• Arbitration Clause in Condominium CC&Rs Cannot Be Enforced In Construction Defect Dispute By Developer Who No Longer Has Ownership Interest In Property
  • November 16, 2011 | Author: Jon E. Goetz
  • Law Firm: Kronick Moskovitz Tiedemann & Girard A Law Corporation - San Luis Obispo Office
  • In Promenade at Playa Vista HOA v. Western Pacific Housing, Inc. (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., November 8, 2011), a California Court of Appeal considered an appeal from developers who sought to force a condominium homeowners association to submit to binding arbitration to resolve a construction defect dispute pursuant to provisions of the development’s Covenants, Conditions, and Restrictions (“CC&Rs”). The Court ruled that only homeowners associations and individual condominium unit owners have standing to enforce provisions of CC&Rs. Since the developers no longer hold any ownership interest in the property, they were not entitled to do so.

    Western Pacific Housing, Inc. and Playa Capital Company, LLC (“Developers”) were developers of a condominium project on West Pacific Promenade in Playa Vista, California. Before selling any of the condominium units, Developers drafted and recorded the CC&Rs. Only the Developers signed the document. The CC&Rs contained a provision requiring disputes between the Developers and owners or the homeowners association to be submitted to binding arbitration. Eventually, Developers sold all of the units and no longer retained any ownership interest in the complex.

    In 2009, the Promenade at Playa Vista Homeowners Association (“Association”) brought suit against Developers, alleging various construction, structural, electrical, plumbing and mechanical defects. Developers filed a motion to compel the Association to submit to arbitration, pursuant to the CC&Rs. The trial court denied the motion to compel and the developers appealed.

    The Court noted that the plain language of Civil Code Section 1354 specifies who may enforce CC&Rs. That section defines CC&Rs as “enforceable equitable servitudes” and further states, “Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both.”

    The Court found that language plainly links ownership in the condominium complex to enforcement of the CC&Rs. The owners, homeowners association or both may enforce CC&Rs unless the CC&Rs provide otherwise. The Court stated that “under any rational interpretation of section 1354, the Developers cannot enforce the CC&Rs once they have completed the project and sold all the units; they no longer have any ownership interest in the property.” The Court cited various precedents to find that the developers’ former involvement in and ownership of the property did not change their lack of standing to enforce CC&Rs now. “After a grantor has parted with the property which would derive benefit from a continuance of the restrictions, such grantor has no standing in court to enforce the restrictions.”

    Since Developers had no standing to seek enforcement of the CC&Rs, they were powerless to compel arbitration of the Association’s dispute pursuant to the CC&Rs and the trial court properly denied Developers’ motion. The judgment was affirmed.