Article by Michael Clark in today’s Daily Business Review: “Certified Question to High Court: Do Original Arbitration Provisions Apply to Subsequent Homebuyers?”

An article authored by the firm’s B. Michael Clark, Jr. is featured as the expert guest commentary column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which is titled “Certified Question to High Court: Do Original Arbitration Provisions Apply to Subsequent Homebuyers,” focuses on the contractual provisions prescribing arbitration as the means of dispute resolution for construction defect claims.  These stipulations, which are used by developers for sales of their new homes, are probably known and understood by the initial buyers of newly built properties, but are subsequent buyers of these homes also subject to the arbitration provisions of the original warranty deeds?  Michael writes that is the question that an appellate court has certified as one of great public importance for consideration by the Florida Supreme Court.  His article reads:

. . . In Hayslip v. U.S. Home, the Hayslips appealed a nonfinal order granting U.S. Home Corp.’s motion to stay their claim and compel arbitration pursuant to the terms of the original special warranty deed for the property. As subsequent buyers of the home from the original owners, the Hayslips asserted they were not bound by the arbitration provision because it is not a covenant running with the land but rather a personal covenant binding only to the original purchasers.

The Second District Court of Appeal found a valid arbitration agreement existed and, as a restrictive covenant running with the land, the arbitration provision contained in the original special warranty deed bound the Hayslips to arbitrate as subsequent purchasers. The court affirmed the circuit court’s order compelling arbitration, but it certified a question of great public importance to the Florida Supreme Court as an issue of first impression.

In 2007 U.S. Home completed construction and sold the home to its original buyers, transferring title by special warranty deed. The deed provided that “all covenants, conditions and restrictions contained in this Deed are equitable servitudes, perpetual and run with the land.” It further provided that “grantee, by acceptance of this deed, automatically agrees for itself, and its heirs, personal representatives, successors and assigns, to observe and to be bound by all of the terms and conditions set forth in this deed.”

When the Hayslips purchased the home from the original buyers in 2010, their warranty deed did not contain any express provisions regarding arbitration but did provide that the conveyance of the home was “subject to easements, restrictions, reservations and limitations, if any.”

The Hayslips filed a lawsuit against U.S. Home in 2017, alleging inadequate and improper stucco systems were installed on their home in violation of the Florida Building Codes Act. The developer immediately moved to stay the court proceedings and compel arbitration pursuant to the language of its original special warranty deed.

Following a hearing, the general magistrate concluded that the arbitration provision in the original special warranty deed is a covenant running with the land and therefore binding on the Hayslips, who had notice of the provision. The magistrate recommended the lawsuit be stayed pending mediation and/or arbitration, and the circuit court adopted its recommendation.

On appeal, the Hayslips asserted that the arbitration provision does not touch and concern the land, a necessary requirement to be characterized as a covenant running with the land.
While no Florida appellate court has considered whether an arbitration provision contained within a deed touches and concerns the land such that it is binding on subsequent purchasers, the appellate panel, relying on other authority, noted that the performance of the covenant affects “the occupation and enjoyment” of the home, as it dictates the means by which owners will seek to rectify building defects.

“Not only is the covenant triggered when an apparent defect in the home is realized and the homeowners seek recourse from the builder, but the outcome of the arbitration proceeding necessarily impacts the home as well. Thus, the arbitration provision touches and concerns the property itself,” concluded the unanimous opinion.

The appellate court also noted that several other state and federal courts have concluded arbitration provisions such as the one at issue were real covenants that touch and concern the land.

However, because Hayslip presents an issue of first impression with potentially wide-ranging effect, the court certified the following question to the Florida Supreme Court as one of great public importance:

DOES A MANDATORY ARBITRATION PROVISION CONTAINED WITHIN A RESIDENTIAL WARRANTY DEED CONVEYING RESIDENTIAL PROPERTY FROM HOME BUILDER TO ORIGINAL PURCHASER RUN WITH THE LAND SUCH THAT IT IS BINDING ON SUBSEQUENT PURCHASERS WHERE THE INTENDED NATURE OF THE PROVISION IS CLEAR AND THE PARTY AGAINST WHOM ENFORCEMENT IS SOUGHT WAS ON NOTICE OF THE PROVISION?. . .

Michael concludes by noting that the Florida Supreme Court has agreed to take up the case, and its decision will certainly be an important one with significant ramifications for the construction and real estate industries in Florida.

Our firm salutes Michael for sharing his insights into this ruling and the question that is now before the state’s high court with the readers of the Daily Business Review.  Click here to read the complete article in the newspaper’s website (registration required).