By: Julia M. Wei, Esq.
Arbitration provisions are in virtually all real estate purchase agreements, listing agreements, construction contracts and even commercial leases.
When you first enter into a contract, you probably are not thinking about what forum you are agreeing to resolve disputes in if a dispute arises. However, once the dispute has arisen, your attorney should immediately check your contract to see if the parties have agreed to litigate their dispute in binding arbitration.
[For a brief refresher of what arbitration is, I’ve written about it previously here: http://dirtblawg.com/2007/11/should-i-initia.html]
Often I have heard real estate professionals comment that arbitration is cheaper and faster than court litigation. Depending on the nature of the dispute, that can be true, but mostly for the reason that arbitration is often speedier.
Arbitration is a private proceeding. Private judging means that the litigants are paying out of pocket for their time in front of the arbitrator (usually a retired judge or seasoned attorney). If the parties have agreed to use JAMS or AAA for their arbitration, then costs for a single arbitrator can range between $10k-$15k per day (shared between the parties). A panel of three judges would naturally be commensurately more expensive!
So arbitration is not inherently cheaper from the onset, but over the duration of a case, state court litigation can have significantly more discovery, more court continuances and many more motions. That means that legal fees in court can be unpredictable and last for years.
In 2011, San Francisco County laid off 40% of their court’s workforce. This places a huge caseload on the remaining staff and litigants can expect their cases to take much longer to get to trial. In contrast, arbitration is scheduled in a very streamlined fashion and discovery and pre-trial motions can be greatly limited by the arbitrator.
Additionally, without a special carve out, most arbitrations do not have the right to appeal the arbitration award, which means the arbitrator’s decision is final upon confirmation.
Lastly, in a failure to disclose cases involving things like water leaks or other property conditions, or construction defect cases, expert witnesses are critical to proving or defending the case. That means that the litigant is paying for the attorney time, the expert time and the arbitrator’s time. This is an expensive proposition so the better the arbitrator is at streamlining the process and limiting the discovery disputes, the less the litigant will have to pay.