Chris Neri, Assistant Commissioner – Subdivision Division of Bureau of Real Estate (“BRE”) released on March 4, 2016 a memorandum regarding subdivision documents which require arbitration and prohibit class actions. The Chris Neri memorandum, in part, states that:
“While we will not dictate whether class action cases will be heard by court or an arbitrator, we will uphold the consumer’s right for class action claims.
The following is provided so you may gain a sense of the offending language:
Section 4.4.18. We have included a class action waiver. As described in Section 4.4.18, Owners and the Association are agreeing to arbitrate disputes. Arbitration of a class action would destroy the advantages of the arbitration process such as speed, efficiency and lower costs due to the complexities involved in a class action. Therefore, by purchasing a home in the Community and by agreeing to arbitrate disputes, Owners agree that they waive their rights to bring a class action lawsuit.
The class action lawsuit waiver language, if any, will typically be found in purchase contracts and/or CC&R’s, but it may be present in other documents. If you [BRE Staff] notice such language, please cite it as deficient unless it is contained in a DRR or MMD. In those cases, please discuss with your manager before proceeding. (See, www.bre.ca.gov)”
The content of this restriction on inclusion of arbitration provisions and class action provisions apply to BRE applications pending or in the future. The risk to existing assocations is that provisions in the operating or sale documents may be invalid. A proactive review of your documents is an important step to avoid future problems.
Ariel Bedell is an experienced attorney at The Loftin Firm. For questions relating to any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at 760-814-9649.