Beware Binding Arbitration
Over the last several years, mandatory arbitration provisions have become more and more prevalent in the contracts we sign and agreements we make. They have appeared in nearly every agreement we enter into as consumers - including the warranties for products we buy and agreements for services we use. That is no different for community associations. It is exceedingly important to be aware of when your association's contract requires arbitration instead of seeking a remedy through the court system.
If you have heard the term, but do not know what "arbitration" means, the concept is straightforward. An arbitration is simply an alternative way to resolve a dispute. Instead of a lawsuit with a judge or a jury, or a mediation that involves voluntary negotiations, an arbitration is similar to a trial except that you pay an arbitrator to take on the role the judge and jury. The arbitrator decides the outcome of the dispute.
Agreeing to arbitration at the time of contract is often is not the best option for a homeowner association. If the parties to a contract end up in a dispute, they can always agree to arbitration after the fact, and they should do so if the dispute is such that arbitration is the best avenue for resolution. Blanket agreements to arbitrate all disputes can make sense in some circumstances, but should not be accepted as matter of course.
Associations should be especially wary of "arbitration" agreements that include waivers or limitations of liability, damages, attorneys' fees, recovery of costs, appeal rights, or choice of law and venue requirements. Such waivers and limitations are often presented under the guise of "arbitration terms" which can result in significant legal disputes over the enforceability of such provisions.
From a community association perspective, it is critically important to (a) know whether the contracts the association signs have arbitration provisions, and (b) understand the impact those provisions will have on the association and its claim. Whether the contracts are for landscaping, construction projects, utility monitoring, or internet service, the association needs to know what its right are if things go badly.
If your association would like assistance reviewing new or existing contracts for arbitration provisions, Barker Martin is here to help. We have assisted our clients in both reviewing problematic contract provisions and negotiating terms that protect the association if the contract is breached. Please do not hesitate to contact us with any legal issues your association may have.