ASSOCIATION BOUND BY ARBITRATION PROVISION IN PURCHASE-AND-SALE CONTRACTS AND DEEDS

When an association files a lawsuit pertaining to matters of common interest, the lawsuit is typically filed as a class on behalf of the owners that make up the association (i.e., the association’s members).  How do you deal with an arbitration provision that is included in an owner’s purchase-and-sale agreement or recorded in the deed?  The recent opinion in Lennar Homes, LLC v. Martinique at the Oasis Neighborhood Association, Inc., 47 Fla. L. Weekly D15c (Fla 3rd DCA 2021) dealt with this exact issue with a homeowner’s association ruling that the association was required to arbitrate its latent construction defect claims against the developer (homebuilder).

In this case, a community in Miami consisted of 26 townhouse buildings.  There was a broad arbitration provision in each owner’s purchase-and-sale agreement that included disputes relating to property damage.  Further, with each closing, a special warranty deed was recorded that included a nearly identical arbitration provision.

The association became aware of latent defects relating to the exterior walls of the buildings and filed a lawsuit against the developer (homebuilder).    The developer moved to compel the dispute to arbitration which was denied by the trial court because there was no specific agreement between the association and the developer that required arbitration and the lawsuit dealt with matters that the association was obligated to maintain.

The developer appealed contending that the association was bound by the arbitration provision in its members’ (the real property owners) purchase-and-sale agreements and deeds.   The Third District Court of Appeal, relying on the Second District Court of Appeal’s decision in Pulte Home Corp. v. Vermillion Homeowners Ass’n, Inc., 109 So.3d 233, 235 (Fla. 2d DCA 2013), agreed with the developer: “Consistent with our sister court’s analysis in Pulte, we hold that the Association’s right to proceed in its representative capacity in this case required it to abide by the members’ agreement with [the developer] to arbitrate this dispute.” Lennar Homes, supra.

As an aside, the association also argued that the arbitration provision in the purchase-and-sale agreement and special warranty deed should be deemed void against public policy under Florida Statute s. 720.3075(1)(b) that provides in material part: “It is declared that the public policy of this state prohibits the inclusion or enforcement of certain types of clauses in homeowners’ association documents, including declaration of covenants, articles of incorporation, bylaws, or any other document of the association which binds members of the association, which either have the effect of or provide that: A homeowners’ association is prohibited or restricted from filing a lawsuit against the developer, or the homeowners’ association is otherwise effectively prohibited or restricted from bringing a lawsuit against the developer.”   The Third District Court of Appeal found this argument unavailing as the purchase-and-sale agreement and special warranty deed, both of which included the arbitration provision, are not association documents (e.g., declarations of covenants, articles of incorporation, bylaws, etc.).

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, Associations (Condo / Homeowners) and tagged , , , , , .