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If you have been involved in real estate for a while then you know that disputes happen. Some people feel they were taken advantage of or they don’t honor their end of the deal.  Sometimes no amount of talking of negotiating will work and you have to take it to the next step.

IS ARBITRATION AS GOOD AS YOU HEAR?

Sometimes, despite your best efforts, your commercial real estate dispute must be resolved by litigation, not negotiation. At that time, one of the first steps to be taken is to read your agreement and determine whether there is an “alternative dispute resolution” or ADR provision.

Although there are other procedures such as judicial reference, if there is an ADR provision, you can generally expect it to be a binding arbitration. If you have agreed to arbitration, what can you expect?

On this particular matter, I turned to one of my collegues, Jeff Brown, a partner at PNM and who is an expert on this subject. His advice:

Expense: Is arbitration as inexpensive as you’ve read? That depends. If your arbitration provision allows for significant discovery, such as depositions, your arbitration may not be that much more efficient than litigation. Discovery is usually the most expensive part of litigation, and there are arbitration provisions which allow the parties unlimited discovery or, to a more limited degree, discovery as determined to be for good cause by the arbitrator. Drafting pointer: you can control the expense of future arbitrations by limiting the discovery that is allowed by the parties the next time you negotiate an arbitration provision.

Selection of Arbitrator: First, check your arbitration provision. All but the most limited provisions provide a method for selection of the arbitrator. The decisions regarding the arbitrator selection include whether a single arbitrator or multiple arbitrators (usually three) is to decide your dispute; what qualifications must the arbitrator have (e.g., a retired judge or someone who has significant real estate experience), and if the parties cannot agree upon the selection, how does the arbitrator get chosen. In California, the steps for selection are (1) the parties agree; (2) if they cannot agree, then the arbitration service agreed upon by the parties (e.g., JAMS or AAA) uses its rules to select; or (3) if neither the first or second steps lead to the selection of the arbitrator, then one or both parties ask the court to make the selection. Drafting pointer: Make sure you include the number of arbitrators, their qualifications, and the method to be used to select them in your ADR provision to avoid unnecessary delay in moving any future dispute toward resolution.    –more

Technorati Tags: Alternative dispute resolution, Arbitration