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LEASE AGREEMENT REFERENCE GUIDE 720: ARBITRATION IN COMMERCIAL LEASE DISPUTES $49.95


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720

Product Overview

This LARG contains the following items:

The Pros and Cons of Arbitrating Lease Disputes, A Check List for Arbitration Clauses, and the Lease Clause Critique: A Comparison of Two Arbitration Clauses.

Number of Single Spaced Pages: 12

 

Excerpt

ARBITRATION IN COMMERCIAL LEASE DISPUTES

 

This LARG considers the proper role of arbitration as a device to resolve landlord tenant disputes. The first section weighs the pros and cons of arbitrating disputes under commercial leases. The second section contains a check list for the contents of arbitration clauses in leases. Finally, the Lease Clause Critique looks at two arbitration clauses that take radically different approaches. One is brief to a fault; the other is comprehensive, detailed and very selective in the disputes it commits to arbitration.

The Pros and Cons of Arbitrating Lease Disputes

If a landlord and tenant have a serious dispute that they cannot resolve between themselves, there are really only two choices available to them to resolve the controversy. They can litigate (i.e., sue one another) in the civil courts, or they can arbitrate the dispute.

Arbitration of lease disputes seems like a smart thing to do, at least in theory. Arbitration can be fast, cheap, run by experts, and can be private (see the discussion of arbitration's advantages below). And it is a simple matter for a landlord and a tenant to agree to arbitrate disputes under the lease. All the parties need to do is include a clause in the lease requiring that some or all disputes between the landlord and the tenant be resolved by arbitration. The precise content of such clauses is subject to negotiation, like any other issue in the lease.

On the other hand, if the parties want to litigate lease disputes, they must deal with a glutted court system. Criminal cases are increasingly crowding out civil cases in the courts, and it can take years to get a trial date, depending upon the jurisdiction involved. The war on drugs has generated a huge mass of new criminal cases subject to speedy trial statutes which requires them to be tried quickly. And the courts were glutted before the war on drugs began. As a result, the civil court calendar is more congested than ever, and the time required for the resolution of landlord tenant disputes in civil courts will continue to increase.

What's the Fight About?

Arbitration is not a bed of roses either (see the notable disadvantages discussed below), and it may not be appropriate for some types of disputes between landlords and tenants. This, of course, means that the parties to the lease need to give substantial thought to the scope of any arbitration clause they deign to include in the lease. Do the landlord and the tenant really want to say that all disputes arising under the lease will be subject to arbitration? For example, arbitration may be a poor choice for:

  • Disputes that require an interpretation of lease clauses under applicable law;
  • Controversies over whether one of the parties is telling the truth about a particular event;
  • Disputes which must be resolved by the issuance of an injunction or court order (e.g., conduct by one of the parties is claimed to be prohibited by the lease);
  • Arguments about whether or not the lease or some of its provisions are enforceable; or
  • Disputes which essentially concern whether one party to the lease is in default for failure to pay sums due to the other.

Advantages of Arbitration

The advantages of arbitration (especially when compared to litigation) are generally thought to include the following:

  • Arbitration can be economical. It is expensive to litigate civil disputes, and it isn't going to get any cheaper. However, in most cases, arbitration is a more streamlined procedure—this can produce real savings as compared to civil litigation.
  • Arbitration can be fast. Many arbitration clauses in leases have brisk schedules for conducting arbitration proceedings. The arbitrators are usually appointed within thirty days after the arbitration is commenced. In most cases, the parties present their case and submit their evidence within thirty days after the appointment of the arbitrators. A decision from the arbitrators is often required within fifteen days after the hearing. That all amounts to blinding speed compared to the pace of civil litigation. For example, the defendant has thirty days to answer the plaintiff's complaint in the civil courts, and that thirty day period is routinely extended to sixty days as a matter of courtesy. And that just gets the lawsuit started.
  • Arbitration can be conducted by arbitrators who are experts in the subject matter of the dispute. Civil judges are rarely experts in commercial real estate leasing, and leasing disputes can be complicated. For example, arbitrators who are experts in shopping center leasing might have a far keener appreciation of the fine points of tenant mix and the retail draw of particular tenants than a judge who has been trying antitrust cases nonstop for the last ten years.
  • Arbitration can be private. The resolution of many disputes between the landlord and the tenant has the potential to affect every tenant and every lease in the complex. For example, if a particular tenant contests the inclusion of certain items in the operating expenses of which it pays a pro-rata share under the lease, and the tenant prevails in a lawsuit, then all the tenants in the complex will know the result. However, if the dispute is resolved by arbitration, and the parties agree to keep the proceedings confidential, then there is a good chance that the other tenants in the complex will not learn of the dispute and its eventual outcome.

    (continued)


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