Enforceability of Arbitration Provisions in Disputes with Developers

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Binding arbitration provisions contained in a HOA’s CC&Rs may not be enforceable in a construction defect action against the HOA’s developer…

In Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, 187 Cal.App.4th 24 (2010), a HOA sued its developer for construction defects. Both the HOA’s CC&Rs and the homeowners’ purchase and sale agreements required binding arbitration instead of a jury trial. These documents were prepared by the developer and could not be modified without the developer’s consent.

In response to the developer’s motion to compel arbitration of the case, the court held that the binding arbitration provision of the CC&Rs was not enforceable to the extent of denying a jury trial, because the CC&Rs did not constitute an “agreement” to waive the HOA’s fundamental right to a jury trial. Though CC&Rs typically have the force of contract, the court asserted that the developer is the only actual “party” to the agreement when disputes arise between the HOA and the developer.

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Though this case is being appealed, if the ruling stands it will effectively invalidate most binding arbitration provisions contained in CC&Rs with respect to HOA disputes with developers.

**Note: The ruling in Pinnacle has been expanded by the even more recent case of Villa Vicenza HOA v. Nobel Ct. Dev. LLC (2011). To read our blog post on this new development, click here.

To read the full text of the holding, click here.