Deeds to Real Property in Florida: Subsequent Purchasers Beware

When you think of arbitration of disputes, one typically relates it to an agreement between parties, who have chosen that form of dispute resolution.  However, in some cases, even parties that have not signed an agreement to arbitrate may be required to arbitrate their claims.   

Indeed, the Florida Supreme Court in Hayslip v. U.S. Home Corporation determined that a deed involving real property could require a subsequent purchaser to arbitrate construction defect claims against the original builder, even though that subsequent purchaser was not a party to the original deed.  

The facts of Hayslip are as follows: In 2007, a home was constructed and sold by U.S. Home to the original purchasers, with the title being conveyed from U.S. Home to those purchasers, via a specialty warranty deed.  That deed was then recorded in the public records.  

The deed contained language that the grantor and grantee specifically agreed that the transaction involved interstate commerce, that any dispute was to be first submitted to mediation, and, if not settled, submitted to binding arbitration, pursuant to the Federal Arbitration Act.   

The deed also contained several covenants, conditions, and restrictions regarding the home, including that the covenants: 

1. bound both the original purchaser and subsequent purchasers;  
2. required arbitration of disputes concerning the home; and  
3. ran with the land.  

In 2010 the original purchaser sold the home to the Hayslips, with that deed providing that the real property was subject to easements, restrictions and reservations, and limitations, if any.  

After purchasing the home, the Hayslips filed suit against U.S. Home, alleging construction defects, including improper installation of the stucco system. In response to that complaint, U.S. Home filed a motion to stay and compel arbitration, which the trial court granted. The Second District Court of Appeal agreed with the trial court, finding a valid arbitration agreement existed and that it was a covenant running with the land.  

The Florida Supreme Court affirmed the appellate court and went into some detail discussing the different types of real property covenants. Those types of covenants include:  a) those that run with the land and typically bind heirs and assigns (including subsequent purchasers); and b) personal covenants that bind only the covenanting parties personally (and not subsequent purchasers).  

In Hayslip, the Florida Supreme Court determined that the performance of the covenant (arbitration of disputes) in the operative deed affected the occupation and enjoyment of the home, as it dictated the means by which the owners must seek to rectify building defects related to it. In addition, the Court stated: “[n]ot 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.”   

The Hayslips argued that because they were not signatories to the original deed, they did not intend to be bound by the arbitration provision. However, the Florida Supreme Court noted that covenants in a deed can be enforced against a successor grantee, so long as the successor grantee had notice of the covenant. Since the Hayslips had at least constructive notice of the arbitration requirement (because the arbitration provision was properly recorded with the original deed in the public records), they were bound by the arbitration provision. 

The Florida Supreme Court’s decision in Hayslip is instructive to developers. contractors and potential owners/subsequent purchasers.  As a developer/contractor, if arbitration is important for resolving construction/design defect disputes associated with the home, using a deed like the one in Hayslip is critical.  As potential owners/subsequent purchasers, the teachings of Hayslip require vigilance when reviewing the chain of title to property to ensure an understanding of the covenants that you bind and that run with that property.