Arbitration is, quite simply, a “rent-a-judge” procedure whereby a person who is probably not a judge decides a dispute between two parties in a private proceeding. For an arbitration to occur, the opposing parties must agree to arbitrate, either before or after a dispute breaks out. California law supports arbitration, and California courts enforce arbitration awards. An arbitration award cannot be appealed to a court except under limited circumstances. 

Why Commercial Real Estate Arbitration Is So Popular

The arbitration of disputes involving commercial real estate agreements (which include purchase and sale agreements, financing, leasing, and exchanges) is particularly popular in California. It is popular for reasons that can be stated simply enough to place on a bumper sticker: privacy, speed, and thrift:

  • Privacy: Arbitration proceedings need not be open to the public, and they almost never are. 

  • Speed: Arbitration proceedings are almost always completed more swiftly than courtroom lawsuits are.

  • Thrift: Although arbitration does cost money, it generally costs a lot less than courtroom litigation.

Important Matters to Cover in Arbitration Agreements

Below is a very simplified list of some of the concerns you need to address when drafting an arbitration agreement:

  • Include an arbitration clause within the transactional contract itself – a real estate sale and purchase agreement, for example.

  • Provide that the parties specifically agree to arbitrate any dispute arising out of the transaction, and agree that any award cannot be appealed.

  • Take great care selecting the arbitrator. Retired judges are usually a good bet.

  • Remember that, if you don’t mention evidence, the arbitrator is free to set his own rules of evidence.

  • The discovery process (the process whereby a party can compel the production of evidence from the opposing party or a third party) should be specifically allowed.

  • The arbitrator must be authorized to enter the award as a court judgment so that it can be enforced by a court if necessary.

Some Unintended Consequences of Poorly Drafted Arbitration Agreements

Little things matter when drafting an arbitration clause. A poorly drafted arbitration clause could result in the following unintended negative consequences, among many others:

  • Unenforceability of the compulsion to arbitrate, or to the enforcement by a court of any arbitration award issued by the tribunal.

  • The inability to utilize the discovery process could cripple your ability to gather relevant evidence that is in the possession of the opposing party. This is especially likely to cause you to lose the case if you carry the burden of proof (as a plaintiff, for example).

  • If the arbitrator is not required to comply with the California Evidence Code, or any particular evidence standard at all, it could result in an avalanche of irrelevant or misleading evidence and general unfairness in the proceedings.

Consult with the Professionals

If you are involved in a real estate dispute that is likely to be resolved through arbitration, you are contractually bound by an arbitration agreement, you are considering whether to sign an agreement containing an arbitration clause, or you would like to know how to draft a solid arbitration clause, call CKB Vienna ASAP or contact us online to schedule a consultation. We serve clients in Rancho Cucamonga, San Bernardino County, Los Angeles County, Orange County, and Riverside County.