ORLANDO, Fla. – A buyer will often review a purchase and sale agreement and sketch out a timeline of critical deadlines like making the deposit, applying for a loan, conducting inspections and so on. However, to understand the contract more deeply, it’s helpful to understand what happens if that timeline is disrupted and there’s a disagreement the parties can’t resolve on their own.
Florida Realtors® recently added or revised several contracts, so this is a good time to take inventory of how different contracts handle dispute resolution. This is a very basic overview, so anyone involved in a contractual dispute should talk to a lawyer for more finely tuned advice.
Litigation
Litigation (heading to court) is the default location to resolve contractual disagreements. For example, if a landlord and tenant have a month-to-month lease with no written agreement, they will head to court to resolve a dispute.
Some contracts designate courts as the place to resolve disputes. A common addition to the clause obligates the loser of a dispute to pay for the winner’s court costs and attorney fees, which can discourage litigation for anyone who doesn’t have a very strong case. Here are a few Florida Realtors form contracts that use litigation to resolve disputes. All of the forms are located on Form Simplicity.
Commercial Contract (unless arbitration addendum is attached)
Commission Agreement
Contract to Lease
Florida Bar Lease Forms
Florida Realtors/Florida Bar Contract for Residential Sale and Purchase (unless arbitration addendum is attached)
Limited Service Listing Agreement
Vacant Land Contract
Arbitration
While litigation and arbitration are both valid ways to resolve legal disputes, here are some general differences. Arbitration tends to move faster and involve fewer steps. It also tends to be less expensive. Arbitration is private, while litigation is public. Arbitration is typically final, whereas court cases can be appealed.
There’s one contract in the Florida Realtors forms library where arbitration is the only option mentioned. It’s the Exclusive Right of Sale Listing Agreement for Commercial Property. If the parties want to negotiate litigation instead of arbitration, they’d need to add their own clause to override the existing one.
The rest of these contracts allow the parties to choose between litigation and arbitration. Litigation is the default, but parties can opt in for arbitration instead of litigation by placing their initials in the arbitration section.
Compensation Agreement – Seller to Buyer’s Broker
Exclusive Buyer Broker Agreements
Exclusive Property Management Agreement
Exclusive Right of Sale Listing Agreements (residential)
Exclusive Right to Lease – Commercial
Exclusive Right to Lease Listing Agreement
Vacant Land Listing Agreement
Local board arbitration
Article 17 of the National Association of Realtors® (NAR) Code of Ethics requires Realtor® brokerage firms to arbitrate disputes at the local board. It’s inexpensive compared to typical arbitration, since NAR put a cap on the amount a local board can charge for arbitration (currently $500). A panel of Realtors will preside over the hearing. The local board can dismiss arbitration requests if they believe them to be too complex, if the amount in dispute is too large or if the amount in dispute is too small.
Local board arbitration applies to the Referral Agreement and the Compensation Agreement – Seller’s Broker to Listing Broker, assuming both parties are Realtor brokerage firms. While the drafters included an arbitration opt-in provision in the Compensation Agreement, local board arbitration is already required of members. The arbitration clause was added in case the form is used with one or more brokerage firms that aren’t Realtors.
Mixed bag
The Florida Realtors Contract for Residential Sale and Purchase (CRSP-16) presents a system with more nuance than the rest.
If the buyer and seller dispute who gets the escrow deposit, the escrow agent chooses where the parties will go to resolve the dispute. The escrow agent can send them to arbitration, a Florida court or can ask the Florida Real Estate Commission (FREC) if it will issue an Escrow Disbursement Order.
If the buyer and seller dispute anything other than the deposit, then they would schedule neutral binding arbitration in the county where the property is located.
Mediation and settling
Here’s an important reminder. Most legal disputes are resolved (or “settled”) before the parties reach the end of litigation or arbitration. Many contracts mention mediation as an early stop along the dispute resolution process. During mediation, a neutral third party will encourage parties to find mutually acceptable terms to resolve the dispute. If one or both parties can’t resolve the dispute through mediation, then they would proceed to litigation or arbitration.
Joel Maxson is Associate General Counsel
Note: Information deemed accurate on date of publication
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