What Happened To The Mediation And Arbitration Clauses in the PRDS Listing Agreement?

By David Hamerslough

The last revision to the PRDS listing agreement removed the mediation and arbitration clauses. Many licensees have asked why the Forms Committee deleted these two clauses. In this article, I will discuss some of the reasons behind this change.

Under the PRDS purchase contract, buyers and sellers are required to mediate any disputes between them concerning and/or arising out of the contract before initiating any court action or arbitration. The buyer and seller are also contractually obligated to submit any similar disputes to binding arbitration if the arbitration provision has been initialed by both parties. The real estate licensees are not contractually obligated to participate in mediation or arbitration but may opt to do so when there is a potential claim against the real estate licensees and a demand is made in writing by one or both parties for the licensees to participate.

The prior version of the PRDS listing agreement contractually required the seller and listing brokerage to mediate any disputes arising out of the listing agreement and to arbitrate those disputes if the arbitration clause was initialed by the seller and listing brokerage. There was and still is no contractual obligation that the selling brokerage participate in any mediation or binding arbitration. This discrepancy created the potential for one brokerage to be contractually obligated to mediate and arbitrate disputes but for the other brokerage to be excused from doing so unless that brokerage voluntarily chose to participate in either of those proceedings. One of the reasons for eliminating the clauses from the listing contract was to place the two brokerages in the same position with respect to participating in mediation and/or arbitration. As it now stands, the listing and selling brokerages are not contractually obligated to mediate or arbitrate under any contract but can elect to do so if a claim is made against them. Under a PRDS listing agreement, any dispute regarding the payment of a commission requires that a lawsuit be filed in court, as there is no obligation under the listing agreement to pursue mediation or arbitration.

This issue is treated differently in the C.A.R. listing agreement. The C.A.R. listing contractually requires the listing brokerage to participate in both mediation and arbitration, assuming that clause is initialed, for any dispute regarding the obligation to pay compensation under the listing. One of the questions that arises is "What disputes relate to the obligation to pay compensation?" A claim by a broker for its commission obviously qualifies, but what about a claim that the broker should disgorge their commission or a claim that disgorgement is warranted because some action required by the listing has not been performed adequately?

Depending upon the nature of the claim made, a listing broker can find itself subject to the mediation and arbitration clauses for all claims against that broker as long as one of the claims relates to the obligation to pay compensation. Were this to occur, that listing broker would find itself subject to resolving disputes through mediation and binding arbitration without the selling brokerage being obligated to participate in either of those proceedings.

The two listing agreements also differ with respect to the ability to recover attorneys' fees involving a dispute over compensation. Under the PRDS listing agreement, the listing broker and seller are each responsible for the payment of their own attorneys' fees and other legal costs in the event of any dispute, including disputes over the payment of compensation. On the other hand, the C.A.R. listing agreement provides that the prevailing seller or broker shall be entitled to reasonable attorneys' fees and costs from the other party in the event of any dispute regarding the obligation to pay compensation under the listing agreement.

There are various philosophies that explain the inclusion or preclusion of an attorneys' fees clause, and the scope of that clause, in the two listing agreements. What is important is to understand the distinctions that do exist and how those distinctions may affect a particular dispute.

Mediation and arbitration provisions may also be found in agreements with inspection companies, disclosure companies, and independent consultants such as engineers, architects, etc. Some of these provisions may attempt to limit the financial exposure of the service provider and may also attempt to require that any claim against that service provider be made by a certain date or the right to do so could be lost. Some of these clauses may also set certain conditions (e.g., notice, opportunity to re-inspect, etc.) before any claim can be made. While parties generally do not enter into a transaction or retain a service provider with the expectation that claims will arise between them, it can be helpful to understand the scope and terms of any such written agreement before the agreement is signed. One of the reasons for doing so is to determine which parties, if any, will be contractually obligated to mediate and/or arbitrate disputes should they arise.

The PRDS Forms Committee is in the process of revising the listing agreement. The revisions will not reestablish the mediation and arbitration clauses or alter the attorneys' fees provision. The Committee always welcomes input from the members of the Association on any of the PRDS forms. Should you have any questions or comments regarding any of the forms, please submit them to SILVAR, and they will be passed on to the Committee for evaluation or response.

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