Arbitrator Went Too Far in Awarding Tenant Lost Profits

What Happened: After waiting a year and a half, the tenant claimed that the landlord was in violation of its lease duty to complete the repairs necessary to make the 10,000 square feet of leased space suitable for use as a laser tag/pizzeria establishment. As provided under the lease, the dispute went to arbitration. After hearing all the arguments, the arbitrator concluded that both sides breached the lease but that the landlord was 80 percent at fault. So, it awarded the tenant $337,032 in damages for the profits lost as a result of not being able to open. In addition to taking issue with the substance of the ruling, the landlord claimed that the arbitrator exceeded his authority by awarding the tenant lost profits.

Ruling: The Washington court agreed and vacated the award.

Reasoning: Arbitration is a terrific way to resolve lease disputes, as long as arbitrators adhere to the lease terms in exercising their authority. In this case, the lease clearly stated that the tenant’s “sole remedy” in the event the landlord failed to cure a default on time would be “to seek actual money damages (but not consequential or punitive damages) for loss arising from [landlord’s] failure to discharge its obligations.” The lost profits that the arbitrator awarded were a form of consequential damages that the tenant wasn’t allowed to seek, the court reasoned. So, the arbitrator’s ruling was invalid and the case had to be reheard.

• Bounce & Lasertag v. Kent E. Commer., 2021 Wash. App. LEXIS 2081