Mediation is growing rapidly in popularity and can provide a cheaper, faster and more satisfactory form of dispute resolution.*
A generally accepted description of commercial mediation is that it is a voluntary, non-binding, private dispute resolution process in which a neutral person helps the parties to reach a negotiated settlement. A core principle of mediation is that the parties negotiate, control and ‘own’ their outcome. This contrasts with other forms of dispute resolution, in which external interveners judge the case and take a decision, such as court proceedings. The mediator undertakes a neutral role and attempts to facilitate communication and negotiation between parties, helping them to develop solutions, identify and consider alternatives, and reach a consensual settlement. Requests for mediation services may be initiated by either party to a dispute provided that both have mutually and voluntarily agreed to pursue dispute resolution and that the underlying contract or agreement contains an alternative dispute resolution clause. The standard mediation clause used by the RICS outlines how: the parties agree to resolve any dispute in good faith by negotiation firstly; with the aid of a RICS-approved mediator if that doesn’t resolve the issue; with the assistance of a mediator selected by the President of the RICS if parties can’t agree on a mediator; and; if the dispute cannot be settled through mediation, either party can resort to other forms of dispute resolution. Mediation has been a self-governing process in the US since the 1970s in a regulated and widely accepted form, and is the subject of specific EU directives and legislation.
The procedure of mediation follows certain principles and is controlled by the mediator. Figure 1 shows five stages, which ideally build on one another and are encompassed by a preparatory and solution transformation phase. Before mediation can begin, one or both of the parties in the conflict applies to the mediator or, alternatively, apply through a professional body.
Stage 1: opening by the mediator. Details of the rules and processes are discussed and recorded.
Stage 2: the parties express their viewpoints, which enables the mediator to identify mutual understanding of precise areas in the dispute.
Stage 3: hardened positions are now omitted and hidden interests are disclosed. Mutual understanding is increased through the uncovering of motivations.
Stage 4: this comprises the development of solutions. The parties jointly elaborate and evaluate the different opportunities for resolution. The objective is to find a win–win solution for each party.
Stage 5: after amicable agreement, the mediation process is closed with an exact definition of the consensus and its legal structure where applicable. Post mediation: realisation of the resolution process through parties, potentially counselling with the mediator.
Challenges in the mediation process
The real estate industry is characterised by a considerably high conflict potential. Further escalation of conflicts is due to regularly incomplete or fragmentary contractual binding of partners in real estate activities. Some disputes are related to conflicts between:
- buyer and seller;
- investor and financing partner;
- landlord and tenant;
- landlord and service providers; and,
- developers and authorities.
Conflicts in the real estate sector can rapidly engender obstinate positioning on both sides. A focus on purely legal aspects of a conflict typically excludes alternative solutions. Such a focus may lead to possibly long-term and costly litigation with an open end. Therein, options of agreement beyond litigation are not fully explored and valuable chances are wasted.
Appointment of a suitable mediator
The selection of a suitable mediator constitutes a key challenge. A skilled mediator will have received specific training in all aspects of the mediation process. Real estate disputes are frequently complex. They require a skilled, knowledgeable and objective mediator with a high level of integrity and experience in the real estate sector. A mediator with extensive frontline experience in the industry may be seen as a benefit to the parties in dispute, as such a mediator will be able to provide impeccable business judgment, identify areas of agreement, isolate key issues, prioritise and address those issues, and ultimately, devise strategies for resolution. It is important for mediators to understand the inherent risks, the bottom line, and the potential for miscommunication that can occur between even the most well-intentioned parties. Crucially, the mediator must be acceptable to all parties. In the case of parties not having access to a mediator of their choice, they can obtain support from established institutions. The RICS’ Dispute Resolution Service is the world’s oldest and largest provider of alternative dispute resolution (ADR) services in the land, property and construction industries. The key concern is that all parties need to be committed. It’s no good having one party in favour of mediation and the other party wanting their day in court. In complex real estate disputes, it is important that those attending a mediation process have the authority to settle the dispute, or at least have access and lines of communication open to those with such authority.
Summary and outlook
Mediation is a strong tool for dispute resolution, which in many cases allows conflicts to be resolved efficiently with sustainable results and a high level of confidentiality and self-responsibility. Approximately 80% of all mediation cases result in a settlement. Since real estate is a reputation-sensitive sector that places great emphasis on long-term partnerships, mediation can create significant value in dispute situations. Judicial enforcement often leads to win-lose solutions and may not take into account the wider effect on business partnerships, relationships and future objectives, all of which are often crucial in the real estate sector. In contrast, mediation and the self-driven responsibility of parties has a great chance to be successful in providing enduring results.
*This is an edited version of an article that is available at: www.rics.org/ie/news/news-insight/ comment/negotiate-and-stay-out-of-court—the- case-of-mediation-in-real-estate/.
Dr John Fletcher
Product Group Director ADR, RICS.
Dr Thomas Wiegelmann
Managing Director, BLUE Asset Management GmbH, and Honorary Adjunct Professor, Bond University