Covenants to Arbitrate Construction Defect Disputes Within a Deed Run With the Land Obligating Subsequent Parcel Owners

In the case of Hayslip v. U.S. Home Corporation, — So. 3d —, Case No. SC19-1371 (Fla. Jan. 22, 2022), the Florida Supreme Court held that an arbitration covenant contained in a developer’s original deed also bound subsequent owners.

In Hayslip, the homeowners alleged a claim against the builder for substandard stucco installation. The builder sought to compel arbitration based upon a provision set forth in the original deed. The trial court stayed the litigation and compelled the Hayslips and U.S. Home Corporation to participate in arbitration.

The Second District Court of Appeal affirmed the trial court’s decision and issued a certified question to the Supreme Court of Florida. The Supreme Court rephrased the certified question as “[d]oes a deed covenant requiring the arbitration of any dispute arising from a construction defect run with the land, such that it is binding upon a subsequent purchaser of the real estate who was not a party to the deed?” The Supreme Court answered its rephrased question in the affirmative.

The Hayslips argued they were not bound by the arbitration provision because it is not a covenant running with the land. Covenants are divisible into two major classes: (1) real covenants that run with the land and typically bind the heirs and assigns of the covenanting parties; and (2) personal covenants that bind only the covenanting parties personally.

In rejecting their argument, the Court identified the requirements to establish a covenant running with the land: (1) the covenant must touch and involve the land; (2) the covenant is intended to run with the land; and (3) the party against whom enforcement is sought is on notice of the restriction.

The Court determined the arbitration provision affected the occupation and enjoyment of the home since it controlled how Hayslips were required to address construction defects related to the home. The Court reasoned the arbitration provision impacts both how the Hayslips seek recourse against the builder and ultimately, the condition of the home based on the outcome of the arbitration proceeding. As such, the Court concluded, the arbitration provision touched and concerned the Hayslips’ property since it impacted the Hayslips’ occupation and enjoyment of the home. Intent to be bound was shown in the developer’s deed to first purchaser. Finally, the Court relied on long-standing Florida law that an instrument recorded in the official county records constitutes notice to all persons.  Therefore, the Court concluded that all three factors were present in the arbitration deed covenant making it run with the land.

This case serves as reminder for people buying property to review not only any applicable community association governing documents, but also the prior deeds to the property. Such documents may contain provisions governing the ownership of the home even if the buyer was not a party to the execution of such documents.