 1284 (App. 2007). Courts determine whether an interference is unreasonable based on the injury caused, and they disregard the conduct of the party creating the nuisance. Graber v. City of Peoria, 156 Ariz. 553, 555, 753 P.2d 1209, 1211 (App. 1988).

Arizona recognizes civil claims for private nuisance and public nuisance. Armory, 148 Ariz. at 4, 712 P.2d at 917. A party may allege the same facts to support both types of claims. Id. at 5, 712 P.2d at 918. Private nuisance claims are “strictly limited to an interference with a person’s interest in the enjoyment of real property.” Id. at 4, 712 P.2d at 917.

Conversely, public nuisance is broad in its scope and encompasses “any unreasonable interference with a right common to the general public.” Hopi Tribe v. Arizona Snowbowl Resort Ltd. P'ship, 245 Ariz. 397, 400, ¶ 9, 430 P.3d 362, 365 (2018) (quoting City of Phoenix v. Johnson, 51 Ariz. 115, 123, 75 P.2d 30 (1938)). A private party may bring a claim for public nuisance if the plaintiff suffered special injury, “different in kind or quality from that suffered by the public,” caused by the nuisance. Id. at 399, ¶ 1, 430 P.3d at 364.

Partition. Partition is a right of common property ownership. Cohen v. Frey, 215 Ariz. 62, 65, ¶ 6, 157 P.3d 482, 485 (App. 2007). The statutory procedure to partition real property exists under Arizona's partition statutes, A.R.S. §§ 12–1211 through 12–1225. Id. The statutes cover (1) the judicial division of real property when there is a dispute to the property between co-owners, and (2) the sale of property or any part of the property which cannot be fairly and equitably divided. Id. (citing A.R.S. § 12–1218(A)).

Parties may agree to a voluntary partition of real property, and such voluntary agreements are controlling over involuntary partition proceedings. McCready v. McCready, 168 Ariz. 1, 3, 810 P.2d 624, 626 (App.1991). “[A]bsent an agreement between the parties to voluntarily divide the property, any remedy must comply with the statutory scheme.” Cohen, 215 Ariz. at 65, ¶ 6, 157 P.3d at 485 (citing McCready, 168 Ariz. at 3, 810 P.2d at 626). If a fair partition cannot be made without depreciating the value of the property, or if a sale is more beneficial to the parties, then the court may enter judgment directing the property to be sold. Arnold v. Cesare, 137 Ariz. 48, 52, 668 P.2d 891, 895 (App. 1983).

Quiet Title. Quiet title actions were codified by Arizona under A.R.S. § 12–1101. Rogers v. Bd. of Regents of Univ. of Arizona, 233 Ariz. 262, 266, ¶ 12, 311 P.3d 1075, 1079 (App. 2013). An action to quiet title may be brought by any individual having or claiming an interest in real property, whether in or out of possession. A.R.S. § 12-1101(A). Similarly, such actions may be brought against any person or against the state if the person or the state claims an adverse interest to the party bringing the action. Rogers, 233 Ariz. at 266, ¶ 12, 311 P.3d at 1079. A plaintiff pursuing an action to quiet title must prove his own title, and he cannot rely on deficiencies in the defendant’s title. Steinberger, 234 Ariz. at 140, ¶ 65, 318 P.3d at 434.

Adverse Possession. A party may claim title to real property by adverse possession. Spaulding v. Pouliot, 218 Ariz. 196, 203, ¶ 25, 181 P.3d 243, 250 (App. 2008). To establish such a claim, the party must show: (1) actual and visible appropriation of the land; (2) the appropriation was continuous and for at least ten years; and (3) the appropriation commenced under a claim of right hostile to and inconsistent with the claim of another. A.R.S. § 12-521(A)(1). When land is adversely possessed by different, successive persons, there must be a privity of estate between them to be considered “continuous” possession. King Ranch Properties Ltd. P'ship v. Smith, 158 Ariz. 271, 272, 762 P.2d 558, 559 (App. 1988) (citing A.R.S. § 12-521(B)). A party cannot claim title by adverse possession without proving all of the requisite elements. Berryhill v. Moore, 180 Ariz. 77, 82, 881 P.2d 1182, 1187 (App. 1994), as corrected on reconsideration (Oct. 3, 1994).

Under A.R.S. § 12-526, a person must commence an action for the recovery of property from another having peaceable and adverse possession within ten years after the cause of action accrues. See also A.R.S. § 12-522 (Actions to recover possession from “a party in possession [who] claims real property by right of possession only” must be commenced within two years after the cause of action accrues. (emphasis added)); A.R.S. § 12-523 (Actions to recover possession from “a person in peaceable and adverse possession under title or color of title” must be commenced within three years after the cause of action accrues); A.R.S. § 12-525 (five-year statute of limitations for adverse possession where party is using or enjoying the property, paying taxes thereon, and claiming under a duly recorded deed). A statute of limitations begins to run when the claimant makes a “clear disclaimer of the title” of the owner. Gospel Echos Chapel, Inc. v. Wadsworth, 19 Ariz. App. 382, 384, 507 P.2d 994, 996 (1973).

Easements and Way of Necessity. An easement is the right of one person to use the land of another for a specific purpose. Ammer v. Arizona Water Co., 169 Ariz. 205, 208, 818 P.2d 190, 193 (App. 1991). Such a right may be created in several ways, including by prescription, implication, or way of necessity. See respectively, Ammer v. Arizona Water Co., 169 Ariz. 205, 208, 818 P.2d 190, 193 (App. 1991); Porter v. Griffith, 25 Ariz. App. 300, 302, 543 P.2d 138, 140 (1975); Bickel v. Hansen, 169 Ariz. 371, 374, 819 P.2d 957, 960 (App. 1991).

The elements of acquiring a prescriptive easement are similar to the elements of acquiring title by adverse possession. Ammer v. Arizona Water Co., 169 Ariz. 205, 208, 818 P.2d 190, 193 (App. 1991). To establish a prescriptive easement, a party must show: 1) the land has been actually and visibly used for ten years; 2) the use began and continued under a claim of right; 3) the use was hostile to the true owner’s title to the land. Paxson v. Glovitz, 203 Ariz. 63, 67, ¶ 22, 50 P.3d 420, 424 (App. 2002). Permissive use of land is insufficient to create an easement by prescription. Id. Furthermore, the party seeking to create a prescriptive easement has the burden of proving all the requisite elements. Spaulding, 218 Ariz. at 201, ¶ 13, 181 P.3d at 248.

Similarly, an easement by implication is established by showing the following: 1) a single tract of land so arranged that one portion of land derives a benefit from the other; 2) unity of ownership; 3) division of the land into two or more parcels; 4) long, continued, and obvious use of the land to a degree that establishes permanency; 4) the use of the easement must be essential to the beneficial enjoyment of the land to be benefitted. Porter v. Griffith, 25 Ariz. App. 300, 302, 543 P.2d 138, 140 (1975); Dabrowski v. Bartlett, 246 Ariz. 504, 513–14, ¶ 24, 442 P.3d 811, 820–21 (App. 2019) (stating the elements of “an implied easement of necessity”). An implied easement must also be made in connection with a conveyance. Porter, 25 Ariz. App. at 302, 543 P.2d at 140.

An easement by implied way of necessity may be established when land is sold that has no outlet. Bickel v. Hansen, 169 Ariz. 371, 374, 819 P.2d 957, 960 (App. 1991). At common law, a seller of real property, by implication of the law, “grant[ed] ingress and egress over the parcel to which he retains ownership, enabling the purchaser to have access to his property.” Id. To establish an implied way of necessity, the following elements must be shown: “(1) common ownership of the dominant and servient estate; (2) severance; (3) no outlet for the dominant estate at the time of severance; and (4) reasonable necessity for access when severance occurred.” Underwood v. Wilczynski, 252 Ariz. 405, ¶ 8, 504 P.3d 277, 280 (App. 2021). The reasonable necessity must be present at the time of original severance of the estates. Bickel, 169 Ariz. at 374, 819 P.2d at 960. Once an implied way of necessity exists, “it may survive through multiple conveyances and is not affected by use or the lack thereof.” Dabrowski, 246 Ariz. at 514, ¶ 27, 442 P.3d at 821.

In contrast to the common law, implied way of necessity, A.R.S. § 12-1202 recognizes a cause of action for private condemnation. Private condemnation, also known as “private way of necessity” or “statutory way of necessity,” is permitted when land “is so situated with respect to the land of another that it is necessary for its proper use and enjoyment to have and maintain a way of necessity.” Siemsen v. Davis, 196 Ariz. 411, 414, ¶ 9, 998 P.2d 1084, 1088 (App. 2000); see also, Tobias v. Dailey, 196 Ariz. 418, 421, ¶ 9, 998 P.2d 1091, 1094 (App.2000) (“private”); Bickle, 169 Ariz. at 375, 819 P.2d at 961 (“statutory”). “A landowner seeking to condemn a private way of necessity over the lands of another must show a ‘reasonable necessity’ for the taking.” Dabrowski, 246 Ariz. at 517, ¶ 41, 442 P.3d at 824. In making a final judgment of condemnation, the court must include the proposed route and the amount to be compensated for the route. Id. at 520, ¶ 54, 442 P.3d at 827. A private way of necessity is only permitted when no other access exists by common law implication. Bickel, 169 Ariz. at 375, 819 P.2d at 961. An action for private condemnation may not be barred by the “mere fact an alternative route is available.” Tobias, 196 Ariz. at 421–22, ¶ 14, 998 P.2d at 1094–95.

Wrongful Recording, A.R.S. § 33-420. A wrongful recording occurs when a person purporting to claim an interest in real property causes a document to be recorded and knows or has reason to know the recorded document is “forged, groundless, contains a material misstatement or false claim or is otherwise invalid[.]” A.R.S. § 33-420. A person has “reason know” if “the actor has information from which a person of reasonable intelligence ... would infer that the fact in question exists, or that such person would govern his conduct upon the assumption that such fact exists.” Rest. (Second) of Torts §12(1) (1965); see also Bankers Trust Co. v. Kondaur Capital Corp., No. 1 CA-CV 12-0426, 2013 WL 1932843, ¶ 13 (Ariz. Ct. App. May 9, 2013). The best evidence to show a person knew or had reason to know a recorded document was wrongful is to show that the document is inval Id. Delmastro & Eells v. Taco Bell Corp., 228 Ariz. 134, 143, ¶ 29, 263 P.3d 683, 692 (App. 2011). While § 33-420(A) “does not require that a defendant always be cognizant of the invalidity of a [real property interest]…a party must have more than a subjective, good faith belief in the propriety of its recording to escape liability.” Id.

Forcible Entry or Detainer, A.R.S. § 12-1172. A “forcible entry” is entry without consent of the person having the actual possession. A.R.S. § 12-1172. In Arizona, this is a statutory proceeding, “the object of which is to provide a summary, speedy and adequate means for obtaining possession of a premises by one entitled to actual possession.” Heywood v. Ziol, 91 Ariz. 309, 311, 372 P. 2d 200, 201 (1962) (citations omitted). This action only concerns whether a party has right to actual possession. Id. Actions taken under this statute does not bar subsequent proceedings on issues other than the immediate right to possession. Curtis v. Morris, 184 Ariz. 393, 398, 909 P. 2d 460, 465 (App. 1995).

In summary, parties in commercial real estate disputes have many contractual, tort, and statutory based claims to assert in Arizona.