Arbitration Provisions in Developer CC&Rs: NOT ENFORCEABLE?

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Arbitration provisions contained in a developer’s recorded CC&Rs are held not to be binding contractual terms…

Our recent blog post titled “Enforceability of Arbitration Provisions in Disputes with Developers” discussed the 2010 case of Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, 187 Cal.App.4th 24 (2010). In Pinnacle, the court held that binding arbitration provisions contained in a recorded declaration of covenants, conditions and restrictions (CC&Rs) are not enforceable against a Homeowners Association (HOA) in a dispute between the HOA and the developer. Pinnacle is up for review by the California Supreme Court; however, if it stands it will effectively invalidate most binding arbitration provisions contained in CC&Rs with respect to HOA Disputes with developers.

The even more recent case of Villa Vicenza Homeowners Association v. Nobel Court Development LLC, 2011 WL 72200 (2011) (Nobel) may serve to expand the holding in Pinnacle. In Nobel, the CC&Rs required condominium owners and the Association to arbitrate any claims they had against the developer. After buyers noticed defects in common areas and facilities, the Association filed suit against the developer. The developer’s motion to compel arbitration under the CC&Rs was denied by the trial court and the developer appealed.

In affirming the trial court’s decision, the appellate court in Nobel asserted that CC&Rs cannot be used as means for creating any continuing contractual rights between the developer of common interest developments and either a HOA or the individual homeowners. The ruling in Pinnacle did not go so far as to also render binding arbitration provisions invalid as to individual homeowners.

The court in Nobel concluded that CC&Rs, which are equitable servitudes under California Civil Code Section 1354, did not constitute contracts to provide non-owners, such as the developer, continuing and irrevocable benefits.

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These rulings could significantly impact both a HOA’s and an individual unit owner’s ability to bring suit against the developer despite binding arbitration provisions contained in the recorded CC&Rs. The force of these ruling, however, hinge on the determination to be made by the California Supreme Court in its review of Pinnacle.

To read the full text of Nobel, click here.
To read the full text of Pinnacle, click here.