Posted almost 5 years ago

Top 3 reasons to utilize binding arbitration in ALL of your contracts!

One of my new favorite sayings is you can be right or you can be rich. One tool that to that end that can be drafted into all of your contracts is the use of alternative dispute resolution. Alternative dispute resolution is defined as any method of resolving disputes other than by litigation primarily arbitration or mediation.

Arbitration consist of a process of selecting a neutral third party(s). Typically a panel of three subject matter experts that understand your industry. It can be non binding as a precursor to further litigation if the resolution suggested is not satisfactory. However, to get maximum benefit out of the resolution method binding arbitration is a way to get finality. Binding arbitration is the end result with no recourse of further litigation.

Mediation is less formal way to attempt to resolve a dispute which invites a neutral third party who is most typically trained at pointing out the relative strengths and weaknesses of each party's positions.

I would assert that our objective is to maximize speed of resolution and reduce cost of disputes as an entrepreneur.  The highlights of selecting binding arbitration to meet our objective include:

1. Cash flow velocity and velocity in general is critical to any investor. Litigation can stymie you from an emotional and cash flow standpoint.

2. Deeper pockets maybe able to force you into submission by continual appeals literally as much as a decade long dispute. Arbitration will level the playing field to ensure a just outcome

3. Litigation risk management vis a vis subject matter expertise. Real Estate and Construction contracts can be highly technical with respect to my law school classmates quizzing them over time value of money and return on investment would draw a blank stare from most

In conclusion, for the sake of your velocity cash flow and otherwise: arbitrate always. Note this article is not intended as legal advice. Consult legal counsel in your jurisdiction who is familiar with real estate to draft effective arbitration clauses.

About the author: Douglas Dowell is a former attorney and a full time real estate investor. He focuses on use of SDIRA funds and high net-worth partners to capture value based opportunities in multifamily assets.