Property disputes are an inescapable part of the commercial property world and can affect any property or agreement. When they do occur, disputes tend to be time consuming, stressful and expensive.
Despite the potential consequences of a dispute, the dispute resolution clause in commercial property arrangements are often one of the last things discussed when reaching an agreement.
Dispute resolution clauses in commercial property agreements - why do they matter?
Dispute resolution clauses are an opportunity for parties to decide how any future disputes will be dealt with. This gives an opportunity to agree on a process that is appropriate to the agreement and parties. Should a dispute arise, a properly drafted dispute resolution clause will commonly save time, money and ensure that a dispute is dealt with effectively.
In the absence of agreement otherwise, the default dispute resolution process will be litigating through the courts. This is usually the slowest and most expensive option available. In many cases alternative resolution processes will be more appropriate than court but are not considered due to ill-thought-out dispute resolution clauses.
Alternatives to commercial property dispute resolution in court
Arbitration
Arbitration is an increasingly popular choice as an alternative dispute resolution process for commercial property disputes. Arbitration involves referring the dispute to one or more persons who will act as an arbitrator or referring to an arbitral tribunal.
Most disputes which go to Arbitration in Scotland will be governed by the Arbitration (Scotland) Act 2010. This allows a degree of predictability and sets out some basic principles and processes for an arbitration in a confidential forum.
Unlike the courts, decisions made at an arbitration can only be challenged in some limited circumstances. This means that decisions tend to be decisive. Parties to an arbitration are also afforded flexibility to make the process suit them. For example, they can hold the arbitration at a convenient location and date. Parties can also choose how the arbitrators will be selected which means they can, if they wish, ensure that the arbitrators hearing their dispute have specialist skills.
These are all factors which can potentially be of benefit to either side in the commercial property dispute resolution process. It is thus becoming a more popular choice in recent years.
Expert Determination
Expert determination involves an appointed expert looking at the dispute and reaching a conclusion in a confidential forum.
Similarly to arbitration, there is usually very little scope to challenge the decision of the expert.
There is no legislative framework or procedure as with Arbitration. This means that the procedure is entirely up to the expert. Expert determination is therefore useful when dealing with highly complex or technical matters such as a valuation or rent review and where there is desire for a quick and clear decision
Mediation
If litigating through the courts is one end of the spectrum then mediation sits at the opposite end. Mediation involves a skilled mediator assisting the parties to reach their own resolution through discussion of the dispute in a confidential forum. It can be set in motion very quickly.
As the mediation process is more collaborative, there is no set process so it is entirely flexible as to procedure and outcome. However, there is no binding decision imposed upon the parties; this is both an advantage and potentially a disadvantage. Any agreement reached will be agreed by both parties. This avoids a ‘winners’ and ‘losers’ mentality and allows a more nuanced conclusion to be reached.
Drafting Considerations for Commercial Property Disputes
No commercial property dispute is the same so there is no ‘one size fits all’ approach to be taken when drafting commercial property dispute resolution clauses. Every method of dispute resolution has its own advantages and disadvantages.
Although it may be tempting to ignore the potential for dispute at the outset of an arrangement, it is vital to consider the applicability of each dispute resolution process to a particular agreement. If it is carefully thought through and drafted correctly, a dispute resolution clause may save a significant amount of time and money.
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