Proper property parley

Thu 01 May 2008

Mediation is increasingly used to assist in the resolution of property disputes.  Whatever the type of dispute, the key to a successful mediation is the seriousness with which the parties undertake the exercise.  Three of the most important aspects are WHO, WHEN AND WHERE.

Three scenarios are used to illustrate how these aspects may be considered in different types of disputes.

Scenario A

A tenant of large commercial premises has sought to exercise a break clause.  The break clause was conditional upon the tenant having substantially complied with the terms of the lease.  The landlord claims that the tenant has not substantially complied, whereas the tenant claims it has.  The rent per annum is approximately £1,000,000 exclusive.  The tenant has stopped paying rent.

The landlord wishes to keep its income stream and in a declining market may have difficulty re-letting.  The tenant has moved to new premises and cannot afford to pay the rent on both premises.

Scenario B

Two privately owned adjoining residential premises.  The neighbours have limited assets.   Works were carried out to property X which, it is claimed, has caused damage to the wall of property Y.  The damage is not extensive. 

In order to prove liability both parties will require experts’ reports to ascertain the exact cause of the damage.  The costs involved for both parties in litigating the dispute will very quickly outweigh the claim itself and result in the parties arguing over the costs.  It is therefore in both parties’ interests to have the matter resolved as quickly as possible with the least amount of costs incurred. 

Scenario C

A complicated property dispute between two publicly funded bodies.  The parties have an ongoing commercial relationship separate from the property relationship.  The property dispute is of high value, however the dispute itself is not one which either party would wish to be carried out with full media interest. 

WHO

The first question which usually arises is who the mediator should be.  In addition to the usual mediation services available, the Property Litigation Association (the PLA) also have a mediation facility. 

The choice of mediator is probably the most important part of the mediation process.  A number of factors which need to be taken into account include cost, experience and availability. 

Cost - For some clients, particularly individuals or clients with limited resources, the issue of costs will be a significant factor when choosing a mediator.  However, it should be remembered that if a mediation is not successful then the costs of that mediation are effectively thrown away.

Experience – Does your mediator really need to have property litigation experience?  In fact the key to choosing a good mediator is to ensure that he/she is just that, a good mediator.  It is not always an advantage for a mediator to have knowledge of property litigation. 

Scenario A:  When choosing a mediator for sophisticated commercial clients, an important factor is whether the mediator has sufficient gravitas and is respected by the parties and their advisers.  The cost of the mediator is unlikely to impact upon choice.  The question is then whether the mediator would need to have knowledge of property matters.  In this scenario it is probably not necessary because the underlying dispute is financial.  Instead, the mediator would need to have the skills to help the parties address their commercial risks and to explore innovative solutions.

Scenario B: Cost will have an impact upon the choice of mediator and may well limit the choice.  However, given the potential risks to both parties on costs further down the line, it would be worth the parties properly investing in a mediator to try and resolve this matter.  As the matter does concern party wall issues, it may be advantageous to instruct a mediator with property litigation experience.  This could assist the parties in exploring their actual risks on costs of pursuing the matter to Trial.

Scenario C: The cost of the mediator will be relevant when instructing on behalf of a publicly funded body, in so far as it must represent value.  It would be appropriate to choose a mediator  used to dealing with complex matters; property knowledge may not be necessary.  It is more important that the mediator has an ability to work through complicated matters with the parties to come up with innovative solutions.  As per Scenario A, it may be important, that a mediator with sufficient gravitas and respect is chosen.

WHEN

Timing can be a key issue for mediation in property disputes.  At what stage in the process should mediation take place?  How long should it last?

Scenario A: In this scenario it would be worth considering waiting until after disclosure, to assist the parties position with regard to the question of substantial compliance with the terms of the Lease.  There may be documents disclosed that support or undermine your Client’s position.  When considering the timing account should also be taken of when the next rent is due, as it would be advantageous to have the mediation before then. 

As the parties are commercial entities, the mediation is more likely to deal with purely financial matters and may not require the same in depth discussions with the mediator about the parties’ feelings.  To help concentrate minds, it could be worth considering a half day mediation with a set finish time (although it would be prudent to factor in some degree of flexibility).

Scenario B: Given the small value of the claim, the costs will be the real issue.  It would therefore be in both parties’ interests to mediate before disclosure, preparation of witness statements and experts’ reports.  As the mediation is likely to have many different issues that need to be explored with the parties, including their feelings regarding the dispute, it would be sensible to have a full day mediation with a fairly early start. 

Scenario C: As timing in this scenario does not have any real consequence to either party and the overriding factor is that of discretion, it may be worth carrying out the disclosure exercise and possibly exchange of witness statements before mediating.  This would mean that both parties mediate in full knowledge of the other side’s case.

As the mediation between these parties may be difficult to arrange, sufficient time should be allowed.  Given the complexity, it would be worthwhile exploring a longer two or three day mediation, or alternatively a one day mediation with a second day a week later, should that be necessary.

WHERE?

The question of where a mediation is held can be problematic if the mediator does not offer a venue and the parties representatives do not have sufficient facilities themselves.  Usually three rooms are required for a mediation, however it is possible to carry out successful mediation using only two rooms.  In some cases a neutral venue is preferred.

Scenario A: As both parties are commercial Clients it is unlikely that a neutral venue will be required.  Nor will costs be a factor.  The venue will need to be convenient and have facilities for the length of the mediation.

Scenario B: In this scenario a neutral venue may be preferred.  Although site visits in themselves are not always appropriate, as the mediator is not there to decide any of the issues, in these circumstances it may assist the mediator to understand the parties motivation and feelings.  It would also be worth exploring whether the site itself could be used as the mediation venue. 

Scenario C:  As with Scenario A, the venue itself is unlikely to be a contentious issue provided that it is convenient and has requirements for the length of the mediation. 

When involved a property dispute, it should be remembered that Mediation is not merely a direction in the timetable, but a way to end the dispute.

Thekla Fellas

Head of Property Litigation

Winckworth Sherwood