Arbitration Clause and Terms to Consider

Arbitration Clause and Terms to Consider

Instead of resorting to the court system, parties can resolve their disputes through arbitration.  For the most part, arbitration is faster and less costly than litigation.  Many real estate transactions include an arbitration clause.  A typical California Association of Realtors Purchase and Sale Agreement, for example, has an arbitration clause that the parties can adopt.  However, without the proper terms, an arbitration clause can lead to many problems.  To avoid that, below are some provisions to include:

As a threshold matter, parties should explicitly acknowledge that they voluntarily consent to arbitration.  Furthermore, to be binding, the arbitration clause should include language that (1) confirms that the parties are knowingly and voluntarily waiving their right to a jury or court trial, (2) compels arbitration by court order, if necessary, and (3) makes the final arbitration award binding and unappealable.   The parties should also initial each arbitration provision.  If the parties agree, broaden the arbitration clause to include both tort and contract disputes.  Below are some other terms.

Arbitrator: Although some private attorneys are good arbitrators, retired judges or appellate justices are better.  Thus, if you prefer, limit arbitrators to this latter category of professionals.

Evidence Rules: Arbitrators can arbitrarily decide cases.  One way to counter this is to have arbitration follow the same evidentiary rules applicable to courts.

Discovery: To make discovery a part of the arbitration proceedings, include language that adopts the discovery laws found in the California Code of Civil Procedure.

Judicial Review: One thing to consider is whether you want the arbitration award to be subject to judicial review or the right to appeal.  We strongly advise keeping appellate rights otherwise arbitration become less predictable and more problematic as arbitrators veer from established rulings.

The provisions above and others, such as agreeing to split the cost of a court reporter, create for a more fair and neutral arbitration process.

Schorr Law has arbitrated many real estate transaction disputes. To schedule a consultation with one of our attorneys, give us a call at (310) 954-1877 or email us at: You can also send us a message by using our contact form here.