Local commercial real estate landlords are always on the lookout for ways to streamline their processes and reduce costs. One huge cost is litigation costs, which is why many landlords wonder if they can put a mandatory arbitration clause in their commercial real estate leases.
Can I put a mandatory arbitration clause in commercial leases?
Yes. In San Francisco, it is both permissible and common to include a mandatory arbitration clause in commercial real estate leases. Landlords and tenants favor arbitration because it often streamlines dispute resolution and reduces the financial and time commitments associated with litigation.
Cost savings
There is no way around it, but litigation is expensive, but arbitration can be more cost-effective than traditional courtroom battles. Avoiding certain court fees and lengthy hearings can help both landlords and tenants save money. Plus, since they are usually final, it avoids the costs associated with multiple levels of appeals.
Faster resolution
Disputes resolved through arbitration tend to wrap up more quickly than those that go to trial. In commercial real estate, time is often a critical factor, and long legal proceedings can be disruptive to business operations. And, again, since it often avoids appeals, that is an additional time savings.
Confidential proceedings
Arbitration sessions are private and usually, confidential, which can help protect sensitive business information. This aspect is particularly appealing to landlords who want to keep certain financial or strategic details concealed.
Industry-specific expertise
Parties involved can select arbitrators with commercial real estate experience. Relying on professionals who understand local market conditions and property regulations can result in a more informed decision than a random judge.
Legalities
Although arbitration clauses are generally enforceable, it is crucial to draft them carefully. The clause should clearly identify which issues will be arbitrated, the procedures that will be followed and which rules govern the arbitration process. And, ensure that the language aligns with both federal and state requirements to ensure its enforceability.
Including a mandatory arbitration clause in commercial real estate leases can offer significant advantages, including cost efficiency, expedited outcomes and enhanced privacy. However, it is essential to draft these clauses with precision and ensure compliance with legal requirements to maximize their effectiveness.