Which real estate disputes can be resolved by an arbitral tribunal?
Arbitration has become an increasingly preferred method of resolving commercial and contractual disputes, as it generally offers a faster and more flexible procedure than state court litigation. However, not every dispute can be referred to arbitration.
When it comes to disputes concerning real estate, the law draws a clear distinction between those that may be resolved through arbitration and those that fall exclusively within the jurisdiction of the state courts.
What is arbitration?
Arbitration is an out-of-court mechanism for resolving legal disputes in which the parties voluntarily submit their dispute to an arbitral tribunal of their choice.
In Bulgaria, arbitration is primarily regulated by the Civil Procedure Code and the International Commercial Arbitration Act.
A fundamental prerequisite for a dispute to be resolved through arbitration is the existence of a valid arbitration agreement between the parties.
When is a dispute arbitrable?
Not every legal dispute may be referred to arbitration.
Pursuant to Article 19(1) of the Bulgarian Civil Procedure Code, the parties may agree to submit property disputes to arbitration, except where the law expressly provides that such disputes fall within the jurisdiction of the state courts.
Arbitration may also be used to resolve disputes concerning the filling of contractual gaps or the adaptation of a contract to newly arisen circumstances.
Disputes expressly excluded under Article 19(1) of the Civil Procedure Code cannot be resolved through arbitration.
The possibility for a dispute to be settled by arbitration is referred to as arbitrability.
When is arbitration permitted in real estate disputes?
The decisive factor is the nature of the disputed right.
Arbitration is permissible where the dispute is contractual in nature and concerns only the rights and obligations of the parties.
Examples include:
- disputes arising from lease agreements relating to real estate;
- disputes arising from construction contracts;
- disputes concerning preliminary sale and purchase agreements (subject to certain limitations);
- disputes relating to the non-performance of contractual obligations;
- disputes concerning payments, penalties, or other contractual obligations.
In such legal relationships, the parties are free to dispose of their rights, which makes the dispute arbitrable.
When is arbitration not permitted?
Arbitration is not permitted where the dispute concerns rights in rem over immovable property.
The reason is that such rights produce effects not only between the parties but also towards third parties (erga omnes). As a result, the law places them within the exclusive jurisdiction of the state courts.
The following disputes, among others, cannot be referred to arbitration:
- ownership claims;
- rei vindicatio claims;
- claims for the protection or establishment of rights in rem;
- disputes concerning building rights;
- disputes concerning easements;
- disputes concerning possession;
- disputes relating to entries in the Property Register.
Arbitration is also excluded in other situations where the law expressly protects the public interest or the weaker party, such as certain consumer disputes.
What does case law say?
The case law of the Bulgarian Supreme Court of Cassation is consistent. The Court has repeatedly held that disputes concerning rights in rem over immovable property cannot be resolved by arbitration because such rights have legal effect against third parties.
Arbitral awards rendered in non-arbitrable disputes may be set aside as inadmissible.
At the same time, Bulgarian courts accept that contractual disputes, including disputes arising from preliminary agreements, may be submitted to arbitration provided that they do not directly affect proprietary rights.
How can the two types of disputes be distinguished?
In practice, a relatively simple rule may be applied:
- arbitration is permitted where the dispute is contractual and produces effects only between the parties;
- arbitration is not permitted where the dispute concerns ownership rights or has effects towards third parties.
| Dispute | Arbitration |
|---|---|
| Lease agreement dispute | ✔ Yes |
| Construction contract dispute | ✔ Yes |
| Ownership claim | ✘ No |
| Rei vindicatio claim | ✘ No |
| Easement claim | ✘ No |
Why is it important to determine the competent forum correctly?
Choosing the wrong dispute-resolution mechanism may lead to significant delays, additional costs, and even the annulment of the arbitral award.
For this reason, before initiating proceedings, it is important to assess whether the dispute is arbitrable and whether a valid arbitration agreement exists between the parties.
Conclusion
Arbitration is an effective method of resolving many real estate disputes arising from contractual relationships. However, where the dispute concerns ownership itself or other rights in rem over immovable property, jurisdiction remains exclusively with the state courts.
Determining whether a dispute may be referred to arbitration is essential both for the effective protection of the parties’ rights and for avoiding unnecessary procedural complications.
If you are involved in a real estate dispute and are unsure whether it can be resolved through arbitration, consulting a real estate lawyer can help you choose the most appropriate strategy for protecting your interests.
The team at G&P Law provides legal assistance, representation, and online legal consultations, including in matters involving real estate disputes, contracts, and arbitration proceedings.
Author: Sonya Asenova Krumova
Images: Canva