This is part 15 of Randy Sawyer’s 16 Part series on UCIOA. You can read previous posts here.
Section 88, subsection (f)
§88(f) – If no settlement agreement is approved by the committee within 180 days after the committee’s receipt of the declarant’s request for inspection, the parties shall be obligated to proceed to mediation within 30 days thereafter in accordance with the rules of the American Arbitration Association. If no settlement is reached through mediation within 15 days after commencement of same, then the parties shall promptly proceed to nonbinding arbitration of any remaining issues in accordance with the rules of the American Arbitration Association, and such mediation and nonbinding arbitration shall be conditions precedent to any litigation of the warranty and construction defect claims against the declarant, which shall also require the approval of a majority of the unit owners other than the declarant. All professional fees and expenses reasonably incurred by the association with regard to the mediation or arbitration, or both, shall be borne by the nondeclarant unit owners and paid by the association promptly upon the receipt of written authorization of the committee.
The language of subsection (f) of Section 88 has a number of glaring problems. They are discussed separately below:
If no settlement agreement is approved by the committee within 180 days after the committee’s receipt of the declarant’s request for inspection, the parties shall be obligated to proceed to mediation within 30 days thereafter in accordance with the rules of the American Arbitration Association.
The 180 day limit imposed by this section, when taken with the 150 day period for the committee to complete its inspections and provide the developer with a report, basically means that the committee has only 30 days in which to decide whether to settle a common element claim or they will be obligated in get involved in mediation under the rules of the American Arbitration Association, another potentially costly endeavor.
If no settlement is reached through mediation within 15 days after commencement of same, then the parties shall promptly proceed to nonbinding arbitration of any remaining issues in accordance with the rules of the American Arbitration Association . . . .
This provision is also remarkable. It requires the “parties” to go into non-binding arbitration if no settlement is reached over the common elements. Presumably, the “parties” are the developer and the independent unit owners on the committee created by Section 88. As discussed in detail above with reference to Section 87, arbitration under the American Arbitration Association rules is a long, costly, burdensome process. How are the outnumbered unit owners, who may number only a handful, to pay for this costly process? In addition, Section 88 gives the developer the power to force multiple arbitrations over each common element as it is completed. This gives the developer the ability to bleed the independent unit owners dry with multiple, costly arbitration procedures. The pressure on the independent unit owners to accept cheap settlements of common element claims will be tremendous. Again, this is clearly intentional.
. . . and such mediation and nonbinding arbitration shall be conditions precedent to any litigation of the warranty and construction defect claims against the declarant, which shall also require the approval of a majority of the unit owners other than the declarant.
Not only does Section 88 allow the developer to force multiple inspections and negotiations for each and every common element as it is completed, the Section requires that the independent unit owners, many of whom have likely just moved into the development, to get involved in both mediation and arbitration. Then, if the unit owners somehow weather all of that with their resolve intact, they still have to have a majority vote of the independent unit owners before any litigation is commenced. This entire process is incredibly burdensome which, again, appears to be intentional. And, since the developer can force this process for every common element as it is completed, the unit owners will be asked to vote again and again on issues that, by themselves, may not seem sufficient to get involved in costly litigation but, if they were able to consider them all together, might be enough to warrant litigation. By forcing each issue to be evaluated and voted on separately, the developer can avoid the cumulative affect of many improperly constructed items.
All professional fees and expenses reasonably incurred by the association with regard to the mediation or arbitration, or both, shall be borne by the nondeclarant unit owners and paid by the association promptly upon the receipt of written authorization of the committee.
Again, where is this money coming from for all of this? Given the developer’s ability to force multiple procedures under Section 88 over multiple common elements, neither the Association nor the independent unit owners will have the funds necessary to pay for the expenses of the inspections, mediations and arbitrations. This will be especially true if there are only a small percentage of units in the development owned by independent unit owners.