Developer Risk: Court invalidates arbitration provisions in CC&Rs

In Villa Vicenza Homeowners Association v. Nobel Court Development, the Fourth District Court of Appeal held that a mandatory binding arbitration provision contained in covenants, conditions and restrictions (CC&Rs) are invalid to the extent they benefit the developer of the project – or any non-owner.

The court made clear that it was not addressing arbitration provisions in contracts between developers and their buyers.

The facts of the case involve a developer who purchased an existing apartment building and common areas. The developer subsequently converted them into condominiums for resale to the public; therefore, this is not subject to SB 800. Homeowners noticed defects in common areas and sued the developer on behalf of the Homeowners Association (HOA).

The Court held that the developer could not compel arbitration with current homeowners based on the arbitration provision contained in the CC&Rs. 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 subsequent purchasers do not purchase directly from the developer, they do not have an opportunity to negotiate or agree to the arbitration provisions in the CC&Rs and therefore cannot agree to them.  For more information, contact Nick Cammarota.

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