IMPLICATIONS OF MEDIATION PROVISIONS IN REAL ESTATE LEASES AND PURCHASE AGREEMENTS

Feb 28

Now that you are familiar with what a mediation is (Alternative Dispute Resolution (ADR) - Mediations — Blake Law Firm (blakelawca.com) you may be wondering: do I have to mediate? If you are a real estate buyer or seller or if you are a landlord or tenant, it is imperative that this question be answered correctly as the implications of a mediation provision in your Purchase and Sale Agreement or Lease could have dire consequences.

Many of the standard Leases or Purchase and Sale Agreements (“PSA”) in California contain a mediation provision. For example, the standard California Association of Realtors (“CAR”) PSA has a mediation provision requiring the parties to mediate any dispute or claim arising out of the PSA. Both the standard CAR Residential and Commercial Leases have a similar provision requiring the landlord and tenant to mediate any dispute or claim arising out of the Lease. Each of these agreements also have attorney’s fees provisions that allow a party prevailing on a claim or action derived from the agreement to recover his or her attorney’s fees. The mediation and attorney’s fees provisions are related. The mediation provision requires that a litigant mediate the dispute prior to filing any lawsuit. Likewise, if you receive a mediation demand, you are required to mediate. The failure to demand mediation prior to filing a lawsuit or refusing to mediate after a demand could preclude the litigant from recovering attorney’s fees even if deemed the “prevailing party” in the action.

Courts have consistently upheld the prelawsuit mediation as a condition precedent to recovery of attorney’s fees. In Lange v. Schilling (2008) 163 Cal.App.4th 1412, the court noted that while the agreement “authorizes attorney fees to the prevailing party in a dispute between a buyer and seller, that right is contingent on compliance” with the mediation provision. The Lange court concluded that the mediation provision in the CAR agreements “mean what they say and will be enforced” and that a plaintiff has “a clear and simple way to retain the right to attorney fees.” Because the plaintiff in Lange failed to demand mediation prior to initiating the lawsuit, the plaintiff was unable to recover attorney’s fees even though the plaintiff was the “prevailing party” in the action.

However, as with any good legal requirement, there are exceptions to requiring mediation prior to initiating a lawsuit. For example, with regard to the CAR PSA, mediation is not required prior to initiating an action if an action must be filed immediately to preserve a claim. Likewise, mediation is not required prior to initiating an unlawful detainer action under a CAR Lease.

Buyers, sellers, tenants, and landlords must be cognizant of any mediation provisions in their respective agreements since mediation is often a prerequisite to filing a lawsuit. Failure to do so could result in a litigant losing his or her ability to collect attorney’s fees down the road. Attorney’s fees arising under these agreements can be substantial so it is important to consult with knowledgeable attorneys that can put you on the correct path.

The information provided above does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only and do not create an attorney-client relationship. The experienced and knowledgeable attorneys at Blake Law Firm are available to answer your questions and help you navigate your real property issues.

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Andrew Hall

Attorney Andrew Hall has over 10 years of experience handling complex real estate, business, and litigation matters throughout California and Washington. Andrew has vast experience with a wide range of clients – from residential to commercial property owners, landlords to tenants, real estate agents to brokers, title to escrow companies, hard money lenders to banking institutions. Andrew has handled cases ranging from administrative disputes, to unlawful detainers, to bankruptcies, to litigation, leaving his clients with the confidence that he can handle all of their needs from soup to nuts.

Andrew is committed to exploring efficient and cost-effective resolutions for his clients, whether that be through informal conversations with parties or attorneys, mediations, or settlement conferences. However, when litigation is inevitable, Andrew has counseled his clients through all stages of a dispute, including arbitrations, court trials, jury trials, and appeals at both the State and Federal Court levels.

Andrew resides in Carlsbad with his wife Lauren, son Nolan (7), and daughter Madeline (5). Andrew is actively involved with the Magdalena Ecke Family YMCA, where he can often be found on the weekends cheering Madeline on in any variety of youth sports or with Nolan participating in the Y’s Adventure Guides Program. Andrew enjoys playing golf, tennis, softball and good barbeque.

Andrew is committed to identifying his client’s goals and employing his big firm experience with small firm attention to help his clients achieve those goals.