Example Home Builder's Contract With Arbitration Clauses

This sample contract from Texas shows how many of your rights some builders try to make you throw away as a condition for using their services. It’s all right there in print, sometimes even capitalized, no right to a court or jury trial, evidence is limited, no recovery of attorney’s fees, no class actions are allowed, etc etc.

No doubt Jordan Fogal signed something very similar, if not the same,
before Tremont Homes sold her a self-destructing lemon house. In both cases the arbitration firm is the American Arbitration Association.

DISPUTE RESOLUTION AND CONDITIONAL SALE TO BUILDER AGREEMENT ADDENDUM

SELLER: STANDARD PACIFIC HOMES OF TEXAS, INC.
BUYER’S FULL NAME:

LOT:

BLOCK:

SUBDIVISION:
SECTION:

PLAN NO:

JOB NO:

STREET:

CITY: FORT WORTH
COUNTY: TARRANT, TEXAS ZIP CODE: 76248

THIS DISPUTE RESOLUTION AND CONDITIONAL SALE TO BUILDER AGREEMENT ADDENDUM TO HOME PURCHASE AGREEMENT (“Dispute Resolution Agreement”) constitutes a part of the Contract between Buyer and Seller pertaining to the Property. THIS DISPUTE RESOLUTION AGREEMENT HAS IMPORTANT LEGAL CONSEQUENCES AND SHOULD BE READ THOROUGHLY BEFORE SIGNING. BUYER IS ENCOURAGED TO CONTACT AN ATTORNEY PRIOR TO THE EXECUTION OF THIS DISPUTE RESOLUTION AGREEMENT. Unless otherwise defined herein, all terms used as defined terms in this Dispute Resolution Agreement shall have the meaning given to such terms in the Contract.
1. DEFINITIONS. For purposes of this Dispute Resolution Agreement only: (i) “Seller” means and includes Seller, any director, officer, partner, member, employee, agent, or representative of Seller, any affiliate of Seller (other than affiliated mortgage lender) and any contractor, subcontractor, consultant, design professional, engineer, or supplier who provided labor, services or materials to the Project and who is bound or has agreed to be bound to the following dispute notification and resolution procedures; (ii) “Dispute” means any and all actions or claims by, between or among any Seller party and any Owner, arising out of or in any way relating to the Property, the Project, the Contract, liquidated damages issues under the Contract, the Limited Warranty, and/or any other agreements or duties or liabilities as between any Seller party and an Owner relating to the sale of the Property, or regarding the use or condition of the Property; or the design or construction of or any condition on or affecting the Project, including without limitation construction defects, surveys, soils conditions, grading, specifications, installation of improvements, or disputes which allege strict liability, negligence or breach of implied, express or statutory warranties as to the condition of the Property or other portions of the Project; (iii) “Owner” means Buyer, any individuals or entities comprising Buyer, any representative of Buyer acting with respect to Buyer’s rights (including without limitation any class representative or homeowners’ association so acting), and any successor or assign of Buyer with respect to the Property, the Contract, the Limited Warranty, or any other agreements or obligations with respect to Seller, the Property, or the Project; (iv) “Project” means the development, construction and marketing of the Property, and the community of which it is a part; and (v) “Limited Warranty” means, when used in the context of a dispute arising prior to the Closing, that certain form of Home Builder’s Limited Warranty attached to the Contract as Exhibit A and means, when used in the context of a Dispute arising after the Closing, that certain Home Builder’s Limited Warranty issued to Buyer after the Closing substantially in the form of Exhibit A to the Contract.
2. ARBITRATION OF DISPUTES
(a) ARBITRATION UNDER LIMITED WARRANTY. WITH RESPECT TO ALL DISPUTES (WHETHER OR NOT RELATING TO THE LIMITED WARRANTY), SELLER AND OWNER SHALL COMPLY WITH THE DISPUTE RESOLUTION PROCEDURES AND PROVISIONS SPECIFIED IN THE LIMITED WARRANTY. THE LIMITED WARRANTY GENERALLY PROVIDES FOR BINDING ARBITRATION CONDUCTED BY CONSTRUCTION ARBITRATION SERVICES, INC., OR SUCH OTHER REPUTABLE ARBITRATION SERVICE AS PWC (THE ADMINISTRATOR OF THE WARRANTY PROGRAM) SHALL SELECT. THE RULES AND PROCEDURES OF THE DESIGNATED ARBITRATION ORGANIZATION, AS IN EFFECT AT THE TIME THE REQUEST FOR ARBITRATION IS SUBMITTED, WILL BE FOLLOWED. A COPY OF THE APPLICABLE RULES AND PROCEDURES WILL BE DELIVERED TO BUYER UPON REQUEST. BUYER CAN REVIEW THE LIMITED WARRANTY FOR ADDITIONAL DETAILS.
(b) GOOD FAITH NEGOTIATION AND AAA ARBITRATION. IF THE DISPUTE RESOLUTION AND ARBITRATION PROCEDURES AND PROVISIONS SPECIFIED IN THE LIMITED WARRANTY CANNOT BE USED BECAUSE THEY ARE DETERMINED TO BE UNENFORCEABLE OR THE FORUM SPECIFIED IS UNAVAILABLE, SELLER AND BUYER SHALL COMPLY WITH THE DISPUTE RESOLUTION PROCEDURES AND PROVISIONS SET FORTH IN THIS PARAGRAPH 2(b), WHICH PROVIDES FOR GOOD FAITH NEGOTIATION FOLLOWED BY BINDING ARBITRATION WITH THE AMERICAN ARBITRATION ASSOCIATION (“AAA”), IF NECESSARY.
(i) Good Faith Negotiation. In the event of a Dispute, the party asserting the claim shall notify the other party in writing of the Dispute. The writing shall reasonably describe the nature of the claim and any proposed remedy (the “Claim Notice”). Within a reasonable period (not to exceed 60 days) after receipt of the Claim Notice, the parties shall meet and negotiate in good faith, recognizing their mutual interests, in an attempt to reach a just and equitable solution satisfactory to both parties. The provisions of this Paragraph 2(b)(i) shall not apply to a Dispute subject to the provisions of the Texas Residential Construction Liability Act (“RCLA”) or the Texas Residential Construction Commission Act (“TRCCA”).
(ii) AAA Arbitration. If the parties to the Dispute cannot resolve the claim pursuant to Paragraph 2(b)(i) or Paragraph 2(b)(i) does not apply because the Dispute is covered by the provisions of RCLA or TRCCA, the Dispute shall be submitted for resolution by binding arbitration to the AAA, pursuant to its Supplementary Procedures For Residential Construction Disputes, including the Optional Rules for Pre-Closing Disputes (or any other similar entity offering alternative dispute resolution procedures if the AAA is not available). However, any post-Closing Dispute involving a non-monetary demand or a demand exceeding $200,000 shall be administered and resolved pursuant to the AAA’s Procedures for Large, Complex Construction Disputes (“Complex Procedures”) by one retired judge selected pursuant to the Complex Procedures from the AAA’s Large, Complex Construction Case Panel.
(c) WAIVER OF BUYER LITIGATION RIGHTS. BUYER ACKNOWLEDGES AND AGREES THAT BY AGREEING TO BINDING ARBITRATION AS PROVIDED HEREIN:
(i) BUYER IS GIVING UP ANY RIGHTS BUYER MIGHT POSSESS TO HAVE A DISPUTE LITIGATED IN A COURT OR JURY TRIAL;
(ii) BUYER’S DISCOVERY AND APPEAL RIGHTS WILL BE LIMITED;
(iii) BUYER’S AGREEMENT TO THIS DISPUTE RESOLUTION AGREEMENT IS VOLUNTARY AND BUYER UNDERSTANDS ITS PROVISIONS;
(iv) IF A DISPUTE INVOLVES PROPERTY OR COMMON AREA OWNED OR MANAGED BY OTHERS, INCLUDING A HOMEOWNERS’ ASSOCIATION, THE PROCEDURES SET FORTH HEREIN ARE ALSO ACCEPTABLE FOR RESOLVING DISPUTES WITH RESPECT TO SUCH MATTERS AND BUYER WILL TAKE ALL ACTIONS NECESSARY TO SECURE PARTICIPATION BY SUCH OTHER PARTIES IN THE DISPUTE RESOLUTION PROCEDURES SET FORTH HEREIN;
(v) THE HOMEOWNERS’ ASSOCIATION FOR THE PROPERTY, IF ANY, AND THE INTEREST OF ALL OWNERS IN THE HOMEOWNERS’ ASSOCIATION WILL BE BOUND BY THE DISPUTE RESOLUTION PROCEDURES DESCRIBED HEREIN; AND
(vi) THE FORMAL INITIATION OF BINDING ARBITRATION PURSUANT TO THE TERMS HEREOF SHALL CONSTITUTE THE FILING OF AN ACTION FOR PURPOSES OF INVOKING THE PROVISIONS OF RCLA AND TRCCA. BUYER MUST HAVE COMPLIED WITH SECTIONS 426.005 AND 430.011(b) OF THE TEXAS PROPERTY CODE PRIOR TO INITIATING AN ARBITRATION PROCEEDING AS DESCRIBED HEREIN.
WE HAVE READ AND UNDERSTOOD THE FOREGOING AND AGREE TO SUBMIT ANY DISPUTES OR CLAIMS OR CONTROVERSIES ARISING OUT OF THE MATTERS INCLUDED WITHIN THESE DISPUTE RESOLUTION PROVISIONS TO BINDING ARBITRATION AS SPECIFIED HEREIN.
BUYER’S INITIAL SELLER’S INITIALS

(d) CHOICE OF LAW AND SCOPE OF ARBITRATOR’S AUTHORITY. All Disputes shall be governed, interpreted and enforced according to the Federal Arbitration Act (9 U.S.C.

1-16), which is designed to encourage use of alternative methods of dispute resolution that avoid costly and potentially lengthy court proceedings. Interpretation and application of these procedures shall conform to Federal court rulings interpreting and applying the Federal Arbitration Act. References to Texas law shall not be construed as a waiver of any rights of the parties under the Federal Arbitration Act or the right of the parties to have the procedures set forth in the Limited Warranty and elsewhere within this Dispute Resolution Agreement interpreted and enforced under the Federal Arbitration Act. However, to the extent necessary, and whenever such laws are not in conflict with other provisions of this Dispute Resolution Agreement or the procedures of any selected alternative dispute resolution service, the arbitrator shall apply the laws of the State of Texas, and the arbitrator’s award may be enforced in any court of competent jurisdiction. The arbitrator shall have the authority to try and shall try all issues, whether of fact or law, including without limitation, the validity, scope and enforceability of these dispute resolution provisions, and may issue any remedy or relief that the courts of the State of Texas could issue if presented the same circumstances. In the event of any inconsistency between this Dispute Resolution Agreement and the procedures referenced in Paragraphs 2(a) and 2(b), the terms of this Dispute Resolution Agreement will control.
(e) NO RECOVERY OF ATTORNEYS’ FEES OR EXPERT WITNESS FEES. To the fullest extent permitted by law, and except as otherwise set forth herein, Buyer and Seller waive any right to recover attorneys’ fees or expert witness fees incurred in any Dispute.
3. WAIVER OF JURY TRIAL. IN THE EVENT THAT THE DISPUTE RESOLUTION PROCEDURES SET FORTH OR REFERENCED HEREIN ARE DETERMINED TO BE INVALID OR UNENFORCEABLE IN WHOLE OR IN PART, SUCH THAT THE DISPUTE PROCEEDS BY WAY OF CIVIL LITIGATION PROCEEDINGS, THE PARTIES NONETHELESS WAIVE ANY AND ALL RIGHTS TO A JURY TRIAL. THE PARTIES MAKE THESE WAIVERS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY.
4. DISPUTES TO BE RESOLVED INDEPENDENTLY. Notwithstanding Paragraph 1(iii), above, Buyer and Seller agree that it is in the best interest of Buyer and Seller that the dispute resolution procedures set forth in this Dispute Resolution Agreement be utilized independently of any actions or dispute resolution procedures involving disputes between Seller and other buyers. Accordingly, Buyer knowingly waives any right to participate in any form of “class,” “joint” or “representative” litigation or dispute resolution procedures against Seller. Buyer and Seller make this agreement on the grounds that they wish to assure, in advance, that any disputes, actions or claims by or between Buyer and Seller will not be combined with the disputes, actions or claims by or between Seller and any other buyer. Buyer and Seller include this provision on the additional grounds that: (i) the Property is unique from other properties in the Project, and any potential problems it may suffer will not necessarily be common to other properties; (ii) it may provide Buyer increased ability to control any Dispute involving the Property, (iii) Buyer’s interests will not be subordinated to the interests of other parties who might otherwise become involved in these dispute resolution procedures; (iv) this approach is likely to foster faster resolution of most Disputes that may arise; (v) it will help to avoid conflicts of interest among Buyer’s and Seller’s representatives, and (vi) it is intended to foster better communication between Buyer and Seller focused on resolving the actual issues that may arise in any Dispute between them.
5. DISPUTES UNDER FHA/VA WARRANTY. Notwithstanding the provisions set forth above, this Paragraph 5 shall apply to the extent Buyer is issued a Builder’s Limited Warranty Form 107H (“FHA/VA Warranty”). With respect to all Disputes arising out of the FHA/VA warranty (“FHA/VA Warranty Disputes”), Seller and Owner shall comply with the dispute resolution procedures and provisions specified in the FHA/VA Warranty. Specifically, the parties agree that the arbitration of FHA/VA Warranty Disputes shall not be mandatory; provided however, that in the event of an action in a court of law, the waiver of jury trial set forth in Paragraph 3 shall remain effective. All other Disputes shall continue to be governed by the provisions set forth above, including, without limitation, the provisions requiring binding arbitration. However, in the event that Owner files an action in a court of law regarding an FHA/VA Dispute while at the same time pursuing arbitration for other Disputes, Seller may elect to have all Disputes resolved in the court action.

6. CONDITIONAL SALE TO BUILDER
(a) Pursuant to Section 27.0042 of the Texas Property Code, Seller and Buyer agree that if the reasonable cost of repairs necessary to repair a construction defect that is the responsibility of the Seller exceed thirty percent (30%) of the current fair market value of the Property, as determined without reference to the construction defects, then, in an action subject to the RCLA, the Seller may at Seller’s sole option (and as an alternative to the damages specified in Section 27.004(g) of the Texas Property Code) elect to purchase the Property for an amount equal to the sum of the following (the “Seller’s Purchase Price”): (i) the original Purchase Price of the Property paid by Buyer; (ii) closing costs incurred by the Buyer in connection with the original purchase of the Property; and (iii) the cost of transferring title to the Property to the Seller under this election. Within sixty (60) days after Buyer’s receipt from Seller of written notice of Seller’s election to purchase the Property in accordance with the terms of this Paragraph 6, and conditioned on the payment by Seller to Buyer of the Seller’s Purchase Price, the Buyer shall (i) tender a special warranty deed to the Seller in a form reasonably acceptable to Seller, whereby fee simple title to the Property is conveyed to Seller free of all liens and lien claims as of the date of such conveyance, and (ii) vacate and deliver possession of the Property to Seller, without damage caused by the Buyer, on or before the date of delivery to Seller of such special warranty deed.
(b) In the event of any such election by Seller to purchase the Property under this Paragraph 6, the Buyer may recover, in addition to the Seller’s Purchase Price, all of the following:
i. Reasonable and necessary attorney’s and expert fees as identified in Section 27.004(g) of the Texas Property Code;
ii. Reimbursement for permanent improvements the Buyer made to the Property after the date the Buyer purchased the Property from the Seller; and
iii. Reasonable costs for the Buyer to move from the Property.
(c) A Seller may not elect to purchase the Property under this Paragraph 6 if:
i. The Home is more than five years old at the time an action is initiated by Buyer under the RCLA; or
ii. The Seller makes such an election later than the 15th day after the date of a final, unappealable determination of a dispute under Subtitle D of the Texas Residential Construction Commission Act, if applicable.
7. SURVIVAL OF PROVISIONS. If any provision to any part of this Dispute Resolution Agreement is for any reason held to be invalid, unenforceable or contrary to any public policy, law, statute and/or ordinance, then the remainder of this Dispute Resolution Agreement shall not be affected thereby and shall remain valid and fully enforceable. Buyer’s covenants under this Dispute Resolution Agreement shall survive the Closing.
IN WITNESS WHEREOF, the parties have executed this Dispute Resolution Agreement as of the date of Seller’s acceptance below.
ACCEPTED BY:

SELLER:

STANDARD PACIFIC OF TEXAS, INC.

By:

Name: ________________________________________
Title: Seller’s Authorized Officer

Date Signed by Seller: ______________ BUYER:

Dated Signed by Buyer:

(Photo: Maulleigh)

Comments

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  1. cabedrgn says:

    Wow, that’s painful to read.

  2. Bulldog9908 says:

    WTF kind of post is this? I’ll read the damn thing if I buy a house from one of these “builders.” Reading it for no reason is just self-inflicted torture.

  3. MercuryPDX says:

    Ben? Can you maybe highlight the arbitration part by bolding it or something, and then stating that the emphasis is yours?

    My eyes glazed over after the name and address part.

  4. Ben Popken says:

    In a pique of documentation, I included both the buyer agreement and the arbitration addendum. I’ll delete the first.

  5. BrianH says:

    I was hoping for a little highlighting or boldface type in some of the more egregious sections.

  6. azntg says:

    Damn that’s a long read! But, yes, I caught some slight of hands these guys sneaked in the long document.

    I’m the type that would actually sit down and read through the whole thing, even if the guy sitting on the other end is staring at me and asking me if I’m done reading every other second.

    Now, one thing I’m still very curious is that if you sign the paper and write in clearly that you disagree and reject terms so and so, then would that hold in a court of law?

  7. Parting says:

    Honestly, I would walk away from this company after first ten lines.

    A new home is a big debt for years to come, and if a new house isn’t guaranteed, why even bother buying a new house. An old one has more chances being less painful investment.

  8. ARP says:

    Two comments:

    1)Aribitration has its place. It’s especially valuable when you have two companies in a commercial dispute. It helps reduce the court costs, keeps the decision confidential, etc. However, I want to emphasize that its between two COMPANIES. Often the courts are the only place where a little consumer can get a fair hearing (and that’s a stretch).

    2) In some instances you might not be able to negotiate the agreement if you want to do business with them (e.g. mortgage companies, car financiing, etc.). But in this case, if you have an option (which you do if you’re buying a new house), you need to realize that this isn’t just “lawyer stuff” and sign it. It’s tough to read, but you need to force yourself to do it. You did it when you read Shakespeare in high school/college and you can do it here. I will say that the shadier companies will intentionally write these clauses to be even more confusing then the need to be to throw people off. There are ways to write contracts that aren’t so confusing.

  9. synergy says:

    It reminds me of the houses, Mirasol Homes, which were built in San Antonio by KB Homes to be used as low-income housing. They did shoddy work, people moved in, within a year or something the places started falling apart and molding making people sick. Now they’re offering people be paid back only if they agree to sign paperwork that they won’t sue them in the future.

  10. zolielo says:

    You are really pushing Ben…

  11. I hate contracts where entire paragraphs are in caps.

    • crackle says:

      @Eyebrows McGee: yeah. looks silly. but it’s actually law, for example, the uniform commercial code will specifically state that certain warranties have to be displayed more prominently than the text around it, and that all caps satisfies that requirement.

  12. erratapage says:

    I think arbitration is just fine. However, I certainly wouldn’t arbitrate with some organization selected by the warranty program! I also wouldn’t give up my right to a jury trial or an attorney fee award. Also, choice of law provisions should be carefully read. If I live in Wisconsin, I don’t want my dispute settled by Texas law, for example.

  13. GearheadGeek says:

    Yet another reason not to buy a substandard suburban subdivision box masquerading as a house. For the most part, developers are building junk that is ill-suited for the climate and ill-suited for any purpose other than making the developer money. My only concern about the house-construction slowdown is for the employees of these companies, not the arbitration-loving bastards who run them.

    I’ve made the mistake once before, buying into the idea of ordering my house from their catalog right down to the type of doorknob on the front door (though you couldn’t ask for much that wasn’t IN the catalog, that made the “selection center” personnel dizzy.)

    I was happy to be rid of the house. It was fairly efficient to live in, and the smallest plan built in the neighborhood, but looking around at all the other houses with the dreary sameness of developer-hell suburbia grinds one down after a while, and the officious, heavy-handed HOA is something I’d never miss in a hundred years.

    I bought a house that’s smaller, 10x older in a neighborhood with 100x more character, and there was no arbitration clause. I figure that over the course of 57 years any problems with the initial construction have worked themselves out.

  14. Blueskylaw says:

    Ben, did your fingers hurt after writing all that?