Mandatory arbitration provisions in CC&Rs no longer protect developers from homeowners associations’ lawsuits, according to a recent appellate court decision. As a result of this change in the law, developers of master planned communities and any other real estate development governed by CC&Rs should consult their attorneys to identify the best forms of legal protection now available.
Before the decision in Villa Vicenza Homeowners Association v. Nobel Court Development, LLC, it had been common practice to place mandatory arbitration provisions in project CC&Rs to bind not only homeowners, but the homeowners association. The court ruled that while CC&Rs may be enforceable among the homeowners and between the homeowners and the developer, such provisions are unenforceable by a developer against a homeowners association. The court’s primary reason was that the homeowners association did not exist before the CC&Rs and, therefore, the homeowners association never contractually agreed to mandatory arbitration.
This decision could have far reaching effects on not only the right to arbitrate, but other developer’s rights contained in the CC&Rs. A similar case is pending before the same Court of Appeal and a decision should be issued within the next few weeks. Given the uncertainty now facing developers about arbitration provisions and legal protections in CC&Rs, HechtSolberg will be working with its clients to develop new strategies to deal with potential developer liabilities.