The Supreme Court of Texas issued a unanimous ruling establishing new standards for appraiser impartiality in real estate disputes, requiring disclosure of communications about hiring decisions with neutral appraisers to all parties involved.
The case, *Burke v. Houston PT BAC Office Limited Partnership (Bank of America)* (Tex. 2025), arose from a commercial lease dispute over rent adjustments for the downtown Houston property housing the Bank of America Building. The lease, originally signed in 1972, included provisions for periodic rent adjustments based on the fair market value of the property.
The dispute resolution process outlined in the lease requires each party to select an appraiser when they cannot agree on rent adjustments. If those appraisers cannot reach consensus on the property's value, the parties must jointly select a third "neutral" appraiser to make the final determination.
The controversy emerged when one party had ex parte communications with a potential neutral appraiser before the other party consented to that appraiser's selection. During these undisclosed communications, the party declined the appraiser's services as a party-designated appraiser but told him he would be "at the top of our list" to serve as the neutral appraiser.
The opposing party, consisting of Kevin Burke and nine other petitioners including Jeffrey Schwartz Burke, Tracy Ruth Burke, Lucky Burke, Cindy Bernat, Pam Burke Daily, Barbara Burke Harberg, Lori Ilene Quinta Valle, Fonda Glazer, and Kim Brown, consented to the neutral appraiser without knowledge of these prior communications.
The First District Court of Appeals had characterized the communication as "non-substantive" and affirmed the trial court's confirmation of the appraisal decision. However, the Supreme Court of Texas disagreed with this analysis.
In its per curiam opinion, the high court applied impartiality principles from arbitration law to the real estate appraisal context. The court held that "communications about the case with a potential neutral regarding hiring that neutral as a party-designated appraiser in the matter in dispute must be disclosed to the other party."
This ruling represents a notable expansion of transparency requirements in commercial real estate disputes. The court's decision to import arbitration law principles into the appraisal context reflects the growing recognition that similar fairness standards should apply across different forms of alternative dispute resolution.
The lease agreement in question governs rent adjustments based on the fair market value of the property "as if free and clear of all improvements, encumbrances, and leases." This standard valuation approach is common in long-term commercial leases, particularly those with rent adjustment provisions spanning decades.
The Bank of America Building lease, dating to 1972, represents the type of long-term commercial arrangement that frequently generates valuation disputes as market conditions change over time. Such leases often include sophisticated dispute resolution mechanisms to avoid costly litigation when parties disagree about property values.
The Supreme Court's decision emphasizes the importance of maintaining neutral appraiser independence throughout the selection and evaluation process. By requiring disclosure of any communications about hiring decisions, the court seeks to preserve the integrity of the neutral appraiser's role in resolving valuation disputes.
The ruling could have broader implications for how parties structure appraisal processes in commercial real estate transactions. Attorneys drafting lease agreements may need to include more explicit disclosure requirements for communications with potential neutral appraisers.
Real estate professionals and legal practitioners should note that the decision applies specifically to communications about hiring neutral appraisers in disputed matters. The court did not address other types of communications or interactions that might occur during the appraisal process.
The case was decided without participation from Justice Devine, though the court did not specify the reason for the recusal. The per curiam opinion suggests unanimous agreement among the participating justices on the disclosure requirement.
The Supreme Court reversed the court of appeals judgment and remanded the case to the trial court for further proceedings. The remand will allow the trial court to determine what remedy, if any, is appropriate given the undisclosed communications.
This decision adds Texas to the growing number of jurisdictions applying heightened impartiality standards to alternative dispute resolution processes. The ruling reflects courts' increasing recognition that fairness principles developed for arbitration should extend to similar procedures in other contexts.
For commercial real estate practitioners, the decision underscores the importance of maintaining clear communication protocols when engaging neutral professionals in dispute resolution processes. The ruling may prompt revisions to standard lease language governing appraisal procedures to ensure compliance with the new disclosure requirements.