Construction News: Developers Can Force Arbitration of Disputes, CA Supreme Court Rules

Earlier this month, the California Supreme Court held that homeowners’ associations are bound by arbitration provisions in covenants, conditions and restrictions (CC&Rs). From law firm Allen Matkins:

“… the California Supreme Court issued a significant opinion in the matter of Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, et al., holding that arbitration provisions in recorded Covenants, Conditions and Restrictions (CC&Rs) are enforceable by a developer unless proven to be unreasonable… This decision represents a major victory for developers who can now expect that most of these provisions will be enforced, eliminating the risk of potentially excessive jury verdicts.”

For your reference, here’s a roundup of legal analysis on the topic:

Key Calif. Supreme Court Decision for Developers in Resolving Construction Defect Disputes (Duane Morris LLP):

“The real estate project involved is a mixed-use residential and commercial condominium CID project located in San Diego, Calif. The owners association that was formed to own and maintain the common areas of the project brought a construction defect lawsuit against the developer. The developer moved to compel arbitration based on provisions in the CC&Rs recorded for the project that required construction disputes with the developer to be resolved through binding arbitration. Both the trial court and California Court of Appeal for the Fourth Appellate District held the arbitration provisions were unenforceable against the owners association and unconscionable.” Read on>>

California Supreme Court Recognizes Enforceability of Mandatory Arbitration Clause Recorded in CC&Rs in Construction Dispute Between Developer and Owners’ Association (Miller Starr Regalia):

“The Court indicated that binding arbitration can benefit ‘both the developer and the entire common interest community by providing a speedy and relatively inexpensive means to address allegations of defect damage to the common areas and other property interests.’ The Court recognized that under the pre-emptive [Federal Arbitration Act], it would be inappropriate to ‘selectively target [the CC&R arbitration clause as] the only clause of the recorded declaration that does not memorialize an agreement binding the Association.’” Read on>>

Supreme Court Holds Arbitration in CC&Rs Valid (McKenna Long & Aldridge LLP):

“The decision broadly validates the use of arbitration provisions in recorded CC&Rs, except for clauses that involve specific procedural or substantive unfairness. Also, as development recovers, ADR will remain a risk management tool to be considered on a project-by-project basis. Arbitration will be the standard for mandatory, binding ADR.” Read on>>

Developers Earn Major Victory in California Supreme Court Regarding Enforcement of Arbitration Provisions in CC&Rs (Allen Matkins Leck Gamble Mallory & Natsis LLP):
“The Pinnacle decision reverses a trend of recent decisions that found arbitration provisions in CC&Rs to be unenforceable by developers. Developers in the Villa Vicenza, Promenade, and Verano matters should now benefit from the Supreme Court’s decision in Pinnacle.” Read on>>

Related reading: Top Tips about Binding Arbitration Clauses – Jaburg Wilk

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