Arbitration and Eviction: When an Efficient Solution Becomes an Obstacle to Recovering Your Property  

Arbitration clauses in real estate contracts have become increasingly common, mainly due to the advantages offered by arbitration as an alternative means of dispute resolution: greater speed, confidentiality and technical expertise of the arbitrators, among others. However, there are situations in which this clause can be counterproductive and, instead of providing the speed and efficiency of arbitration, ends up creating unnecessary procedural complications.

One such case arises in lease agreements, specifically in relation to eviction. When the arbitration clause does not expressly exclude this action, it may prevent direct access to the courts, which generally offer a more agile and specialised procedure: the lease enforcement process.

In this type of contract, one of the most important aspects for the lessor is to have a quick and effective way to recover the property in the event of default. Situations such as non-payment or expiry of the term make it necessary to act quickly, and this is where the wording of the arbitration clause becomes particularly relevant.

What happens when eviction is not excluded from the arbitration clause?

Let us consider a typical case: the parties enter into a lease agreement that includes a generic dispute resolution clause, whereby they agree to submit any dispute arising from the agreement to an arbitration centre, without expressly excluding eviction proceedings. Time passes, and the tenant accumulates more than three months of unpaid rent. A formal demand for payment has already been made, but the tenant remains in the property without paying or vacating it.

At first glance, one might think that resorting to arbitration—with all the advantages it offers—should be sufficient to resolve the dispute without further complications; however, in practice, this is not always the case.

To initiate arbitration proceedings related to the breach of the lease agreement and the resulting eviction, the landlord in this case must file an arbitration request with the arbitration centre agreed upon by the parties. This request formalises the intention to initiate the proceedings and sets out, on a preliminary basis, the dispute to be resolved, which includes the eviction from the leased property and the collection of unpaid rent.

Once notified, the respondent (in this case, the tenant) may respond and state their position regarding submission to arbitration. Subsequently, the arbitration claim is filed, the respondent responds, and an oral hearing is held. Finally, the arbitral tribunal issues a binding award resolving the dispute. This arbitration process alone usually takes less than a year, although the time may vary depending on the case.

Now, what happens if the tenant does not voluntarily comply with the award and does not vacate the property?

Despite having obtained a favourable award, the landlord has no choice but to file a petition for enforcement of the arbitration award with a civil court, which inevitably adds more time to the process. This is because the arbitral tribunal does not have the same powers as a judge of the Republic to enforce its decisions. Although the award is binding on the parties, its enforcement, as in the case of an eviction order, can only be ordered by a judge, who also has the power to authorise seizures, retention of property, searches or the assistance of the police, if deemed necessary.

In short, when arbitration is chosen for this type of dispute, in practice there are two stages to go through:

1- The arbitration process itself.

2- The process of enforcing the arbitration award before a court.

Therefore, far from simplifying the process, this route may end up causing further delays in recovering the leased property. In this scenario, if it is still necessary to go to court to effectively achieve eviction, including the arbitration clause for this particular issue loses its practical usefulness.

How does the rental enforcement procedure work and what advantages does it offer over arbitration?

When the rental relationship is documented and there are grounds for requesting eviction, such as expiry of the term, non-payment of rent, utilities or common condominium expenses, the Civil Procedure Code (Law No. 9342) provides for the processing of the rental enforcement procedure as an appropriate means of expeditious recovery of the property.

To access this route, the rental relationship must be duly documented, preferably by means of a written contract, although it can also be proven with other documents, such as invoices or payment receipts.

Once the payment order has been filed and admitted, the court issues an eviction notice, giving the defendant five days to vacate the property or file a well-founded opposition. This opposition can only be based on one of the following grounds: proof of payment in writing, the statute of limitations, the non-existence of the obligation to pay rent or the non-expiry of the term. In addition, in the same order, the judge may order the preventive seizure of the defendant’s assets, at the request of the plaintiff.

If the defendant submits to the claim (i.e., acknowledges the facts and claims), does not file an opposition within the time limit granted, or their opposition is declared unfounded, the court may, without further proceedings, directly enforce the order, i.e., order the eviction and delivery of the property to the landlord.

In the event of a well-founded opposition, the court should schedule an oral hearing and subsequently issue a ruling confirming or revoking the injunction. However, in this type of proceeding, only very specific grounds for opposition are admissible, so in practice, situations of non-payment or expiry of the term are usually easily verifiable. For this reason, relatively few cases require an oral hearing.

That said, the main advantages of the rental payment order process over arbitration include:

Speed: The payment order process is designed to be handled quickly, with short deadlines and simplified procedures, allowing for faster recovery of the property.

Lower costs: As it is a straightforward procedure with fewer stages, the costs and fees are usually significantly lower than in arbitration.
Direct access to eviction: It allows an eviction order to be obtained that can be enforced directly by the judicial authority, without first having to go through arbitration and then a judicial process to enforce the award.

Possibility of retaining assets: This process expressly allows for measures to be requested, such as the preventive retention of the defendant’s assets, to ensure payment of the monthly instalments owed during the process.

The characteristics of the rental payment process make this the most appropriate route to achieve the main objective of any landlord: to regain possession of the rented property as soon as possible when the tenant fails to comply with the main obligations of the contract.

So, should the arbitration clause be completely excluded from rental contracts?

Not necessarily. This does not mean that the inclusion of an arbitration clause in lease agreements should be completely ruled out. On the contrary, it remains a useful tool for resolving other disputes that may arise from the agreement, such as those relating to its interpretation, performance, settlement or validity, especially in agreements where the amount involved justifies the costs of arbitration.

What is truly important is that such a clause expressly excludes eviction proceedings as a consequence of the termination of the lease agreement in the cases provided for by law, so that the matter can be taken directly to court.

Conclusion

The arbitration clause is useful for resolving many disputes in lease agreements, but if it does not expressly exclude eviction, it can complicate and delay the recovery of the property.

What could be achieved in a few months and at lower cost through a lease enforcement procedure in court becomes a longer, more costly and more complex process if it is submitted to arbitration. This is not because arbitration is ineffective in itself, but because it is not the most appropriate mechanism for resolving this specific type of dispute. Hence the importance of expressly excluding actions related to eviction when drafting an arbitration clause in lease agreements.

blplegal.com