When disputes arise between developers and purchasers, it is important to ensure that the developer’s preferred forum of dispute resolution is enforceable in the purchase contract. In particular, arbitration clauses, which are often favored by developers, frequently face enforceability challenges. If your purchase contract contains an arbitration clause, there are important drafting considerations to keep in mind.
While arbitration clauses are generally favored by New Jersey courts, that does not mean that every arbitration clause will be enforceable. A recent decision from the New Jersey Appellate Division showcases a successful challenge to an arbitration clause in a developer’s contract with a purchaser. In Jia Wang v. Coa 99 Hudson, LLC, No. A-3594-23, 2025 N.J. Super. Unpub. LEXIS 414 (Super. Ct. App. Div. Mar. 18, 2025), the purchasers (“Plaintiffs”) and the developer (“Defendant”) entered into a Subscription and Purchase Agreement (“SPA”) for a condominium unit in a newly constructed luxury building. A dispute with Defendant arose because Plaintiffs claimed that the unit was “substantially smaller” than what had been represented and advertised to them. Plaintiffs refused to close on that basis, and Defendant filed a demand for arbitration with the American Arbitration Association (“AAA”) as a result.
The trial court held that Defendant’s arbitration agreement in the SPA was invalid, determining that the agreement “fails to include language that plaintiffs are waiving their statutory right to seek relief in court” and that there was insufficient support to establish the parties’ mutual assent to the arbitration clause—Defendant appealed. The Appellate Division affirmed, explaining:
There is no language whatsoever in Section 13's Arbitration clause which states or even suggests that a dispute concerning the SPA was required to be submitted to arbitration versus resolution in a judicial forum. We conclude the absence of this language creates an ambiguity related to the parties' mutuality of assent. A plain meaning reading of the language in the arbitration clause does not demonstrate plaintiff had fair notice that by signing the SPA, she was knowingly assenting to arbitration as an exclusive remedy.
The Appellate Division also affirmed the trial court’s determination that the SPA, by statute, is a consumer contract, not a commercial contract as Defendant argued, which undermined Defendant’s use of certain favorable precedent in the context of enforcing arbitration agreements in commercial contracts. The Appellate Division then rejected Defendant’s argument that Plaintiffs rose to the status of “sophisticated parties” by engaging counsel to represent them. The Appellate Division also rejected Defendant’s argument that Plaintiffs assented to arbitration simply based on the number of times the word “arbitration” was mentioned throughout the various transactional documents.
The Jia Wang decision highlights the importance of ensuring that there be an express, mutual agreement to the terms of an arbitration clause, which can be difficult when there is a sea of hundreds of pages of terms in a developer’s contract for the sale of a residential unit to ordinary purchasers. For those developers seeking arbitration as the preferred dispute resolution forum, it is crucial to specify the waiver of right to statutory relief in court, the waiver of the right to a jury trial, the chosen arbitration forum, and the covered claims.
If you have any questions, please contact the authors, Zachary Rosenberg and Luca Provenzano.
Bressler’s team of Real Estate professionals offer practical legal counsel to developers, investors, borrowers and lenders in the full scope of real estate and financing transactions. For more information, contact Karen Murphy or Zachary Rosenberg.