The Property Management Shop
by Marc Wilson
Q. My seven-unit apartment building is on the market, for sale with a local real-estate agent. We received a full-price purchase offer but noticed that the buyer did not initial those items in the standard San Francisco Association of Realtors contract relative to mediation (item 22) and arbitration (item 23) of disputes.
Apparently, the buyer does not believe in mediation or arbitration and is adamant about maintaining the right to legal recourse. My agent advises me to simply execute the contract and not worry about the buyer's unwillingness to sign off on mediation and arbitration. What is your opinion on the matter.
A. When it comes to business disputes—all disputes for that matter—I am the consummate pragmatist. I am never in the business of teaching someone a lesson, making someone pay or getting justice. I am not interested in any of these things—they have no value to me. Business disputes are just like any other problem—the winner is the one who makes the problem go away as quickly as possible while spending the least amount of time, emotional energy and money. Resolving business disputes is like any other life-skill: experience breeds competency.
I have had enough experience with the justice system to learn that absolutely all participants are losers. There is no justice being dispensed at 400 McAllister Street; there is only pain, lots and lots of pain. There is financial pain, emotional pain and time-wasting pain. Think about it: the only thing in your life that has any real value, the only thing that is truly irreplaceable, is your time. The justice system burns your time and wastes your money. There are no redeeming attributes to the justice system. This is not to say that there are no winners within our justice system. The judges are winners. They are paid government employees with righteous compensation and retirement packages. They get to wear cool black gowns and be called "Your Honor." They get to dominate and control dialogue and interaction in the courtroom. They get treated with awe and respect by the community at large. Let's face it: it's a great job. Clearly the attorneys are also winners. My brother is an attorney, and he actually has a company T-shirt that says: "How much justice can you afford?" The rest of the participants—the plaintiff, the defendant, the jurors—are all losers. The goal, therefore, is to do everything possible to avoid resolving your business disputes in a court of law.
Negotiation, mediation and arbitration are the preferred methods to consider in resolving a dispute. These strategies cost less money, take less time and do not create the kind of adversarial atmosphere that litigation usually does. In mediation, a neutral third party—a mediator—helps you and the other party resolve the problem through facilitated dialogue. However, to reach an agreement is up to you and the other party. Arbitration is less formal than court, though you and the other party may appear at hearings, present evidence or call and question each others' witnesses. Unlike mediation, an arbitrator or panel makes a decision or award once you have presented your case. The decision may, and hopefully will be, legally binding. If all parties to the purchase contract initial items 22 and 23, mediation and arbitration, they are essentially promising to pursue these designated avenues in the event of a dispute. Signing these contractual items could and hopefully will mean that you will be compelled to arbitrate; and, thus, you will give up any rights you might have previously possessed to have the dispute litigated in a court or jury trial.
I occasionally receive a purchase offer from a buyer who has failed to initial items 22 and 23. I usually call the buyer's agent and inquire about the rationale behind this, and I often discover it is simply an oversight. Sometimes, however, the buyer has a strong desire to not forgo his option to seek justice in a court or jury trial. In this event, you should proceed with extreme caution. When a party to a contract is unwilling to agree to mandatory arbitration, in all likelihood this is never a good sign.
There are two kinds of people in this world: people who are inclined toward litigation and people who are not. Obviously, anyone unwilling to agree to mandatory arbitration falls squarely into category number one. The good news is that 99% of all buyers ultimately agree to sign mediation and arbitration clauses if the seller insists. Think about it: no real, reasonable and serious buyer would pass on a purchase opportunity just because the seller insists on mediation and arbitration language in the purchase contract. And believe me, as a seller you want to be in the business of dealing with only credible, reasonable and serious buyers. Tell the buyer's agent that you will entertain the purchase offer when and if, and only when and if, items 22 and 23 are signed. I guarantee you that they will be signed.
Obviously the key is to make every attempt to avoid business disputes in the first place. Try to conduct your affairs in a consistently ethical, professional and honorable manner. Try to avoid dysfunctional relationships.
Just a reminder: be sure that you are using a rental agreement that does not have an attorney's fee clause. The SFAA standard rental agreement does not award attorney's fees to the prevailing party—something that is definitely desirable. What in the world is the use of being awarded attorney's fees if you prevail over the average tenant? The average tenant has no real net worth. You could have a $1 million judgment against the average tenant, and it would be worthless. What are the first two things that your average tenant attorney wants to know before he/she will sue a property owner on contingency? The attorney wants to know if there is an attorney's fees clause in the rental agreement, and he/she wants to know if you have insurance. The attorney, in effect, wants to know if and how he/she will be paid. I even go so far as to add an anti-attorney-fee clause to my rental agreements. I know for a fact that some attorneys have decided not to sue me because of the existence of this simple clause within the rental agreement.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Marc Wilson is the president of SFAA. He has been managing and selling San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.