Florida Supreme Court Rules that Arbitration Clauses in Deeds Run with the Property in Certain Cases
In this blog, Matt Couch, Attorney with Moorhead Law Group of Pensacola, Florida, writes about a recent Florida Supreme Court ruling that could have implications for property owners dealing with real property defects. His practice areas include real estate and construction disputes, business litigation, and employment law. To learn more about Matt, his areas of practice, and how to contact him, click here.
In the case of Hayslip v. U.S. Home Corporation, the Florida Supreme Court recently ruled that a covenant in a deed requiring arbitration of construction defect claims against the grantor/original developer is a “real” covenant, which runs with the land, and is therefore binding on subsequent purchasers of the subject real property.
As outlined in the Court’s opinion issued on January 27, 2022, the Hayslips purchased the subject home in 2010 from the original owner, who had previously purchased it from the developer/builder, U.S. Home Corporation, in 2007. The original special warranty deed by which U.S. Home conveyed title to the property and home to the original owner contained a clause expressly requiring that all disputes shall first be submitted to mediation, and if not settled in mediation, shall be submitted to binding arbitration. The same deed also contained several covenants, conditions, and restrictions, including that the covenants and terms of the deed bind the original as well as subsequent purchasers, and that all disputes concerning the subject home shall be submitted to arbitration. Elsewhere, the deed described the covenants and restrictions stated therein as “equitable servitudes” that “run with the land.” The deed in question was recorded in the official records of Lee County, Florida.
In 2017 after purchasing the home from the original owner, the Hayslips filed a lawsuit against U.S. Home, alleging that it improperly installed the stucco on the home in violation of the Florida Building Codes Act. U.S. home successfully moved to dismiss the action on the basis of the arbitration clause in the original deed. The Second District Court of Appeals affirmed the dismissal but certified the issue to the Florida Supreme Court as a matter of great public importance.
The issue certified for review as framed by the Florida Supreme Court was: “Does a deed covenant requiring arbitration of any dispute arising from a construction defect run with the land, such that it is binding upon a subsequent purchaser of the real estate who was not a party to the deed?”
The Court answered the question affirmatively. In so holding, the Court first recited the three-part test to determine whether a covenant “runs” with the land and is binding on all successive owners, or is merely personal to the original covenanting parties: (1) the existence of a covenant that touches and involves the land; (2) an intention that the covenant run with the land; and (3) notice of the restriction on the part of the party against whom enforcement is sought.
The Court determined that the arbitration clause “touches and involves the land” because it dictated how the Hayslips must seek to rectify construction defects related to the home.
Next, the Court found that the parties to the original deed intended for the arbitration clause to pass on to subsequent owners as the deed itself expressly recites that all conditions and restrictions contained in the deed “run with the land.”
Finally, the Court found the Hayslips had constructive notice of the arbitration clause under section 695.11, Florida statutes, because the original deed was recorded in the public records in the county where the subject home is located.
With those findings, the Court held that the arbitration provision was binding on the Hayslips as subsequent purchasers of the home. The Opinion of the Court is available here.
Many consumers and potential home buyers do not realize that property deeds are publicly available either online or by contacting the county agency in charge of property appraisal information and/or property taxes. If you have questions about a scheduled or potential real property transaction, please consult with a real estate attorney and/or your real estate agent.