Lease Wars: The Last (Expedited) Arbitrator Jedi
A long time ago, in a lease negotiation far, far away…
Spoiler Alert; I recently saw “Star Wars: The Last Jedi”.
Yes, yes, I am on the Star Wars ride and have been since before Luke Skywalker looked like Meat Loaf.
I must point out that the First Order appears to be no improvement on the Galactic Empire in that they both build Death Stars and Dreadnaughts that have one little, itsy-bitsy, easily exploited flaw (who is in charge of construction here, the NYC MTA?)
But mostly, I wonder about Thanksgiving at the Skywalkers. What a dysfunctional family!
Luke and his father are always fighting, Pops even cutting off Luke’s hand. They finally make up and then nephew Ben kills his father Han, is estranged from his mother and, in full juvenile delinquent mode, it turns out had burned down Uncle Luke’s Jedi training center.
These guys are worse than Congress.
Yet, even in the genteel world of commercial leasing, on occasion there might arise a minor disagreement between a tenant and its landlord.
Yes, I know, hard to imagine. But one way to avoid the un-pleasantries arising from a conference room light saber battle is for the tenant to have a right under its lease to expedited arbitration.
A tenant can always bring a legal action against its landlord for violating its lease, but that might mean looking forward to a resolution two or three years later.
Not much help, especially if the issue has a short half-life, such as a landlord’s failure to act reasonably in disapproving a proposed subtenant.
A resolution in the courts years down the road is not the answer for this tenant who would undoubtedly lose the prospective subtenant, and most leases provide that even if consent is deemed given after ultimate resolution, damages for unreasonably withholding consent are precluded.
If, on the other hand, tenant and landlord had agreed during the lease negotiation to resolve certain disputes through a quicker than usual arbitration process, the tenant might have an answer in three or four months and the prospective subtenant might be willing to stick around until then.
If you give two bantha ticks about expedited arbitration, your inner Yoda and these eleven suggestions, follow you should:
- Cover reasonableness. Allow for expedited arbitration in any dispute with respect to the granting of landlord consent where such consent is subject to a reasonableness requirement. In addition to consent to assignments and sublettings as provided above, other examples include consent to alterations, increase of electrical capacity or modifications to the certificate of occupancy.
- Cover specific issues. Try to expressly provide for expedited arbitration in other situations, such as whether or not your landlord properly disbursed or withheld payments under a tenant improvement allowance. This is not a “reasonable consent” issue as discussed above, but is something you would want resolved on an expedited basis. Other examples include disputes regarding the proper commencement date of the lease, whether substantial completion of alterations was achieved, whether a tenant can pursue “self-help”, increases in required insurance coverage and removal of “specialty alterations”.
- Specify applicable rules. A commercial arbitration generally is not much faster than a legal action, so you need to specify the expedited rules and procedures that will govern the arbitration.
- For example, the Commercial Arbitration Rules of the American Arbitration Association include certain “Expedited Procedures” (Rules E-1 through E-10) under which time periods are shortened to allow for much speedier resolution of disputes.
- Some leases provide for further shortening of the time periods in the AAA rules to allow for an even quicker result, such as reducing the time for raising objections to arbitrators, notification of hearings, arbitrator decisions, etc.
- Specify the location. Indicate the jurisdiction in which the arbitration will be held (presumably, where the property is located, but that is not always the case). The AAA may have different expedited rules in different jurisdictions.
- Beware the statute of limitations. Many leases will provided that the tenant needs to give notice exercising expedited arbitration on or prior to an agreed upon period of time after the date that the landlord denied such consent or otherwise triggered the procedure. Make sure that you have enough time to assess the situation and make a decision.
- Indicate arbitrator qualifications. As with any lease arbitration provision, specify that each arbitrator must be a qualified, disinterested and impartial person who shall be experienced (e.g., for five or ten years) with similar disputes in the geographic area.
- Set forth procedures. You may wish to provide further specifics regarding the procedures, such as each side having the right to appear, be represented by counsel and submit supporting memoranda.
- Agree to cooperate. You and your landlord should agree to sign all documents and to do all other things necessary to submit to arbitration, including waiving any rights to revoke the agreement to arbitrate and agreeing to abide by the result.
- Make arbitration binding. The decision of the arbitrator should be conclusively binding and both parties should consent to the entry of judgment in any court upon the award rendered.
- Per Yoda, “the greatest teacher, failure is”. Most leases will preclude damages against the landlord by reason of its unreasonably withholding (or conditioning or delaying) consent, but you may be able to provide for damages if the arbitrator determines that your landlord acted capriciously, arbitrarily or in bad faith.
- Address fees. Generally, each party pays its own fees with respect to an arbitration, but you may want the losing party to pay the fees of the party that prevailed (or “significantly prevailed”). This will be a further incentive for both parties not to play games. The arbitrator can determine the extent to which each party is successful (including in the event that both parties are partially successful, then each party would be responsible for such arbitrator’s fees on a percentage basis as determined by the arbitrator).
Poor computer generated Supreme Leader Snoke, only gets to rule the entire universe for portions of two movies before Kylo Ren settles their dispute in an expedited fashion (back in the day, an evil Emperor could look forward to years of domination). But if he had followed the suggestions above, at least his lease expedited arbitration provision would have allowed for an equitable outcome.