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HOAs Suing as Representative of Owners are Bound by Arbitration Provisions in Owner Sale Agreements and Deeds

Earlier this year, we published an article titled Covenants to Arbitrate Construction Defect Disputes Within a Deed Run With the Land Obligating Subsequent Parcel Owners wherein the Florida Supreme Court held that an arbitration covenant contained in a developer’s original deed also bound subsequent owners. The same principle applies to homeowners’ associations suing as representative of their owners.

Florida’s Third District Court of Appeal recently ruled in Lennar Homes, LLC, v. Martinique at the Oasis Neighborhood Association, Inc., Case No. 3D20-1732. (Fla. 3rd DCA, December 27, 2021) that an HOA bringing construction defect claims on behalf of its owners must follow the arbitration provisions in the owners’ sale agreements.

Martinique at the Oasis is a townhome residential community constructed by Lennar Homes, LLC (“Lennar”). When Lennar sold each townhome they included an arbitration clause in their purchase and sale agreement and warranty deed. After turnover, the association sued Lennar in state court for alleged construction defects. Lennar moved to compel arbitration pursuant to the arbitration provisions in the sale agreements and deeds. The trial court denied the motion ruling there was no agreement between the HOA and Lennar. The court further ruled the arbitration provisions were null and void as against public policy because it would have prohibited or restricted the associations right to maintain a lawsuit against Lennar.

On appeal, the First District Court of Appeal ruled the association was bound by the arbitration provisions in the sale agreements and deeds because the association sued in its representative capacity on behalf of the owners. The Court agreed with the holding in Pulte Home Corp. v. Vermillion Homeowners Ass’n, Inc., 109 So. 3d 233 (Fla. Dist. Ct. App. 2013) wherein the Second District Court of Appeal held a homeowners’ association is bound by its owners’ individual agreements to arbitrate when it is suing in a representative capacity because owners were the “real parties in interest” and an association’s rights to file a lawsuit are not “superior to those of the actual owner.”

The Court also rejected the association’s argument that the arbitration provisions in the sale agreements and deeds were void against public policy pursuant to Fl. Stat. §720.3075(1)(b), which provides:

It is declared that the public policy of this state prohibits the inclusion or enforcement of certain types of clauses in homeowners’ association documents, including declaration of covenants, articles of incorporation, bylaws, or any other document of the association which binds members of the association, which either have the effect of or provide that: A homeowners’ association is prohibited or restricted from filing a lawsuit against the developer, or the homeowners’ association is otherwise effectively prohibited or restricted from bringing a lawsuit against the developer.

Until the legislature addresses anti-waiver legislation for HOAs similar to the Condominium Act’s anti-waiver provisions found in Fl. Stat. §718.303(2), both homeowners and associations, should expect to find arbitration provisions in all forms of instruments and agreements. Additionally, before a homeowners’ association brings state court claims in its representative capacity, it will need to review its owners’ sale agreements, deeds, and the deeds of their predecessors in title, to determine whether they contain mandatory arbitration provisions.

 

Posted in Arbitration, Community Association, Construction Defects, Contracts, Homeowners Association
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