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What Are Arbitration Provisions in California Real Estate Contracts?


Every time you are presented with a written contract, the arbitration provision should be given careful attention so you will understand the nature of the dispute resolution method mandated by the contract.


Some of the documents that contain arbitration provisions, or do not, are summarized herein so the nature of such provisions are more familiar to you before the contracts are executed. Many of the documents are California Association of Realtor forms, as indicated by the reference to "C.A.R. Form."


California Residential Property Agreement (C.A.R. Form RPA-CA). In this standard offer to purchase real property, agreeing to arbitration is an option, and its provisions must be specifically agreed to by initialing by both parties. It provides that any dispute or claim in law or equity arising between the parties out of the agreement or any resulting transaction, shall be decided by neutral, binding arbitration. The parties have a right to discovery. It does not specify the arbitration provider, but it requires the arbitrator to be a retired judge or justice, or an attorney with at least 5 years of residential real estate law experience, unless the parties agree to a different arbitrator.


An unlawful detainer action or actions in small claims, probate, or bankruptcy courts, are exceptions to the provision. Filing a lawsuit to preserve a statute of limitations, or to enable the recording of a notice of pendency of action (lis pendens), such as a complaint by a buyer for specific performance of the RPA-CA, are also exceptions to both the mediation and arbitration provisions.


Many other contracts in the real estate field require arbitration, and it is often not an option, unless it is stricken from the contract by mutual agreement.


California Exclusive Listing Agreement (C.A.R. Form RLA). Arbitration is not included, and mediation is required to be attempted and accepted, or the right to recover attorney's fees may be barred. It only provides an ADVISORY, that if the parties agree to resolve their disputes by arbitration, they can document their agreement by attaching and signing a separate Arbitration Agreement. (C.A.R. Form ARB)


Buyer Representation Agreement - Exclusive (C.A.R. Form BRE). The provisions for mediation and advisory regarding arbitration are the same as the RLA.


Residential Lease or Month-to-Month Rental Agreement (C.A.R. Form LR). Requires that mediation is attempted and accepted to preserve right to recover attorney's fees, except for an unlawful detainer action. No reference to arbitration.


Commercial Lease Agreement (C.A.R. Form CL). After mediation is attempted or fails to resolve the dispute, arbitration is an option, similar to the RPA-CA.


California Arbitration Agreement (C.A.R. Form ARB). Provides that any dispute or claim in law or equity arising, or having arisen, between the parties out of the Purchase Agreement, Listing Agreement, Buyer Representation Agreement, or Other agreement, or any resulting transaction, that is not settled through mediation, shall be decided by neutral, binding arbitration. The arbitrator shall be a retired judge or justice, or attorney with at least 5 years of transactional law experience, unless the parties agree otherwise. No reference to who pays the arbitration fees.


SUMMARY:


1. Determine whether arbitration is optional or mandatory, and if optional, consider not agreeing to arbitration to preserve right to file Superior Court action.


2. Arbitration results in waiver of jury trial, right to appeal, and right to injunctive relief.


3. Arbitration may be required with a specified provider, such as the AAA, and its rules and the Federal Arbitration Act may govern the proceeding.


4. Arbitration fees and costs may be paid by one of the parties, such as a home warranty company, or may be shared by the parties, subject to the arbitrator's findings in the action.


5. Arbitration is often not required for small court claims for $10,000 or less, or for unlawful detainer, in order to preserve a statute of limitations or to record a notice of pendency of action.

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