Arbitration Clauses in Leases

By | May 2, 2015

Arbitration Clauses in Rental Agreement and Leases in Ohio

Ohio Revised Code Section 2711.01 is the statute in Ohio allowing Ohio Courts to transfer cases before them to an arbitrator if there is an arbitration clause in the contract. But the statute is self-limiting. Ohio Revised Code Section 2711.01(B) states as follows:

(B) (1) Sections 2711.01 to 2711.16 of the Revised Code do not apply to controversies involving the title to or the possession of real estate, with the following exceptions:

(a) Controversies involving the amount of increased or decreased valuation of the property at the termination of certain periods, as provided in a lease;

(b) Controversies involving the amount of rentals due under any lease;

(c) Controversies involving the determination of the value of improvements at the termination of any lease;

(d) Controversies involving the appraisal of property values in connection with making or renewing any lease;

(e) Controversies involving the boundaries of real estate.

Since the subject matter of the lawsuit (if brought under Ohio Revised Code Section 5321, Ohio’s Landlord Tenant Act) you propose to file against your landlord does not fall within any of the exceptions to 2711.01(B)(1)(a)-(e), you should argue that the Arbitration statute itself excludes your claim since it arises out of your possession of real estate.

Further, you can argue that the arbitration clause in the contract is unenforceable because it conflicts with a provision of Ohio’s Landlord Tenant Act. Ohio Revised Code Section 5321.06 states as follows:
“A landlord and a tenant may include in a rental agreement any terms and conditions, including any term relating to rent, the duration of an agreement, and any other provisions governing the rights and obligations of the parties that are not inconsistent with or prohibited by Chapter 5321. of the Revised Code or any other rule of law.”

Thus, the issue here is whether an arbitration clause inserted into a residential rental agreement would conflict with Ohio’s Landlord Tenant Act of 1974. So let’s take a look at what parts of the Landlord Tenant Act with which it might conflict.

Ohio Revised Code Section 5321.12 states as follows:

“In any action under Chapter 5321. of the Revised Code, any party may recover damages for the breach of contract or the breach of any duty that is imposed by law.”

You can argue that Ohio Revised Code Section 5321.12 clearly means that you have a right to bring a lawsuit, not an arbitration action, for any breach of contract or breach of a duty (as imposed by Ohio’s Landlord/Tenant Act) owed to you.

Ohio Revised Code Section 5321.13 states as follows:

(A) No provision of this chapter may be modified or waived by any oral or written agreement except as provided in division (F) of this section.

(B) No warrant of attorney to confess judgment shall be recognized in any rental agreement or in any other agreement between a landlord and tenant for the recovery of rent or damages to the residential premises.

(C) No agreement to pay the landlord’s or tenant’s attorney’s fees shall be recognized in any rental agreement for residential premises or in any other agreement between a landlord and tenant.

(D) No agreement by a tenant to the exculpation or limitation of any liability of the landlord arising under law or to indemnify the landlord for that liability or its related costs shall be recognized in any rental agreement or in any other agreement between a landlord and tenant.

(E) A rental agreement, or the assignment, conveyance, trust deed, or security instrument of the landlord’s interest in the rental agreement may not permit the receipt of rent free of the obligation to comply with section 5321.04 of the Revised Code.

(F) The landlord may agree to assume responsibility for fulfilling any duty or obligation imposed on a tenant by section 5321.05 of the Revised Code, other than the obligation specified in division (A)(9) of that section.

Thus you can argue that enforcement of an arbitration clause is an agreement which modifies your rights under the Landlord Tenant Act, and as such, is not enforceable. You have the right to bring your claims and have them heard before a court, with a jury if you so request, not an arbitrator. Further, the arbitration clause makes the tenant responsible for the costs of the arbitration, i.e., the costs of seeking justice. This is way too close to a clause requiring the tenant to pay the landlord’s costs (as prohibited under 5321.13(D)) and attorneys fees.

Ohio Revised Code Section 5321.14 states as follows:

(A)If the court as a matter of law finds a rental agreement, or any clause thereof, to have been unconscionable at the time it was made, it may refuse to enforce the rental agreement or it may enforce the remainder of the rental agreement without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(B) When it is claimed or appears to the court that the rental agreement, or any clause thereof, may be unconscionable, the parties shall be afforded a reasonable opportunity to present evidence as to its setting, purpose, and effect to aid the court in making the determination.
Lastly, if a court ignored all of this and was still going to find the arbitration clause enforceable since you agreed to it, you could argue that the arbitration clause is unenforceable under Ohio Revised Code Section 5321.14 since it is unconscionable and/or would lead to an unconscionable result.

There is some case law on this. In the case of Potchen v. Hughes, 1996 Ohio App. LEXIS 624 (February 22, 1996) Cuyahoga Co. App. No. 68954, unreported, the trial court dismissed a landlord’s eviction action against the tenant because of an arbitration clause in the rental agreement. But Ohio’s Eighth District Court of Appeals reversed the trial court ruling referring the matter to arbitration. The Court held that:
“Since this is not a controversy over the amount of rent due, R.C. 2711.01(B)(1)(b) would not apply and the housing court erred by entering judgment for the [tenants] and, by implication, ordering the parties to submit the matter to arbitration.”

So we know that evictions cannot be forced into arbitration. Since the Ohio Landlord Tenant Act is a remedial statute, Ohio law requires that it be liberally construed to achieve the ends of the Legislature which enacted it. The Ohio Supreme Court has found that in enacting Ohio Revised Code Section 5321, the Ohio Legislature intended to balance the historically unequal playing field between landlords and tenants by giving tenants greater rights than they had had before. As such, any statute taking rights away from the tenant and forcing him to pay his landlord’s arbitration costs would be in derogation of this liberal construction.

The landlord will doubtless argue that there is nothing inconsistent between the enforcement of the arbitration clause and the Landlord Tenant Act since the arbitrator would still have to apply landlord tenant law in coming to his decision. The landlord could also argue that if forcing the tenant to pay the landlord’s costs conflicted with the Landlord Tenant Act, then that portion of the contract should be stricken, but all other parts of it should remain in place and the case should still be referred to arbitration.

The tenant’s counterargument here is that most arbitration services charge way more than what courts charge for filing fees (as little as $50.00 in small claims court) so forcing the dispute to arbitration would modify the tenant’s rights. Further, the tenant could argue that enforcing the arbitration clause would require the tenant to give up his rights to escrow rent with the court under Ohio Revised Code Section 5321.07.

Other than the Potchen case above with regard to evictions, there are no cases in Ohio law discussing whether residential rental agreements may be subject to arbitration clauses.