Property owners and landlords have long fought the battle to find and keep good tenants. Many owners and landlords have had the unpleasant experience of evicting a tenant for nonpayment of rent or for some other breach of the lease. However, in these current challenging economic times and real estate market, it might just be the property owner who is evicted from the property.

In a recent Arizona Landlord Tenant Law case, a homeowner signed a contract to purchase a new home. In order to qualify for the new loan, the homeowner executed a one-year lease for his existing home with a prospective tenant moving from out of state. Shortly before the expected close of escrow date for his new home, the homeowner learned he no longer qualified for the loan due to a change in lending policies. Within days of the start of the tenancy, the homeowner sent a notice to the tenant of his unwillingness to surrender possession of the home or to honor the lease.

What are the tenant’s rights in this circumstance? It is clear that this was a fully executed and valid lease agreement which was supported by the consideration of a security deposit as well as mutual promises of performance. One of these promises is the delivery of possession. The Arizona Landlord Tenant Act (“ALTA”) also provides help to this tenant at Arizona Revised Statutes (“ARS”) §33-1323 which states, “[a]t the commencement of the term the landlord shall deliver possession of the premises to the tenant in compliance with the rental agreement.” Both the lease and the ALTA require that the landlord deliver possession of the leasehold. Arizona law further provides a mechanism and remedy for the tenant.

Arizona Revised Statues §33-1362 states that rent is not required to be paid until possession is delivered. This statute also provides two options for a tenant whose landlord fails to deliver possession at the commencement of the lease term. First, a tenant may elect to send a five-day written notice of termination of the lease requiring the return of all prepaid rent and/or security deposits. If the tenant chooses this option, it is his sole remedy if the landlord does not deliver possession. The tenant is then free to find a replacement property.

Second, ARS §33-1362(A)(2) states that a tenant may “[d]emand performance of the rental agreement by the landlord and, if the tenant elects, maintain an action for possession of the dwelling unit against the landlord or any person wrongfully in possession and recover the damages sustained by him.” It may be hard to believe, but a tenant in this situation may file a Special Detainer action to evict the landlord. ARS §33-1362(C) also provides a penalty if a landlord’s “… failure to deliver possession is willful and not in good faith, an aggrieved person may recover from that person an amount not more than two months' periodic rent or twice the actual damages sustained by him, whichever is greater.” Given these facts, the tenants could sue for possession of the property and would also likely be entitled to damages of at least two months’ rent for the willful refusal to deliver possession.

Property owners and property managers should be aware that they face significant legal exposure when they fail to deliver possession of a rental unit. Property owners who intend to make their rental of their property contingent on the successful acquisition of new property should clearly make this a term of the rental agreement.

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