When negotiating a commercial lease, most parties focus on the clauses with the most immediate impact: the cost of rent, the length of the lease term, and renewal options. But buried deep in most commercial leases is a small but powerful provision: the alternative dispute resolution (ADR) clause.
These clauses shape how disputes are resolved between the parties. A trial before a jury of our peers is often what we envision when we think of resolving legal disputes. But an ADR clause can determine who decides these disputes. Is it a judge? A jury? Or some other third party (like an arbitrator or mediator)? Understanding this contract clause is essential because it affects your rights, costs, and leverage if a dispute ever arises.
What’s the Default Rule?
Absent a contract clause that says otherwise, parties have a right to avail themselves of the courts, including a jury trial. However, many lease agreements stipulate a waiver of this right. This clause is enforceable in most instances provided it is made knowingly and voluntarily.
Judges and mediators or arbitrators (more on that below) are generally more consistent and experienced in commercial matters than juries, often removing much of the emotion from any dispute and focusing on the legal arguments alone. In addition, alternative dispute resolution typically moves faster and involves less procedural complexity than empaneling a jury.
What’s an Alternative Dispute Resolution (ADR) Clause?
An Alternative Dispute Resolution (ADR) clause sets out how the landlord and tenant will handle disagreements without (or before) going to court. This may include:
- Mediation: A non-binding negotiation facilitated by a neutral third party. Sometimes, a meeting with a mediator is a prerequisite to filing a lawsuit, though mediation is less common in the commercial lease context.
- Arbitration: A private and oftentimes binding decision-making process before an arbitrator instead of in front of a judge or jury.
Why ADR Clauses Are Common.
Landlords and tenants alike often prefer alternative dispute resolution because arbitration and mediation can resolve disputes faster and more cost-effectively than litigation. In court, filings become public record. But proceedings in alternative dispute resolution are private. This protects sensitive financial or reputational information for both sides. In addition, the parties can select arbitrators with specific real estate or commercial law experience that a judge or jury may not otherwise have.
Once a dispute arises, it’s too late to wish the lease agreement said something else. Well-drafted ADR clauses and jury trial waivers can be powerful tools to control cost, timing, and privacy in commercial lease disputes. Before signing, both landlords and tenants should review the clause with counsel. The experienced attorneys at Way Law can help you negotiate fair and balanced dispute resolution procedures in your lease!