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AZ Court of Appeals Reaffirms General Rule That Municipal Utility Providers Have No Duty to Serve Non-Residents

Real Estate Update Stanton E. Johnson

In a recent case, the Arizona Court of Appeals reaffirmed the general rule that a municipality has no duty to provide public utility service to non-residents of the municipality, absent a statutory or contractual obligation to do so.

Yuma Valley Land Company, LLC, et al. vs. City of Yuma (No. 1 CA-CV 10-0121) involved developers who owned property in an unincorporated area of Yuma County, Arizona and sought to connect to water and sewer lines installed by the City of Yuma immediately adjacent to the developers' property. The developers acknowledged that, under ordinary circumstances, the City would have no obligation to provide services to non-residents; however, the developers argued that in this case the City should be required to provide services because the installation of the adjacent water and sewer lines made it impossible for the developers to obtain service elsewhere. It is unclear how the City's water and sewer lines precluded the developers from obtaining service elsewhere, or if the lines did in fact preclude alternative service. However, the Court agreed with the City that even if it were impossible to obtain alternative service, the City is under no obligation to do so without a contractual or statutory obligation.

This case is a reminder to Arizona real estate developers that close proximity to municipal utility facilities offers no assurance that a developer may utilize the facilities for its development if its property is located outside the boundaries of the municipality. A thorough due diligence investigation of property for development - in particular, property located in unincorporated areas - should include an inquiry with the applicable (or desired) utility providers to ensure they are legally obligated to serve the property. Where no obligation exists, the developer would be wise to obtain the contractual obligation of the provider before earnest money becomes non-refundable or, in the alternative, the developer may negotiate a contingency to its purchase of the property. This would allow the developer to terminate the sale and obtain a refund of its earnest money if it is unable to obtain a utility provider's contractual obligation prior closing on the purchase of the property.

For more information on this case, you may contact Stan Johnson at (602) 229-5378 / or your Quarles & Brady attorney.