Does an agreement to arbitrate in a sales contract between a homebuilder and a home buyer run with the home and bind a subsequent buyer to arbitrate a construction defect claim? The Texas Supreme Court will soon give us an answer to that question in Lennar Homes of Texas Land and Construction, Ltd. and Lennar Homes of Texas Sales and Marketing, Ltd. v. Kara Whitely (No. 14-19-00269-CV; No. 21-0783).
The facts are straightforward. Lennar built a home and sold it to the original buyer in 2014. Lennar conveyed the house in a special warranty deed and single-family warranty deed, both of which contained mandatory arbitration provisions. The following year the buyer sold the home to Whiteley. Two years later she sued Lennar for construction defects allegedly caused by the home’s HVAC system. Lennar filed an application to stay the lawsuit pending arbitration, which the trial court granted. The arbitrator’s award dismissed Whiteley’s claims and awarded Lennary attorney’s fees. Lennar moved to confirm the award, but Whiteley responded with a motion to vacate the award on the basis that she was not a party to the arbitration agreement. The trial court denied Lennar’s motion and granted Whiteley’s.
The Houston [14th] Court of Appeals affirmed, holding that an arbitration agreement in a sales contract does not run with the land because it does not “touch and concern” the land. The court interpreted the considerable case authority on covenants that run with the land to mean an agreement “premised on the physical use or enjoyment of the conveyed property,” where an arbitration agreement’s purpose is “to provide a rapid, less expensive alternative to traditional litigation” (though we have found may businesses who would dispute that assumption!). “Accordingly,” the court concluded, “the special warranty deed’s arbitration agreement is more akin to a personal covenant than a covenant that touches and concerns the land” (citations omitted).
It goes without saying that untold numbers of Texans are living in homes they acquired from sellers who agreed to arbitration in their contracts with the builder. SCOTX will hear oral arguments on January 31.
