Road to Resolution (JPM)
Understanding Alternative Dispute Provisions Can Help Avoid Contractual Conflicts
by David K. Taylor
The following is an excerpt from the Mar/Apr 2010 issue (Volume 75, Number 2) of JPM®, Journal of Property Management.
The costly expense and time-draining nature of litigation is spurring change to many commercial real estate contracts, which have traditionally required any dispute be resolved through litigation in a court where the property at hand is located.
In efforts to avoid litigious headaches, placing alternative dispute provisions in commercial real estate contracts that mandate any conflict be resolved through non-binding mediation or binding arbitration is a growing trend.
It is vital for any property manager, especially those who use “form” contracts or who review and approve any real estate-related contract, including construction contracts, to know the differences and pros and cons of non-binding mediation and binding arbitration.
LITIGIOUS NIGHTMARE
Any company that has gone through a trial knows the enormous amount of time and expense involved. Lawyers and experts cost a great deal of money, and even though virtually all civil cases settle before trial, settlement usually takes place on the courthouse steps after the parties have incurred the vast majority of a lawsuit’s hard and soft costs.
While exceptions exist, under most state laws, legal expenses are not recoverable -- even to the winning party -- unless an attorneys' fees provision is in the contract. A company may win the battle in court, but lose the war, when it realizes that after subtracting the fees, expenses and time spent by key personnel on a litigated case, even a “win” -- no matter how good it feels -- equals a net-zero recovery.
The substantial soft costs of a lawsuit are also not fully understood -- even by attorneys. Time is money, and in any lawsuit, management and other key employees must dedicate a considerable amount of time to the legal dispute.
Additionally, lawsuits can damage reputations and give competitors leverage since court filings are public record. Rivals seeking a competitive edge or inside information can almost always review all court filings and trial testimony transcripts.
Some lawsuits may take years to get to trial, and even after the trial, the losing party has an automatic right to appeal -- which may take several more years. Finally, judges and juries are unpredictable in civil cases. Therefore, the outcome is unpredictable, and it’s impossible to gauge who will come out ahead. When a company places a substantial legal dispute in the hands of a judge or jury, it is taking a huge risk.
The full article is available as an online exclusive in the Mar/Apr 2010 of JPM®, Journal of Property Management.
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