Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation. Laws change over time and you should seek counsel to discuss any specific legal questions.
Arizona’s commercial real estate market has seen rapid growth due to population increases, business expansion, and ongoing infrastructure development. Arizona’s rapid growth brings distinct challenges, from expanding urban areas to managing water resources amid ongoing drought conditions. In response, lawmakers have introduced new proposed laws designed to balance economic growth with resource conservation.
Newly enacted laws as well as proposed laws in Arizona introduce significant changes to water management, land use, and property zoning. For anyone buying, selling, or developing property, knowing the laws and/or new rules is key to making smart investment choices and staying compliant. A skilled Arizona real estate attorney can provide guidance through these intricate regulations, helping to keep transactions hassle-free and legally sound.
Several Key Proposed and Enacted Laws That Could Affect Arizona Real Estate
These proposed regulations consist of multiple legislative measures that impact water resource management, sustainable development, and adaptive reuse of commercial buildings. Here’s a look at some proposed and enacted laws and how they affect residential and commercial real estate transactions.
SB 1249: Proposed Groundwater Pumping, Measuring, and Reporting
SB 1249 is proposed legislation that would expand ADWR’s metering and reporting rules to all non-exempt groundwater users statewide. Landowners and businesses with wells would need to install state-approved measuring devices and submit annual water usage reports, with exemptions for small-scale users withdrawing under 10 acre-feet or irrigating 10 acres or less.
Challenges:
- Requires investment in metering systems and administrative reporting.
- First-time buyers of well-dependent properties must factor compliance costs into valuation.
Opportunities:
- Demonstrated water-use transparency can boost property marketability.
- Legal counsel can structure purchase agreements to manage compliance and liability risks.
HB 2481: Proposed Expansion of Adequate Water Supply Requirements
In January 2025, Representative Stephanie Stahl Hamilton introduced HB 2481, which would expand Arizona’s 100-year water adequacy requirements to apply statewide — beyond just Active Management Areas (AMAs). The bill has passed its second reading but has not yet been enacted. Previously, only properties located in AMAs were required to demonstrate a 100-year assured water supply before development. HB 2481 proposes expanding this requirement statewide, potentially making it more difficult for new developments in water-scarce regions to secure long-term water access.
Challenges:
- Developers must prove adequate water supply, increasing planning and permitting costs.
- Investors may need to reassess property valuations based on water availability and compliance.
Opportunities:
- Properties within AMAs, which already have strong water infrastructure, may see increased value.
- Legal professionals can assist in water rights transactions and regulatory due diligence to ensure compliance before purchase.
Sustainable Development and Housing Regulations
HB 2720 (enacted): Housing and Accessory Dwelling Units (ADUs)
Signed into law in May 2024, HB2720 requires Arizona cities with over 75,000 residents to permit at least one Accessory Dwelling Unit (ADU) — attached, detached, or internal — on any lot zoned for single-family use. Cities must comply by January 1, 2025, or ADUs will be automatically allowed by default.
Challenges:
- Cities must revise local zoning codes to comply, which could affect development patterns and market dynamics.
- Developers and investors must navigate new density allowances and setbacks in residential zones.
Opportunities:
- Greater housing flexibility could increase demand for mixed-use neighborhoods and urban infill development.
- Real estate attorneys can help clients secure approvals and ensure ADU projects align with evolving regulations.
HB 2297 (enacted): Repurposing Commercial Buildings for Residential Use
This bill, signed into law in 2024, allows residential or mixed-use conversions of existing commercial buildings—without requiring rezoning—in Arizona cities with populations over 150,000. To qualify, at least 50% of the building’s floor area must be repurposed for residential or mixed use.
Challenges:
- Developers must still meet building, fire, and health code requirements, which may include structural assessments.
- Financing adaptive reuse can be difficult, especially for older or non-code-compliant buildings.
Opportunities:
- Commercial property owners now have a faster, lower-barrier path to profitable residential conversion.
- Legal counsel can streamline the entitlement process and ensure compliance with all applicable standards.
Key Ways Environmental Regulations Are Reshaping Real Estate Deals in Arizona
Arizona’s evolving policies are reshaping the Arizona residential and commercial real estate market, introducing new complexities for buyers, sellers, and developers. These regulatory shifts—ranging from groundwater reporting requirements to zoning reforms and sustainability mandates—affect due diligence, property valuation, permitting timelines, and legal exposure. Failing to account for these changes can result in costly delays, fines, or even failed transactions.
For investors, developers, and legal professionals, understanding Arizona’s new and proposed environmental and zoning laws is critical. Here’s a closer look at how these regulations are influencing real estate transactions—and how proactive planning can help stakeholders stay compliant and competitive.
Heightened Due Diligence and Compliance Costs
The days of quick commercial real estate transactions in Arizona are fading. As new and proposed regulations take shape, environmental due diligence has become a far more extensive and necessary process. Investors and developers must now conduct deeper evaluations of properties to assess:
- Groundwater Access and Reporting Obligations: Under newly proposed rules such as SB1249, nonexempt well owners across much of the state must install approved water measuring devices and file annual usage reports. These requirements may affect the long-term viability, permitting, and operational costs of water-reliant properties.
- Historical Land Use and Contamination Risks: Properties with prior industrial or commercial use may face environmental remediation obligations under longstanding environmental laws. These risks are now more relevant due to increased regulatory scrutiny and tighter redevelopment standards.
- Zoning Restrictions and Sustainability Regulations: Legislation like HB 2720 and HB 2297 is reshaping zoning flexibility and density rules. Developers must confirm that new projects align with evolving municipal zoning standards and environmental priorities (e.g., sustainability, adaptive reuse).
Why Due Diligence Is Now More Complex
With newly proposed stricter environmental policies, assessments could take longer and cost more than in the past. Developers must work closely with environmental consultants and legal counsel to ensure compliance with all applicable water usage, land use, and zoning regulations. Properties with unresolved or undisclosed environmental issues pose significant risks, as buyers may be held liable for compliance failures long after closing. Without thorough due diligence, investors could be blocked from developing or using a property as intended—ultimately reducing its value and utility.
Attorneys experienced in Arizona real estate law play a key role in conducting comprehensive due diligence, identifying regulatory red flags, negotiating liability protections, and drafting contracts that account for compliance obligations. Their guidance helps protect buyers and developers from unexpected costs and legal exposure.
Property Valuation: How Properties Could Be Impacted Under the Newly Proposed and Enacted Regulations
Arizona’s commercial property market is undergoing a shift in valuation due to new and proposed regulations focused on water conservation, sustainable development, and adaptive reuse. While some properties are positioned to appreciate, others could see values decline due to higher compliance costs or limitations on future development.
Some assets are better aligned with Arizona’s evolving environmental priorities, including:
- Sustainable Developments: Commercial properties that already meet newer environmental standards are likely to attract more investors and tenants.
- Urban Properties with Secured Water Infrastructure: Properties within Active Management Areas (AMAs) or with verified water access are gaining value amid heightened groundwater scrutiny.
- Adaptive Reuse Opportunities: Under proposed legislation like HB2297, certain vacant commercial buildings may be converted into residential or mixed-use developments without extensive rezoning. Properties that qualify could become more attractive to developers seeking flexibility and cost savings.
Properties That Could Face Additional Challenges
Some properties may face growing headwinds under Arizona’s evolving environmental and land use regulations. These include:
- Land Subject to Stringent Environmental Oversight: Properties located in water-scarce areas, outside Active Management Areas (AMAs), or within zones affected by new proposed legislation (e.g., SB1249) may become less attractive due to uncertain water access and regulatory risk.
- Properties Needing Costly Compliance Upgrades: Older buildings that fall short of emerging sustainability standards or water use requirements may require substantial investment before redevelopment or resale is feasible.
How Legal Professionals Help
Real estate attorneys play a critical role in mitigating these risks. They can:
- Conduct regulatory due diligence and valuation risk assessments,
- Negotiate contracts and transactions tailored to the client’s best interests, and
- Structure purchase agreements that allocate liability for unexpected costs, protecting both buyers and sellers from post-closing surprises.
The Cost of Legal Compliance – A Proactive Approach Saves Money
Arizona’s commercial real estate market is evolving, and with it comes a growing web of environmental, zoning, and permitting regulations. As scrutiny intensifies, legal costs are rising—especially for those who wait until issues arise. Investors and developers who engage experienced legal counsel early are far more likely to avoid costly delays, penalties, or failed deals.
Why Proactive Legal Guidance Is More Important Than Ever
Identifying Regulatory Risks Before They Become Problems
With new and proposed laws affecting water use, land zoning, and environmental compliance, properties that once appeared low-risk may now come with hidden liabilities. An experienced real estate attorney can uncover these risks during the due diligence phase, helping clients make fully informed investment decisions.
Structuring Contracts to Limit Future Liability
Well-drafted purchase and development agreements are essential in today’s regulatory environment. Legal professionals can include environmental disclosures, indemnities, and compliance contingencies to shield clients from surprise obligations and costly litigation.
Streamlining Permitting and Government Approvals
As permitting processes grow more complex at both state and municipal levels, navigating them without legal support can result in serious delays. Working with legal counsel early in the process can ensure timely approvals and avoid regulatory pitfalls.
In short, proactive legal involvement can prevent far larger setbacks later. In a market shaped by uncertainty and increasing regulation, experienced legal guidance isn’t just protection—it’s a strategic investment.
Strategic Considerations for Real Estate Stakeholders
Navigating Arizona’s shifting commercial real estate landscape requires thoughtful planning and sound legal strategy. Here’s how different stakeholders can adapt to the emerging regulatory environment:
For Developers and Investors
- Prioritize Water Security: focus on properties with reliable water access, especially those in Active Management Areas (AMAs) or with existing infrastructure that supports long-term sustainability.
- Leverage Adaptive Reuse Opportunities: under HB 2297, converting vacant or underutilized commercial buildings into residential or mixed-use properties is now a viable strategy that avoids traditional rezoning barriers.
- Engage Legal Counsel Early: involve experienced real estate attorneys during acquisition and project planning phases to reduce risk and ensure compliance with environmental and zoning rules.
For Legal Counsel
- Stay Ahead of Regulatory Changes: Arizona’s environmental and land use laws are evolving. Attorneys must stay current to guide clients through water regulations, density changes, and adaptive reuse allowances.
- Oversee Comprehensive Due Diligence: legal teams should coordinate environmental reviews, zoning analysis, and contract structuring to identify potential liabilities and prevent future legal disputes.
- Facilitate Permitting and Approvals: help clients navigate municipal permitting and state regulatory processes efficiently—especially as new policies increase the complexity of entitlement timelines.
For Local Government Officials
- Balance Growth and Sustainability: encourage development that aligns with long-term environmental goals while recognizing the importance of economic vitality in local communities.
- Incentivize Responsible Projects: offer expedited permitting or tax incentives for developments that incorporate water conservation, green infrastructure, or affordable housing under programs like HB 2720 and HB 2297.
- Ensure Fair and Efficient Enforcement: apply any new rules or regulations consistently and streamline approval processes to reduce uncertainty for applicants without compromising oversight.
Staying Ahead of Arizona’s New Environmental Regulations in Commercial Real Estate
Arizona’s evolving environmental and zoning regulations are reshaping the residential and commercial real estate landscape, introducing greater complexity and stricter compliance requirements. While these changes pose challenges in due diligence, permitting, and valuation, they also open the door to new opportunities in sustainable development and adaptive reuse.
Experienced legal representation has always been essential to successful real estate transactions—but in this new regulatory climate, it’s more critical than ever. Working with a knowledgeable Arizona real estate attorney helps ensure compliance, safeguard investments, and position clients to capitalize on emerging opportunities in a changing market.
Call Gottlieb Law at 602-899-8188 or use our Contact Us page to schedule an initial consultation with our firm.
Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation. Laws change over time and you should seek counsel to discuss any specific legal questions.