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Risks of “Baseball Arbitration” in Resolving Real Estate Disputes
In 1974 Major League Baseball (MLB) introduced what is now known as “baseball arbitration.” If an eligible player's representative and the club ownership cannot reach a compensation agreement through negotiation, each party enters a final submission and during a formal hearing each side — player and management — presents its case and then the designated panel of arbitrators chooses one of the salary bids with no other result being allowed.
This method has become increasingly popular even beyond the sport of baseball. For example, many real estate lawyers now advise clients to utilize “baseball arbitration” for resolving disputes. The range of such disputes includes such things as market rent re-settings for commercial space lease renewal periods; renewal rents for ground leases; disputes between buyers and sellers in the case of purchase options specifying market value at the point of the purchase option's exercise, and brokerage commission disputes.
Sounds Good in Theory
Arbitral discretion in such a process is limited to choosing exactly one side's position or the opposing party's view. The rationale is that each party fearing that its proposal will not be chosen will be forced into a “zone of reasonableness” and, consequently, the difference in the positions will be narrowed. Although this approach seems theoretically sound, it is often fails in practice. Rarely does it seem to work effectively in actual arbitration cases. There is often an immense gap in the final bids submitted.
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