Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #97 • August 2012
California Supreme Court
Clears the Way for Arbitration of Construction Defect Cases
by Matt J. Malone
On August 16, 2012, the California Supreme Court determined that arbitration clauses in association CC&Rs – which waive the association’s right to jury trial for defect disputes and direct them instead to private arbitrators – are enforceable and not unconscionable. Such provisions are drafted entirely by the developer prior to any purchase and before the association exists as anything other than as a developer-controlled entity. Nonetheless, because the Civil Code permits a developer to insert into the CC&Rs “any other matters” that developers consider appropriate, the Court held that developers can place arbitration provisions in CC&Rs.
The Court further held that arbitration provisions are not unconscionable because: 1) recording the CC&Rs prior to sale of a unit and without association input was a circumstance dictated by the Davis-Stirling Act, and the developer procedurally complied with that act; and 2) the arbitration provision applies equally to both the association and the developer. Finally, the Civil Code also prohibits a court from approving any amendment that would eliminate CC&R provisions that grant special rights to the developer, unless the developer consents. Accordingly, the fact that an association cannot amend out an arbitration provision does not make the provision unconscionable, since the Legislature specifically protected such pro-developer clauses from amendment.
This ruling could mean that more of these defect cases will be referred to arbitrators where they will be heard without the benefit of an appeal by either side. It could also mean that they will be heard more quickly since arbitration hearings are arranged without regard to court calendars which have been clogged in recent years. The long-term benefit to community associations is hard to measure at this early date, but we will be able to advise our clients and follow this with a more detailed article in the next few weeks.
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