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Lis Pendens and Arbitration – Avoiding an Either-Or Dilemma

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The filing of a Lis pendens is a vital tool for protecting a party’s rights in enforcing a purchase and sale agreement for real estate, but if the claim at issue falls within a mandatory arbitration clause, the party may not have the right to file a lis pendens.

A lis pendens is a notice recorded in the property records for the purpose of informing third parties that the real property at issue is subject to a lawsuit, as described in the lis pendens. The lis pendens is necessary to ensure that, if the current property owner was to sell the property, the real estate would remain subject to the final outcome of the lawsuit, since the buyer was provided with constructive notice of the suit.

As with other types of contracts, real property contracts, like purchase and sale agreements, often contain mandatory arbitration clauses.  While such a provision can reduce the potential cost of litigating a future dispute, undermining one’s right to file a lis pendens may be an unforeseen risk of such provision.

The Virginia Code provides in § 8.01-268 that a lis pendens must identify “the court wherein [the suit] is pending,” and the clerk’s office is permitted to record the lis pendens “for any actions pending in any court of this Commonwealth, or in any other state, federal, or territorial court.” According to a strict reading of the statute, an arbitration proceeding does not automatically imply a right to file a lis pendens.

If your contract contains a mandatory arbitration provision without any applicable exceptions, few options may be available to open the door for a lis pendens, outside of simply waiving one’s right to arbitrate. A plaintiff could attempt to file suit in Virginia state court, record a lis pendens, and then request a stay of the case pending arbitration. However, no statute or caselaw expressly validates such an approach. In contrast, California’s code expressly approves of a filing solely for the purpose of arbitration. See Cal Code Civ Proc § 1298.5.  Virginia, unlike other states including North Carolina, also has not yet adopted the Revised Uniform Arbitration Act, Section 8 of which permits parties to seek provisional remedies, like a lis pendens, from a court prior to appointment of an arbitrator.  In Virginia, a judge may not find an implied right to file a lis pendens if it seems inconsistent with an arbitration clause.

The best course of action is to negotiate a comprehensive contract from the outset. For example, a contract could provide an exception to mandatory arbitration in the case of a suit for equitable relief. Commonly, a party will file suit to force the sale of property subject to a sales contract, in the form of an equitable suit for specific performance, and the lis pendens serves to notify other parties of the plaintiff’s claim to purchase the property.  Alternatively, a contract could provide that a party may file suit in state or federal court, solely for the purpose of recording a lis pendens, provided that the parties subsequently agree that the suit will be stayed pending full arbitration.

As always, it is better to avoid an issue through foresight than working with a flawed contract. Our firm has numerous attorneys, including myself, that can help you navigate issues like this, which can only be foreseen with the extensive knowledge and experience we have to offer. Please contact Woods Rogers Vandeventer Black for assistance with your next real estate sale, purchase, or related matter.

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