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Commercial Real Estate Disputes

What is a Commercial Real Estate?

Commercial real estate refers to property that revolves around commercial activity, such as retail spaces and office buildings. Offering space for activities that generate income is its principal purpose. Commercial property’s location is in the city centers and serves the need of ordinary customers (unlike industrial real estate).

Both businesses and government or non-profit organizations rent or purchase commercial property.

Types of Commercial Real Estate

Commercial real estate includes industrial office buildings, retail spaces, shopping centers, mobile home parks, hotels, casinos, restaurants, entertainment spaces, beauty salons, boutiques, spas, and resorts. It involves any other property where business owners, enterprises, or government organizations sell goods or provide services.

Commercial vs. Industrial Real Estate

Industrial real estate is a sub-category of commercial real estate. Unlike commercial real estate, which meets the needs of retail and office activities, industrial property provides space for manufacturing, storage, research, and distribution. Also, commercial property interacts with everyday customers, while industrial real estate deals with large enterprises. In addition, industrial real estate is subject to special zoning regulations.

Commercial Real Estate Disputes

Commercial real estate disputes result from disagreements related to landlord-tenant issues, such as rent payment, eviction, property condition, exclusivity clauses, etc. Conflicts also arise due to real estate fraud and co-owner disagreements.

There are two main methods for resolving commercial real estate disputes – the first is confrontational, while the other involves peaceful negotiations out of court. 

Different types of Commercial Real Estate Disputes

Disputes between landlords and tenants over the terms of a lease agreement, such as rent payment, repairs, or the use of the property.

Disputes between property owners over the exact location of property lines and who owns which parts of a piece of land.
Disputes over using another person’s land for a specific purpose, such as access to a shared driveway or using a shared water source.
Disputes between property owners and contractors over the quality of construction work or the failure to complete a project as agreed upon.
Zoning disputes
Disputes between property owners and local governments over the use of a piece of land, such as whether it can be used for commercial or residential purposes.
Landlord-tenant disputes
Disputes between landlords and tenants over issues like rent payment, repairs, or the use of the property.
Disputes between parties over the failure to perform as agreed upon in a contract.
Environmental disputes
Disputes over the impact of a property or development on the environment, such as water or air pollution.
Foreclosure disputes
Disputes between lenders and borrowers over the repayment of a mortgage or the repossession of a property.

Litigating Commercial Real Estate Disputes

Litigating commercial real estate disputes is a traditional but costly and ineffective method. Also, resolving commercial disputes in litigation negatively affects ongoing business operations and ruins existing landlord-tenant relationships. The reason for that is publicity and lengthiness of the procedure. Resolving a conflict in court can sometimes take years. The costs can far exceed the value of the disputed issue (for example, unpaid rent) because each litigation stage carries additional attorney and court filing fees. 

Resolving Commercial Real Estate Disputes in Mediation

As an out-of-court method, mediation offers numerous benefits to parties involved in a commercial real estate dispute. Mediation means resolving the dispute without the involvement of a court or other external decision-making centers. Parties to the conflict deal with the disputed matter privately, negotiating their differences with the help of a neutral third person.

Who Can Be a Mediator?

The mediator is a retired judge, experienced attorney, or professional versed in commercial real estate matters. The parties select the mediator voluntarily by signing an agreement and initiating the mediation procedure. Apart from subject matter experience, mediators possess communication skills and conflict-resolution techniques.

The mediator is neutral, meaning they do not represent either party or have a fiducial duty to anyone – their task is to foster negotiations between parties without proposing solutions or giving legal advice. In contrast to judges, they do not have decision-making authority.

Is Mediation Confidential?

Mediation is confidential, meaning the mediator and parties cannot disclose information shared during the process or use secret information in future litigation (if mediation fails).

How Does the Process Look?

After an introduction (where the mediator presents their credentials), the parties can give opening remarks about the dispute. Next, each party goes to a separate session room for private talks with the mediator (caucuses). In the caucuses, the mediator hears each side’s arguments, evaluating the possibility of settling. During a joint (open) session, parties discuss the disputed matter, presenting their offers and counteroffers. The mediator must remain neutral while motivating them to settle.

If negotiations are successful, the parties sign the mediation agreement, resolving the dispute. The settlement agreement is binding and enforceable.

What Are the Main Advantages of Commercial Real Estate Mediation?

  1. Control Over the Process. The process is voluntary. Parties decide whether to engage in mediation or not, just like litigation. Unlike the court process, the parties remain in control throughout the whole procedure, changing the mediator or stopping negotiations at any time. Instead of waiting for the final decision imposed by a state-appointed judge, parties in mediation control the outcome by negotiating their way out.
  2. Mediators have an educational role in each dispute. In the introduction phase, they explain the procedure to the parties. In addition to explaining the process, mediators educate the parties about the subject matter issues. Mediators resolving commercial real estate disputes are well-versed in laws and regulations, helping the parties better understand the case (without giving legal advice) and negotiate the dispute.
  3. In contrast to litigation, mediation offers the possibility of reconciliation. Real estate is typically a long-term business relationship. Conflicts occurring during the ongoing work relationship disturb business prospects for both parties. Litigating such disputes can only make things worse. After the win-lose outcome of a court battle, there is no going back to successful cooperation. In contrast to litigation, a non-adversarial and amicable atmosphere of mediation sessions proved to be an effective way of fostering settlements and resolving commercial real estate disputes, which improves the chances of preserving relationships and resuming fruitful future cooperation.
  1. Opportunity for Creative Solutions. By identifying the underlying reasons for a dispute, mediators help the parties explore their relationship and the root causes of their conflict, allowing them to get a bigger picture and embrace the future-oriented focus. With such a perspective, parties can easily find creative solutions to their dispute.
  2. Adherence to Dispute Resolution. After the settlement, the parties must work to keep the mutual trust and cooperation. In contrast to litigated disputes, parties engaging in mediation are more likely to uphold the agreement because they settle voluntarily after free and open negotiations. Settlements represent a significant asset, serving as a strong foundation for future business relationships.
  3. Time and Cost-Effectiveness. The process is informal and flexible, meaning no complex court procedure (discovery, opening statements, witness testimony, expert witnesses, closing arguments). The result is time and cost-effectiveness – there are no hefty attorney and court filing fees, and the process is over in weeks or even days.

What Are the Characteristics of a Good Mediator?

Resolving disputes in mediation has multiple advantages. But, to reap the full benefits of mediation, choose the mediator with the appropriate skill set, enabling them to recognize the underlying issues leading to the conflict and to choose the best approach to your unique situation.

A good mediator has the following traits:

  1. A non-judgmental approach. The judges must remain neutral during the process, but they eventually must side with one of the parties, resolving the dispute in their favor. On the other hand, the mediator stays neutral throughout the entire process without viewing the conflict from a judgmental point of view. Mediation does not involve decision-making, and it must not include judgmental assessment. Instead, mediators help the parties resolve the dispute, putting them in a decision-making position.
  1. Active listening. A good mediator is always a good listener. Mediation requires a more or less passive role of the mediator in terms of engagement and dispute resolution. Although they should stay neutral and passive regarding decision-making, mediators must be active listeners, which involves alertness and compassion. The mediator must absorb every word to understand converging interests. Active listening is about asking questions and seeking clarifications – the mediator should actively seek true and accurate facts of the case. Attentive listeners can understand the underlying issues leading to the dispute and act accordingly to facilitate negotiations.
  1. Mediators do not represent either party (unlike trial attorneys). The mediator is not obliged to act on behalf of anyone’s interests, nor do they refer to the parties as clients – they must have the same approach to both parties. Impartiality is vital for the mediator’s credibility because parties are more likely to trust the mediator they see as impartial. Besides, they have a greater chance of reaching a settlement and upholding it if they view the mediator’s efforts as neutral.
  1. Knowledge of the underlying interests. A good mediator can quickly grasp the essence of the dispute, seeing underlying motivations and interests and guiding negotiations in the desired direction (toward settlement). A well-versed mediator will talk to the parties in private sessions, ask them questions, and identify their motivations behind the commercial real estate dispute. That understanding enables the mediator to conduct meaningful open discussions between the parties – otherwise, negotiations lead to a dead end.
  1. Encouraging attitude. Mediators have different styles and philosophies (facilitative, evaluative, or transformative). The transformative approach involves active efforts to change positions. The evaluative and facilitative are more passive (focusing on encouragement and motivation). A good commercial real estate mediator should encourage changes instead of imposing them because commercial business relationships are sensitive to any control and regulation. The best settlement results from the free will – the mediator should encourage that freedom.

Choose the Right Mediator for Your Commercial Real Estate Dispute

A prominent Florida mediator, David L. John, has a proven record of success mediating commercial real estate disputes.

With over 30 years of business trial experience, Mr. John offers a unique approach to facilitating negotiations between disputed parties while upholding the highest ethical standards.

Reach out today to schedule your free appointment.

David John

David L. John

My experience of over 30 years of actual hands-on business experience in manufacturing, professional engineering consulting, construction, commercial & residential real-estate transactions and general business.

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