SUBSEQUENT PURCHASER OF HOME COMPELLED TO ARBITRATION BASED ON COVENANT RUNNING WITH THE LAND

Arbitration provisions are creatures of contract and courts should indulge reasonable presumptions in favor of requiring parties to arbitrate.   Keep this in mind when agreeing to an arbitration provision or trying to navigate around an arbitration provision.

 

An example of a court indulging a reasonable presumption in favor of arbitration can be found in the Second District Court of Appeal’s decision in Hayslip v U.S. Home Corp., Fla. L. Weekly D1798a (Fla. 2d DCA 2019) involving a subsequent purchaser of a home suing the homebuilder for construction defects.

The original owner purchased the home from the homebuilder. The home was conveyed with a special warranty deed recorded in the official records. (The deed was executed by the seller, not the original owner as the buyer, per Florida law.) The special warranty deed stated that all covenants and conditions in the deed run with the land including a dispute resolution provision that required mediation as a condition precedent to binding arbitration.

 

The original owner sold the property to the subsequent purchaser.  The subsequent purchaser then sued the homebuilder for construction defects (building code violations).  The homebuilder moved to compel arbitration pursuant to the special warranty deed arguing that since the arbitration provision was a covenant running with the land it would extend to the subsequent purchaser.  The Second District agreed; even though the subsequent purchaser was not a party to the original transaction, since the arbitration provision in the special warranty deed was a covenant running with the land that the subsequent purchaser would have notice of, the subsequent purchaser would be bound by the arbitration provision.

 

Here, it is undisputed that the [subsequent purchasers] were on notice of the original special warranty deed’s covenants and restrictions, and by taking title to and possession of the home, they acquiesced to the arbitration provision.  Further, Florida law does not require that the home buyer sign the warranty deed in order to be bound by it. 

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A real covenant, or covenant running with the land, differs from a merely personal covenant in that the former concerns the property conveyed and the occupation and enjoyment thereof, whereas the latter covenant is collateral or is not immediately concerned with the property granted.

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[T]he performance of the covenant here affects “the occupation and enjoyment” of the home…as it dictates the means by which the [subsequent purchasers]  must seek to rectify building defects related to the home. Not only is the covenant triggered when an apparent defect in the home is realized and the homeowners seek recourse from the builder, but the outcome of the arbitration proceeding necessarily impacts the home as well. Thus, the arbitration provision touches and concerns the property itself. 

Hayslip, supra (internal quotations and citations omitted).

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Posted in Arbitration.