In 2007 a residence was built and sold by US
Home Corp to the original purchasers. The Deed contained a provision requiring
mediation, and if not resolved, arbitration. Also contained in the Deed were
covenants binding successors to the original buyers.
The covenants were intended to “run
with the land,” as stated in the Deed. That Deed was then recorded in the
Official records of Lee County, Florida.
The original purchasers sold the
property in 2010 to Shane Hayslip. Shane’s deed states that the property is
conveyed subject to all restrictions.
Shane filed a lawsuit against US
Home Corp in 2017, alleging that the stucco was improperly installed when the
residence was built. The magistrate granted US Home’s request to compel arbitration.
The circuit court entered an Order adopting the magistrate’s report and
Shane challenged the Order. On
appeal, a decision was rendered that a valid arbitration agreement exists in
the 2007 Deed which was a covenant “running with the land,” and as a
consequence the courthouse doors were closed to Shane. The decision of the
circuit court was affirmed.
Shane could arbitrate. But not
The district court then certified
the issue to the Supreme Court of Florida as one of great importance.
The Supreme Court found that real
estate covenants are divisible into two major classes: (1) those that “run
with the land” and bind the heirs and assigns of the original parties; and
(2) personal covenants which bind only the original, contracting parties. As
for the former, covenants that “run with the land” must “touch[es] and
involve[s] the land.”
Such covenants must “enhance the
value of the property or render[s] it more convenient and beneficial to the
owner,” as well as affect its occupation and enjoyment.
At least in Florida, arbitration “affects
the occupation and enjoyment of the house as it dictates the means by which
[Shane] must seek to rectify building defects.” As well, the arbitration procedure
also affects the “mode of enjoyment of the premises.”
Because the means of dispute resolution
is directly linked to the original contract, the Supreme Court concluded that
the arbitration provision is binding on future owners. At least in Florida,
arbitration covenants contained in a Deed will be enforced even after the property
has been bought and sold more than once.
US Home Corp wins; Shane Hayslip
loses. See Hayslip v. US Home Corporation; Florida Supreme Court, Case
No. SC19-1371, January 27, 2022: https://www.floridasupremecourt.org/content/download/824950/opinion/sc19-1371.pdf.
Lessons / Questions
1. Question. What if this arbitration provision was not contained in the Deed but rather an unrecorded contract between the original parties, which stated that the provisions were binding upon the successors and assigns of the parties. Would Shane still be relegated to only arbitration?
2. Observation. Does this holding make sense to you; do you agree that a recorded arbitration provision “touches and involves the land,” and “enhances the value of the property or renders it more convenient and beneficial to the owner”? Because I’m struggling with this.
3. Lesson. All of us in the real estate industry read surveys and title commitments closely, particularly when representing commercial buyers and lenders. Large tenants too. Now add to the must-read list an analysis of all deeds in the chain of title, to determine if covenants have been recorded which may not be identified in the title commitment. Such as mandatory arbitration.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
Post a Comment