Why a Purchaser of Hawaii Real Estate May Want to Delete an Arbitration Paragraph

Arbitration has been touted to be faster, cheaper and more confidential than filing a lawsuit in Hawaii. These are valid potential benefits and are a reason why it is becoming increasingly frequent to see arbitration provisions in agreements. However, there may be offsetting reasons why a potential purchaser of Hawaii real estate may want to delete that paragraph in a purchase agreement.

First, the arbitration provision is only applicable to all the parties who sign the agreement. Many times the claims a purchaser may have will be against non-signatories such as their real estate broker, their surveyor, etc. Thus, the arbitration provision itself will not avoid the possibility that the purchaser will have to handle a dispute both in court and in an arbitration.

Second, a Hawaii court has the ability to order equitable remedies such as specific performance under a contract. For example, the court may order the seller to sell to the purchaser at the agreed upon price. It is not that clear that an arbitrator can do the same, especially if the purchase agreement does not specifically provide for specific performance. Thus, an arbitration paragraph may hamper a purchaser’s ability to obtain specific performance.

Finally, once a lawsuit is filed a purchaser often times files a Notice of Pendency of Action in the Bureau of Conveyances in order to put third parties on notice that title to the property is in dispute.

However, the Hawaii Revised Statutes that discuss a Notice of Pendency of Action arguably require the filing of a court lawsuit before the recordation of a Notice of Pendency of Action. Thus, in order to reduce the risk that the seller will convey the real estate during a dispute the purchaser needs to file the Notice of Pendency of Action, and that cannot be done in an arbitration.

As you can see there are many issues that need to be carefully evaluated when purchasing Hawaii real estate.

Contact us today and ensure that you are legally protected and in compliance with Hawaii law.