Take Me To… Baseball Arbitration | Obermayer Rebmann Maxwell & Hippel LLP

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Since 1974, “baseball arbitration” has been used to resolve salary disputes between ball players and team owners. Its main purpose is to determine the referee’s salary based on specific criteria to include the player’s contribution to his team during past seasons, the length of the player’s career and the salaries of other players with similar statistics and talents.

If the parties cannot agree on a number, both the player and team owner submit their best “fair” salary determination to the other party and then to a panel, usually composed of three independent arbitrators (usually employment lawyers). At the hearing, both parties offer evidence through counsel, and the arbitrators make selections thereafter one Number, either the player or club number. This one number is final and binding.

Because umpires are not allowed to split the difference or choose a number other than that of the club or the player, each party usually tends to worry that their submission will not be the number chosen. Accordingly, this method encourages the parties to either come to an agreement before going through this process or to propose a realistic figure in good faith.

Likewise, landlords and tenants often solve valuation problems with this method. Baseball arbitration provisions are often included in commercial leases in the event the parties cannot agree on:

  • fair market rent for an extension period;
  • a sale price if there is a purchase option in the lease; or
  • the market rent to be paid if the tenant makes use of an option to increase the rentable square footage of his space.

The exact arbitration process should be clearly set out in the lease, including the factors the arbitrators should consider in determining a fair market rent (or sale price). These factors generally include:

  • the size of the tenant’s apartment;
  • the length of the rental period;
  • the location of the building in which the space is located compared to the location of comparable buildings;
  • Equipment of the building and comparable buildings;
  • the age of the building and comparable buildings;
  • Differences in base years or stop amounts for operating expenses and tax escalations and
  • the extent of improvements made or to be made to the building and similar buildings.

The following is an example of how the mechanics of baseball arbitrations work: Within thirty days after the tenant exercises their renewal option, each party selects a certified appraiser with at least ten years of experience in the local real estate leasing market and who has not been in employed by this party for the last five years. The two reviewers so selected must choose a third reviewer. The landlord and tenant communicate to each other (but not to the appraisers) their determination of the market rent and the reasons for it. During the next seven days, both the landlord and tenant will prepare and forward to the other party a written evaluation of the other’s provision. On the tenth day after the reviews are served on the other party, the Landlord’s and Renter’s reviews and ratings (as originally provided to the other party, without any modifications) will be submitted to the reviewers, who will determine whether the Landlord’s or Renter’s review is appropriate Market rent is more accurate. The determination chosen in this way is the usual market rent.

The drafters of the lease should also specify whether the “loser” will have to pay the winning party’s attorneys’ and appraisers’ fees. If added, that language In addition calls on the parties to provide a truthful calculation of the market rent.

A baseball arbitration motivates the parties to be realistic and fair in their attempt to resolve their dispute. Also, it forbids referees from meeting in the middle to be fair to both sides. Its unique process is a great opportunity level the playing field.

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