Economic constraints on commercial real estate buyers and sellers threaten to derail existing contracts and shelve projects that are underway or being contemplated. Current market conditions such as the inaccessibility of credit, higher interest rates and uncertainty about rising construction costs complicate the situation.
These issues impact existing and proposed leasing and sales agreements, relationships and developments. When disputes arise, as they inevitably do with these additional challenges, mediation is a valuable tool and serves as a game-changer in resolving these conflicts.
Mediation is faster and cheaper than litigation. Conflicts can be expensive when left to be resolved in the courts as disputes can take years to result in a trial. Even the arbitration process, which offers a quicker resolution of a dispute, can be expensive and risky. Waiting for justice is a gamble and can result in unfavorable outcomes.
The Collaborative Nature of Mediation
In contrast, mediation is a collaborative process. Parties can work together with a neutral mediator to find a solution that makes sense for all parties. The mediation process itself can be structured in a way to accommodate the specific characteristics of a dispute. A skilled mediator is adept at working with the parties to determine who should appear at the mediation session. Further, the mediator assists the parties in exploring what information is exchanged and needed in advance of a meaningful negotiation.
The mediation session structure should be adapted to work around conflicts and/or embrace strong relationships between the parties. This careful orchestrating of the mediation session maximizes cooperation, reduces drama and leads to increasing the odds of reaching a detailed agreement that is more likely to support ongoing business relationships. Preserving relationships is important in real estate — a party might be in the middle of a larger project or development and continuity of the ongoing relationships is vital. Given the repetitive nature of the real estate world, is it likely and desirable that parties might need to work with the same developers, brokers and lenders in the future.
Confidentiality and Flexibility
Mediation is a confidential process. No details of an agreement are revealed to the public. This protects the parties from adverse publicity and the airing of sensitive financial information.
Mediation is flexible and can be utilized at any time during a dispute. Once a mediation is scheduled, the mediator speaks with each side to identify the issues, to ask probing questions relating to the disagreement and to develop possible strategies for the upcoming mediation session.
Creativity in Mediation
Mediators can structure the mediation to creatively approach a given dispute. The mediation may start with a joint session which allows the parties to structure and to highlight the main issues to be handled during mediation.
Utilizing caucuses at given points during the mediation session with just the attorneys and the mediator or with specific parties and the mediator may move the conflict beyond the previous stumbling blocks that the parties faced on their own. Adjusting the process often enables parties to access vital information and hear the other side’s concerns and positions more clearly.
Mixing up the framework can help parties advance forward in developing a viable solution while simultaneously preserving the integrity of each side’s wants and needs. In some situations, it may be important to have key decision makers talk directly with each other to resolve the conflict in a constructive way with the mediator moderating the discussion.
Creativity in Agreements
The goal of mediation is for the parties to work with the mediator to devise a compromise and to move forward. Parties can use creativity in their agreements, which allows them to address today’s constraints. Clever agreements can account for interest rate fluctuations, lack of accessibility of credit, supply chain disruptions, building cost increases and delays due to zoning and regulatory obstacles.
During the mediation, brainstorming sessions encourage creative solutions. Parties can explore alternatives beyond win-lose scenarios, such as seller-financed loans to bypass high interest rates or lease-back arrangements where the seller stays on temporarily. Adjusting timelines is another mechanism available to help neutralize tensions and reveal common ground.
Extraordinary ideas can be utilized, such as bringing in a new party to assume another party’s obligations under a stalled deal. These solutions are not possible when a judge or arbitrator is deciding the legal obligations listed in a complaint or arbitration demand.
Mediators might use tools including brackets (negotiating within ranges) or double-blind proposals (anonymous offers to test feasibility) to build momentum on financial issues without fostering personality conflicts.
The Role of Caucuses
If negotiations stall, the mediator will hold separate meetings (caucuses) with each side. This allows candid discussions about sensitive vulnerabilities, such as a party’s inability to access affordable credit. The mediator goes from room to room testing reality and determining if an idea is feasible and then develops viable solutions to the conflict. Spending time with each party gives everyone the opportunity to provide input and helps maintain a balance of power in the dispute.
Moving Toward Durable Agreements
Once options align with the parties’ interests, they can reconvene to work out the terms. In the final phase of the mediation, the mediator can highlight benefits of the proposed agreement, including concessions, cost savings and preserved relationships. Agreements are drafted with lawyers’ input, including specifics like payment schedules, property adjustments, confidentiality clauses and contingency plans should any party fail to perform its obligations.
The thoughtful process of developing the agreement empowers the parties to develop more durable and creative outcomes than court-imposed solutions. In this very challenging economy for all real estate parties, bringing certainty in a speedy and efficient manner makes mediation a compelling solution to many disputes.
Lisbeth M. Bulmash Esq., is a JAMS mediator and arbitrator with over 20 years of experience as a conflict resolution practitioner and is a co-founder of an alternative dispute resolution firm.
