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Arbitration Provisions in Continuing Care Retirement Community Contracts

Arbitration agreements have been a hot topic in recent years. Last year, ElderCounsel posted a blog on the benefits and disadvantages of mandatory arbitration agreements. One of the major disadvantages is that mandatory arbitration provisions in contracts limits the choice to pursue other legal remedies should a legal dispute arise. Last year, CMS issued a new rule repealing the prohibition of the use of predispute arbitration agreements by long-term care facilities. But is there state law that could possibly protect residents in other types of care facilities? Let’s take a look at some recent case law that addressed this issue.

In Harris v. University Village Thousand Oaks (UTVO), a California Court of Appeals applied the state law that prohibits arbitration agreements in residential rental agreements to continuing care retirement community contracts. Any such agreement is void on the basis of public policy due to Cal. Civ. Code, § 1953, subd. (a)(4).

UTVO is a continuing care retirement community. In the contract, a resident agrees to binding arbitration for “any and all claims and disputes arising from or related to the Agreement or to your residency, care or services at University Village.” Several residents nonetheless sued UTVO, alleging false representations about facility security and monthly fees. The trial court ordered arbitration, finding Civ. Code, § 1953, subd. (a)(4) inapplicable because the agreements are “not standard residential lease agreements.” The arbitrator issued an award to UVTO on all causes of action, which the trial court confirmed.

The Court of Appeals, on the other hand, determined that the prohibition against arbitration agreements in rental agreements does apply to continuing care retirement communities. Civil Code section 1953 is part of a chapter which applies to “all persons who hire dwelling units… including tenants, lessees, boarders, lodgers, and others, however denominated.” (Civ. Code § 1940, subd. (a).) “’Dwelling unit’ means a structure or the part of a structure that is used as a home, residence, or sleeping place by one person who maintains a household or by two or more persons who maintain a common household.” (Civ. Code, § 1940, subd. (c).) Applying the plain language of these sections, the Court determined that, because the continuing care contracts include payment for the right to live in a residence, the appellants are “persons who hire dwelling units.” (Civ. Code, § 1940, subd. (a)-(c).) Thus, the protections for them as “boarders” and “lodgers” apply. Id.

Furthermore, although continuing care contracts differ in some respects from typical residential agreements, these differences do not preclude the protection of the residents in this case. The appellants lived in independent living unites, rather than adjacent assisted living units. And while their contracts did include some services such as transportation, these services do not negate the portion of their payments to “hire dwelling units” or for “accommodations…including…board or lodging.” (Cal. Civ. Code, § 1940; Health & Safety Code, § 1771, subd. (m)(1).)

Finally, the legislative history and intent confirms the plain language construction of Civil Code section 1953. Section 1953 was enacted to protect tenants from unknowingly signing away their rights in a lease or rental agreement. That purpose applies to elderly individuals who reside in a continuing care retirement community. Protections from this section have been broadly construed in the past, particularly for groups who face significant economic barriers to relocating, such as mobile home owners; elders likewise belong in this category.

Based on the statutes and legislative intent, the Court of Appeals concluded that California Civil Code section 1953 prohibits the enforcement of a predispute arbitration provision for disputes regarding tenancy provisions of a continuing care contract. For that reason, the lower court’s judgment was reversed, and the case remanded for trial.

This case is a great win for seniors who choose to live in a California continued care retirement community, as arbitration provisions are oftentimes viewed as restricting a resident’s rights. A resident can ultimately choose arbitration, but without the mandatory provision, the resident will have other remedies should a dispute arise.

ElderCounsel is dedicated to the professional development and full practice support of elder law attorneys through education, collegiality, practice development, and our document drafting system. Contact us and learn how we can help you keep up in an ever-changing elder law environment and sustain a successful practice.

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