Rare court victory for home builders

Aug. 22, 2012

By Joseph Perkins

It has taken the better part of two decades, but the California Supreme Court has finally reined in so-called “construction defect” lawsuits, the threat of which has had a damping effect on development of multi-family for-sale housing.

The case in question pitted the homeowners association for San Diego’s Pinnacle Museum Tower against the developer of the 182-unit high-rise condominium. The HOA sued the developer for alleged defects. The developer countered by demanding binding arbitration, based on a clause of the covenants, conditions and restriction (CC&R) to which each of the condo owners agreed upon purchasing their units.

While lawyers representing the HOA asserted that the condo owners had an inviolate right to have their claim heard by a judge and jury (no matter what the CC&R said), and while both a state trial court and appellate sided with the HOA, California’s highest court ruled in favor of the condominium tower’s developer.

That doesn’t mean that developers no longer have to worry about construction defect claims. It simply means that those claims will be settled by mandatory arbitration rather than adjudication in court, with all the time and expense that entails.

The biggest beneficiaries of the Supreme Court decision is not the state’s developers, although they certainly welcome the favorable ruling, but first time homebuyers who cannot afford the median-priced single-family detached home, but can afford a condo or townhouse.

The supply of such multi-family housing was far outstripped by demand during much of the 1990s and early 2000s as developers, wary of construction defect litigation, decided it was safer to build single-family homes rather than multi-family product.

Indeed, a 1996 survey by the University of Southern California’s Lusk Center Research Institute found that four of five California builders of multifamily housing had been hit with construction-defect litigation, a cottage industry for the state’s rapacious trial lawyers.

Because of the omnipresent threat of construction defect litigation, the statewide production of condos fell from 18,691 units in 1994 to a mere 2,945 in 1999. Meanwhile, the number of insurance providers that covered new condo development projects declined from 30 in 1991 to two by decade’s end.

The move away from multi-family housing to single-family housing by the state’s lawsuit-averse home builders had much to do with the run up in price of entry level housing in Californiad uring the early 2000s. It also explains why homeownership became unattainable during the previous decade for many California residents who dreamed of becoming first-time homebuyers.

Given the continuing struggles of California’s housing industry, it is unrealistic to expect condo development to return anytime soon to levels of two decades ago, before the explosion of construction defect litigation.

However, the recent decision by the California Supreme Court, steering HOAs to arbitration rather than jury trials, almost certainly will have a stimulative effect on development of multi-family for-sale housing when the state’s housing market finally rebounds.

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 August, 2012, 13:24

    The Supreme Court got this one wrong, the binding arbitration in the CC&R’s were nothing more than an adhesion clause and should eb void. Everyone should have the right to go to court, not just the rich, believe me the rich developers go to court all day long f it benefits them.

    Reply this comment
  2. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 22 August, 2012, 14:11

    LOL— Now Rex the poodle is a construction defect law critic!

    LMAO !!!

    Troll city– Population 1
    Rex the Poodle– Mayor.

    Reply this comment
  3. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 August, 2012, 14:43

    LOL…Teddy, you’re an expert in every thing-especially gimmick accounts 🙂

    Sleepy troll 😉

    Reply this comment
  4. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 22 August, 2012, 14:47

    What’s funny little Poodle is that you actually have no idea who is me……but you think you do…..fun……

    Do you think that the moderators of this fine blog look? Do you think they would let me post under dif names?

    Reply this comment
  5. Queeg
    Queeg 22 August, 2012, 14:56

    Only Queeg knows-

    Reply this comment
  6. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 22 August, 2012, 15:53

    Queeg– I am starting to think you may be me?

    Reply this comment
  7. Queeg
    Queeg 22 August, 2012, 16:01

    Sounds like the Poodle got to tune in from Randsburg to GHOST WHISPERER.. for tips on the other dimension!

    Reply this comment
  8. Bill Hough
    Bill Hough 22 August, 2012, 17:35

    I’m not sure I’m thrilled with this one. Developers are known for putting up crap and hoping nobody notices. I live in a development that had legitimate construction defects and was, fortunately, able to reach a settlement with the developer before going to trial. But state law must superceede CC&Rs and allow for defect lawsuits to go to court.

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 August, 2012, 22:39

    What’s funny little Poodle is that you actually have no idea who is me……

    LOL…yeah that si teh same thing you said when I busted all of your gimmick accounts on OCR, and accused me of working there to get the IP addresses……….

    Go back on vacation sleepy troll, and take your sock puppets with you 😉

    Reply this comment
  10. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 23 August, 2012, 08:09

    Rex Poodle—- Are you living in a dream?

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 23 August, 2012, 10:08

    Yes I am, and I just killed off your two sock puppets in my dream, it was so SWEET 🙂

    Reply this comment
  12. the Rt Rev Ted Steele
    the Rt Rev Ted Steele 24 August, 2012, 06:50

    I THOUGHT you were dreaming– makes sense now!

    Reply this comment
  13. Rex the Wonder Dog!
    Rex the Wonder Dog! 24 August, 2012, 14:13

    Not as much sense as killing your two sock puppets 😉

    Reply this comment
  14. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 24 August, 2012, 15:21

    zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

    Reply this comment
  15. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 August, 2012, 00:20

    I had my BB gun and put one right bewteen the eyes of Uhaul and Queeg 🙂

    Reply this comment
  16. the Rt Rev Ted Steele
    the Rt Rev Ted Steele 25 August, 2012, 10:28

    dull-normal response from rex poodle…..well……as usual.

    Reply this comment
  17. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 August, 2012, 14:20

    Teddy-I think I blinded you in last nights dreamwith my Daisy BB gun ……… 😉

    Reply this comment
  18. The Rt Rev Ted Steele
    The Rt Rev Ted Steele 26 August, 2012, 14:55

    lol– so far anyway, intellectually, you couldn’t hit the broad side of a teabagger!

    (and that is usually fried twinkie wide!!) heh (:))

    Reply this comment
  19. Rex the Wonder Dog!
    Rex the Wonder Dog! 27 August, 2012, 00:12

    Teddy, your lard sized butt is bigger than a barn, anyone could hit it 🙂

    Reply this comment

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