Rather than focusing on the cause of costly and time consuming construction defect litigation ( i.e., poor construction), Developers of condominiums and townhome associations are more frequently trying to limit the association’s (and the unit owners’) ability to bring such a lawsuit. Instead of constructing buildings properly and ensuring quality construction to prevent construction defects, some Developers of condominiums and townhomes have inserted clauses in the association governing documents to force condominiums to mediate or arbitrate those construction defect claims prior to , or even instead of, filing suit. The Developers are able to draft the future association’s governing documents themselves with free reign to limit the association’s access to the court system to resolve its disputes. However, a court of appeals in California recently prevented a Developer from doing just that.
The association in Villa Vicenza Homeowners Association v. Nobel Court Development, LLC pursued construction defect claims and filed a suit against their Developer for failing to provide a sufficient reserve fund and for failing to repair various construction defects. The Developer then filed a motion to compel arbitration of the construction defect claims under the provisions of the master deed that it had drafted. The trial court denied that motion, and the appellate division affirmed the denial. In doing so, the court found that although arbitration agreements are generally enforceable , the master deed was not an "agreement" because its terms were contemplated and drafted before the association even existed, eliminating the opportunity for the association to negotiate the terms its own governing documents. The court found that although governing documents are enforceable generally against unit owners prohibiting or encouraging certain conduct, treating the governing documents "as a contract such that they are sufficient to waive the right to trial by jury does not comport with the importance of the right waived." Enforcing such an agreement in which the unit owners have little or no say in the termsis not permissible when the agreement includes a stipulation as important as waiving the right to a jury trial. This term in the governing documents was clearly meant to severely limit the rights of the common interest community and unit owners for the sole benefit of the Developer, and thus the court would not enforce the term against the association. The trial court was able to override this condition in the governing documents, and theassociation was free to continue its suit against the Developer.