Even though Real Estate Dispute Resolution clauses may not be at the top of your mind when you negotiate a contract they can still have a major impact if a dispute arises. A buyer will review the purchase and sale contract and create a timeline with important deadlines such as paying a deposit, applying for financing, performing inspections and more. To understand the contract better, you need to know what will happen if the timeline is interrupted and there is a disagreement between the parties that cannot be resolved on their own. Recent updates or revisions to several contracts make it an ideal time to review the different contract provisions for dispute resolution. It is important to note that this is only a general overview. Anyone involved in a contract dispute should seek legal advice for specific information.
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Litigation is the most common way to resolve contractual disputes. If a landlord and a tenant have a lease that is month-to-month without a written agreement, then they may be forced to go to court in order to resolve a disagreement. In some contracts, courts are designated as the venue for resolving disputes. Some agreements also include clauses that require the losing party to pay the winning party’s attorney fees and court costs. This can deter those who do not have a strong case from suing. In certain contracts, litigation is the most common way to resolve disputes unless an alternative method of resolution has been specified. This can include contracts relating to commercial transactions, leasing agreements, commission agreements, residential sales and vacant land transactions.
Arbitration
There are key differences between arbitration and litigation. Arbitration is a process that moves more quickly and has fewer steps. It’s also less expensive and often more efficient. Arbitration is private, unlike litigation which is public. Arbitration decisions are usually final, while court cases may be appealed. Arbitration is the only method of dispute resolution in some contracts. To override an existing arbitration agreement, the parties would have to add their own clause if they prefer litigation to arbitration. Some agreements allow parties to select between arbitration and litigation. Arbitration is an option that can be selected by parties if they include specific provisions in their agreement or add their initials. These agreements can cover a wide range of arrangements, such as:
- Compensation agreements between brokers and sellers
- Buyer representation agreements
- Property Management Contracts
- Listing agreements for residential or commercial properties, as well as vacant land
- Lease agreements for commercial property
Local Board Arbitration
According to Article 17 of NAR’s Code of Ethics, Realtor brokerage firms are required to arbitrate disputes with the local board. The cost is lower than typical arbitration because NAR has capped the amount that a local board may charge for arbitration. (Currently, it’s $500). The hearing will be presided over by a panel of Realtors. Local boards can reject arbitration requests when they consider them too complex or large. Local board arbitration is applicable to both the Referral Agreement as well as the Compensation Agreement, Seller’s Broker to List Broker. This assumes that both parties are Realtor brokerage companies. The Compensation Agreement includes an arbitration opt-in clause, but local board arbitration already applies to members. The arbitration clause is included in the event that this form is used by one or more brokerages who are not Realtors.
Mixed Dispute Resolution Approaches
Some real estate agreements have a nuanced approach in resolving disputes compared to other contracts. The escrow agent decides, in most cases, where the parties go to settle a dispute if the buyer and the seller disagree over who gets the escrow deposit. The escrow agent can choose to go to arbitration, the court of jurisdiction or ask for assistance from an authority that issues formal disbursement order. In the event that the dispute is not about the escrow deposit itself, the parties will be required to arrange neutral binding arbitration within the county in which the property is located.
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Mediation and settlement
Please take note of this important reminder. The majority of legal disputes are settled (or “agreed”) before the parties have reached the conclusion of arbitration or litigation. Mediation is often mentioned in contracts as a first stop during the dispute resolution process. A neutral third-party will encourage the parties to reach a mutually agreeable solution to their dispute during mediation. If either party or both cannot resolve the dispute by mediation, they will proceed to arbitration or litigation.
Bonardi and Uzdavinis: Final Thoughts
We at Bonardi & Uzdavinis, attorneys specializing on real estate law understand that dispute settlement is a vital yet often overlooked part of contractual agreements. Understanding how your contract deals with disputes is important for anyone involved in real estate, whether they are a buyer or seller, a landlord or tenant, a real estate professional or if they work as s brokers. Contracts may specify different methods of resolving disputes. These include litigation, arbitration or mediation. Certain industry-specific contracts can even stipulate local board arbitration. Each method has pros and cons. The best approach will depend on your unique circumstances as well as the terms of your contract. Before signing any contract, it’s important to review the clauses that govern dispute resolution and, if needed, negotiate terms which best protect your interest. Consult with an experienced lawyer to protect your rights and ensure a fair outcome in the event of a dispute. We are Bonardi & Uzdavinis and we can guide you through real estate disputes. Our team will provide you with the support you require, whether you are looking for help understanding your contractual obligations, or need representation in arbitration or litigation. Contact us to discuss your case.
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