If you are a builder constructing or a home buyer purchasing a home (such as a single-family home, condo, or townhouse) in a planned, covenanted community, most likely there will be a required membership in a neighborhood’s homeowners’ association (HOA). The rules of the HOA community are set forth in what is called the Declaration of Covenants, Conditions, and Restrictions (CC&Rs).
On April 18, 2016, the Superior Court of California, Alameda County, ruled that the arbitration provision in the Home Builder’s Limited Warranty issued by a PWSC builder is enforceable and governed the HOA’s construction defect claim.
Hayward Renaissance Walk Corp. v. Olson 737-Hayward 46, LLC, et al. (California Superior Court, County of Alameda, Case No. RG16802662), involved a dispute as to which of two binding arbitration provisions included in a condominium’s CC&Rs controlled as to selection of the arbitrator. The plaintiff HOA argued that the CC&Rs provided that in any arbitration of disputes, the court was to select the arbitrator (or, more accurately, the arbitration service provider). The defendant builder countered that the CC&Rs also included the Home Builder’s Limited Warranty, recorded as part of the CC&Rs, which had its own broadly worded binding arbitration requirement applicable to any disputes “related to or arising from this LIMITED WARRANTY [or] the design or construction of the HOME.” The builder further noted that the CC&R allowing the court to appoint the arbitration service applied, as stated elsewhere in the CC&Rs “[u]nless otherwise required by the Limited Warranty for matters and issues governed by the Limited Warranty.”
The HOA argued that since it was not asserting a claim against the Limited Warranty, the binding arbitration provision included in the Limited Warranty did not control. However, the court noted the broad wording of the Limited Warranty’s arbitration clause which stated that “[d]isputes subject to binding arbitration include, but are not limited to ….[a]ny allegation of negligence, strict liability, fraud and/or breach of duty of good faith, and any other claims arising in equity or from common law …,” as well as “[a]ny other claim arising out of or relating to the sale, design or construction of YOUR HOME or the COMMON ELEMENTS, including but not limited to any claim arising out of, relating to or based on any implied warranty or claim of negligence or strict liability not effectively waived by this LIMITED WARRANTY.” The breadth of that provision, the court concluded, encompassed the HOA’s claims of negligence, strict liability, and breach of implied warranty, among other claims and thus fell within the arbitration provision included in the Limited Warranty.
The court’s skilled and exacting analysis in support of this ruling points up the importance of carefully crafting CC&R’s to avoid potentially conflicting arbitration provisions when incorporating the Home Builder’s Limited Warranty into the CC&Rs.
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