You want to build a new home. You hire ABC Builders to design and construct your home and sign a contract, in which the builder agrees to give you a warranty at closing. Several months later, the home is built and by all appearances, it is a work of perfection. Now, comes the day – closing day. Among the many documents you are asked to sign is a builder’s limited warranty. You come across a paragraph entitled “Binding Arbitration Clause,” the content in bold and CAPITAL letters. You think nothing of it and sign the dotted line.
Fast forward ve years and you have problems not only in the foundation, but also in the roof of your home. You noticed these issues when you moved in, but thought nothing of it. You contact ABC to express your concerns. They do nothing about it and you sue in Pennsylvania Court. Now, the Court must consider the validity of the following arbitration clause:
ALL DISPUTES ARISING OUT OF THIS CONTRACT SHALL BE SETTLED BY ARBITRATION ADMINISTERED BY XYZ ARBITRATION CORPORATION. THE PLACE OF ARBITRATION SHALL BE IN DALLAS, TEXAS AND TEXAS LAW SHALL APPLY. JUDGMENT BY THE THREE-PERSON ARBITRATION PANEL, WHICH PANEL MEMBERS SHALL BE CHOSEN BY ABC BUILDERS, SHALL BE BINDING. YOU MUST PAY ALL ARBITRATOR FEES IN ADVANCE BEFORE YOUR HEARING WILL BE SCHEDULED, AND YOU ARE RESPONSIBLE FOR ALL COSTS OF ARBITRATION.
You may be surprised to realize that arbitration clauses of this nature are generally enforceable, unless the Court finds that the arbitration clause is unconscionable; that is, inherently unjust or unfair. In the example above, you may be able to convince the Court that having your Pennsylvania case resolved in Texas, at your expense, is inherently unfair and “unconscionable.” However, what if your home builder has a clause that the arbitration hearing will be held in Philadelphia, or New York, or even in the community where you live? On top of that, the expense of the arbitration proceedings, including arbitrator fees, will be divided between you and your builder?
As a consumer, your first and most effective defense and solution is to READ THE CONTRACT. If you do not understand the contract and if the sales person tells you that the language of the contract is just “standard,” do not accept this explanation If you are entering into a contract with a builder for the construction of a new home, see the builder’s warranty before you sign the contract to see if the warranty contains binding arbitration language. If the sales person refuses to remove binding arbitration language from the contract or warranty, especially where the language is one-sided in favor of the company, do you really want to do business with this company, especially for something as important as your home?
If you are unsure regarding your rights under a contract, you should consult with your attorney. Protect your rights as a consumer!