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FAQ Check: Using Arbitration with Your Condo / Co-op Board

Habitat Staff in Co-op/Condo Buyers

April 21, 2011 — For both condo and co-op boards and their unit-owners or shareholders litigation can be a budget-busting and morale-destroying experience. That's why some boards suggest arbitration. It's comparatively simple, but beware: Its decision is, legally, the final word.

Here, in easy Q&A form, are answers to common questions regarding co-op and condo arbitration

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Q. What is arbitration?

A. Arbitration is a form of “alternative dispute resolution,” a legal technique for resolving disputes outside the court system.  It is a settlement technique in which a neutral third party (the arbiter or, plural, the arbitrators) reviews the case and imposes a decision that is legally binding for both sides. Other forms of alternative dispute resolution including mediation (in which the parties negotiate their own solution with the help of a neutral third party) and non-binding resolution (a recommendation by experts who review your case).

Q. What are the advantages of arbitration?

A. It’s a faster, less costly method of resolving a dispute than using the courts.  In both arbitration and trials, the parties present their cases to a neutral third party, but with arbitration, you do it in a confidential setting.

Q. Is it voluntary?

A. In can be either voluntary or mandatory.  Mandatory arbitration can only come, in the case of co-op boards and condo associations, from a contract that is entered into voluntarily.  Afterward, the results of the arbitration can be binding or non-binding, depending on the contract.

Q.  How does arbitration work?

A. Both parties agree to meet with an arbitrator — often a retired judge or a court-appointed attorney — who listens to both sides, weighs any evidence brought in, asks questions and renders an opinion. You can use your lawyer to argue the case, but the process is designed to be informal enough that you could also argue it yourself if you're articulate and good at marshalling your material.

An arbitration forum is flexible. Hearsay evidence, for example, normally precluded in a court of law, can be taken into account by the arbitrator in arriving at a decision.

Q.  Are arbitration hearings and results part of the public record?

A. No. Unlike court proceedings, they are not public record. Since publicity about building problems and board disputes does not enhance the value of a cooperative or condominium apartment, the privacy afforded by arbitration can affect your apartment's resale value.

Q. Mediation is also private. Is that better to use than arbitration?

A. That depends. In mediation, the mediator tries to help the parties find a common ground each can live with. More importantly, if the parties still can't agree, they can walk away without reaching any settlement and go on to litigate their issues through the courts.

Some situations not well-served by arbitration, but arbitrators can be good to use in  cases that need creative solutions instead of precedent-based approaches and legal wrangling.

Q. What does a co-op board or a condo association have to do to require arbitration?

A. If your co-op wants to require arbitration, it needs to amend the proprietary lease, specifying in what circumstances arbitration will be used. Typically in co-ops, this takes at least a two-thirds affirmative vote of the total shares. Similarly, condos need to amend their bylaws, which also generally requires a supermajority of votes.

Q. Are there any hidden advantages to arbitration?

A. "I don't think, in all the years I've been recommending an arbitration provision, I have ever had to actually have an arbitration between two shareholders," says attorney Stuart Saft, a partner at Dewey & LeBoeuf. "I think the reason is that, without the [arbitration] provision, the board's hands are really tied as to how to handle these quality-of-life issues. But, with the provision, all the board has to do is say, 'Okay, two shareholders, go to arbitration.' Once they're forced to deal with the issues, they'd rather deal with them on their own. It's a way to eliminate the need for dispute resolution by having an effective method at your disposal."

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