by Gary Rhoades

In December 2015, a fire broke out in an apartment building on Ocean Front Walk in Santa Monica. Fortunately, no one was injured; but the fire rendered the apartments uninhabitable. Most of the tenants had lived there for more than ten years and were low-income, seniors, or disabled. They did not have the means to suddenly move somewhere else.

The building’s corporate owner refused to pay relocation costs to the tenants. In most cases, the owner instead tried to terminate the tenancy. There were also serious allegations of neglect at the building including lack of adequate heating, faulty wiring, persistent water leaks, mold, and infestations.  So, in 2016, nine of the tenants sued the landlord, alleging violations under the local tenant relocation laws, local and state eviction laws, and state habitability laws.

Despite the many allegations, the threshold issue in that court case ended up being over an “mandatory arbitration” clause that the owner had required the tenants to sign just before the fire. In December 2014, the owner had demanded that the tenants sign a 14-page, pre-printed rental agreement that had a two-page, single-spaced, ALL-CAPS paragraph on arbitration. This long and dense provision attempted to bar the tenant from suing the owner in court for any dispute regarding their tenancy. It required the tenants to instead take nearly all disputes to an expensive arbitration firm of the owner’s choice.

With that arbitration clause in hand — a clause which hardly any of the tenants had read or understood back in 2014 — the owner responded to the tenants’ lawsuit with a Motion to Compel Arbitration. The litigation over that motion — deciding whether the tenants had signed away their rights under those dubious circumstances — lasted two years.

The inclusion of mandatory arbitration clauses in contracts, whether for rental housing, a car, or downloading a new app, has skyrocketed in this past decade. Like other businesses, some landlords attempt to limit their liability and their exposure to court costs and attorney’s fees by including mandatory arbitration clauses in their leases.  

And because the courts have favored the use of arbitration, it’s been much more difficult to fight them or even to shop around for better terms. Still, there are a few things tenants can do to minimize any loss of rights:

  •   Make a thorough review of the rental agreement for an arbitration clause before signing.
  •   Watch for signs of unconscionability—that is, excessive unfairness in either the terms or the way the landlord presented the lease. Signs included: 1) High-pressure tactics to get a tenant to sign off on an arbitration clause; 2) Lack of understanding by a tenant of what he or she is signing; and, 3) Harsh terms such as removing the ability to get attorneys’ fees or requiring the tenant to pay expensive arbitration fees.
  •   Avoid waiving the right to a jury in an eviction case.

In the case of the Ocean Front Walk tenants, the trial court ruled that the provision and the circumstances could be examined for unconscionability. Among other things, the court found that since the tenants did not understand in 2014 that they had a choice to refuse to sign the arbitration clause and since the new attorney’s fees provision presented a “formidable obstacle” to the tenants’ ability to hire a lawyer to help them, the provision was unenforceable as unconscionable.

Last year, an appellate court agreed with the trial court, and the tenants are now preparing for the trial they deserved.

It’s always smart to look for less expensive alternatives to litigation by using alternative dispute resolution methods such as mediation and arbitration. However, mandatory arbitration terms often put tenants at a disadvantage and therefore tenants should take care to identify and limit them.

Gary Rhoades is a Deputy City Attorney in the Consumer Protection Division of the Santa Monica City Attorney’s Office.

 

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