Don't Let Arbitration Clause Delay Eviction Process

If, like many owners, you prefer to resolve disputes through arbitration, your lease probably has a “blanket” arbitration clause. A blanket arbitration clause requires that all lease disputes be submitted to and resolved through arbitration.

But there's a problem with a blanket arbitration clause: It could delay the process of evicting the tenant from its space, warn Ohio attorney Mark B. Schwartz and New Jersey attorney Marc L. Ripp. If you want to evict a tenant, you must first submit the case to arbitration and wait for a favorable decision. Only after you get a favorable decision in the arbitration case can you go to a court to evict the tenant, notes Ripp. By requiring the resolution of nonpayment and holdover lawsuits you deprive yourself of the right to directly sue the tenant in court in a “summary proceeding.” That's a type of lawsuit that lets an owner evict a tenant who doesn't pay its rent or who's holding over. Also, if you have a “self-help” right in the lease that lets you take back the space without resorting to court action, a blanket arbitration clause could force you into arbitration before you may exercise your self-help right, warns Schwartz. And that too would delay your getting the space back.

To eliminate the problem created by a blanket arbitration clause, consider using one of two solutions:

Solution 1: Exclude Certain Disputes from Blanket Clause

Consider excluding certain kinds of disputes from the blanket arbitration clause, so that you can resolve them through enforceable court proceedings, says Schwartz. For example, exclude any disputes in which you're trying to evict the tenant because it's holding over or hasn't paid its rent, he advises.

To use this solution, Schwartz suggests that you add the following blanket arbitration clause to your lease: CLLI0119

Model Lease Language

a. Subject to Paragraph b hereof, in the event of an unresolved dispute between Landlord and Tenant with respect to any matter under this Lease, such dispute shall be submitted for resolution to arbitration by either party and such claim shall be adjudicated exclusively by arbitration as follows: [insert arbitration procedures].

b. The following shall not be submitted to arbitration under Paragraph a hereof:

(i) Any claim or action by Landlord to recover, and/or retake the Premises under any rights reserved to Landlord under the Lease (including, without limitation, any “self-help” or recapture rights);

(ii) Any claim or action by Landlord to evict Tenant from the Premises because of Tenant's failure to surrender the Premises upon the expiration or earlier termination of the term of this Lease, and/or pay any Base Rent, Additional Rent, or other sums that Tenant is obligated to pay by any provision of this Lease when and as they become due and payable hereunder, which failure has not been cured within [insert #, e.g., 5] days after the giving of notice thereof by Landlord, such notice being in lieu of, and not in addition to, any applicable statutory notice.

Solution #2: Use Limited Arbitration Clause

Alternatively, you can protect your right to resort to enforceable court proceedings by using a limited—not a blanket—arbitration clause, says Ripp. In the clause, list only those few disputes that can be arbitrated, he says, rather than the disputes that can't be arbitrated. You can resolve any other dispute in court, he points out.

For example, you can draft the limited arbitration clause to say that only disputes concerning the reasonableness of the withholding, delaying, or conditioning of your consent to the tenant's proposed lease assignment or sublet must be submitted to arbitration. The clause would look like this, says Ripp: CLLI0120

Model Lease Language

If Tenant contends that Landlord has unreasonably withheld, delayed, or conditioned its consent to a proposed assignment or sublet, then, as Tenant's sole and exclusive remedy, Tenant shall submit its claim for resolution to arbitration, and such claim shall be adjudicated exclusively by arbitration as follows [insert arbitration procedures].

CLLI Sources

Marc L. Ripp, Esq.: Counsel, The Gale Company, 100 Campus Dr., Ste. 200, Florham Park, NJ 07932-1007; (973) 301-9500; MRipp@TheGaleCompany.com.

Mark B. Schwartz, Esq.: 30100 Chagrin Blvd. #110, Cleveland, OH 44124; (216) 360-0440; hattendor1@aol.com.