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Most new construction contracts contain an ARBITRATION PROVISION. If you’re buying new construction, you’ll notice it because typically it requires a specific initialling at that particular paragraph. Our resale contracts in Georgia do not contain such a provision. So the question is raised – is a good idea or NOT to agree to arbitration in advance? Here are some thoughts from a recent briefing with the law firm of Epstein Becker Green I attended –
First, what IS arbitration? Often confused with mediation, which is less formal and not binding, arbitration CAN be legally binding. This means if you choose binding arbitration you may be stuck with the outcome with no avenue of appeal. There are only very limited bases for appeal of an arbitration provision; as they stated at the briefing, you would need something akin to having a picture of the other party handing a monetary bribe to the arbitrator in order to have a judicial appeal.
One party cannot force another to go to arbitration unless it is agreed upon in advance in writing – hence the provision in many new construction contracts. So, say you’ve entered into an agreement with an enforceable arbitration provision and there is a dispute. If you file a claim in court, the other party can legitimately ask the court to force you to arbitrate instead. When you arbitrate, a private company is chosen to provide the arbitrator or arbitrators (typically there is one arbitrator or three – for obvious reasons, an even number of arbitrators would not make sense). As a party to the arbitration, you will have the opportunity to strike arbitrators for cause. You then proceed to a hearing.
WHY arbitrate? Might you WANT an arbitration provision in your contract? There are several advantages: typically it is less expensive than litigation, because it is faster. It is also more certain, since there are only limited grounds for appeal. On the con side, third parties aren’t bound by the arbitration agreement and cannot be forced to appear. There are no rules of law or evidence in an arbitration proceeding other than those set by the parties or the arbitration company –thus, what often happens is that “if you can get it through the door, you can get it into evidence.”
As a practical matter, the arbitration provision in many new construction contracts is probably favorable for all concerned. Filing a lawsuit is expensive. But most do not add an arbitration provision to the standard Georgia Association of Realtor resale contracts. Our standard practice in Georgia is to adhere to the form contracts without extensive rewriting of them; rewriting by an agent who is not a lawyer might be considered unauthorized practice of law. Even if your Realtor IS a lawyer (there are a few of us out there) you will want to carefully consider whether or not adding such a provision makes sense. Talk to your Realtor about it when you are entering into your agreement – it may or may not make sense for you. And as always, never hesitate to call the Mary Anne Walser team if we can help in any way!