Court Invalidates Arbitration Provisions in CC&Rs
The Fourth District Court of Appeal has held that a mandatory binding arbitration provision contained in covenants, conditions and restrictions are invalid to the extent they benefit the developer of the project.
In Villa Vicenza Homeowners Association v. Nobel Court Development, LLC, a developer purchased an existing apartment building and common areas and subsequently converted them into condominiums for resale to the public. Homeowners noticed defects in common areas and sued the developer on behalf of the Homeowners Association (HOA).
The Court reasoned that arbitration provisions may only be enforceable if they are part of a contract between the developer and each homeowner and the HOA. Since homeowners, particularly subsequent homeowners who do not purchase directly from the developer, do not have an opportunity to negotiate or agree to the arbitration provision in the CC&Rs, those arbitration provisions are adhesive, unilateral and therefore not a contract.
Accordingly, the Court invalidated the arbitration provision.
The Court did acknowledge that its holding was contrary to the holding in Villa Milano HOA v. Il Davorge. It is questionable whether such a result would be the same in an SB 800 case.
• Read the complete court decision
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