The California Civil Code regulates the types of terms that a residential lease can include, and states that public policy renders certain provisions void. A recent ruling by the California Court of Appeals, Second District in Williams v. 3620 W. 102nd Street, Inc. held that an arbitration clause in a residential lease is unenforceable based on public policy. California real estate investors considering investments in residential properties should be aware of how California law can affect their rights and limit the types of provisions they may include in lease agreements. This includes a legal requirement that residential tenants have access to the courts.
Williams v. 3620 W. 102nd Street, Inc.
Arbitration Clauses in Contracts
Arbitration is a type of alternative dispute resolution in which a neutral third party, the arbitrator, reviews the arguments and evidence of each side of a dispute. The arbitrator then makes a recommendation or ruling. If the parties agreed in advance to binding arbitration, then the arbitrator’s decision is final. Otherwise, the arbitrator’s ruling is more like a recommendation that neither party is obligated to accept.
The main benefits of arbitration are that the process tends to be much faster and less expensive than taking a case to trial. While a court might not have room on their docket for months or longer, an arbitrator could hear the case much sooner. This saves both parties time and the cost of protracted litigation.