A Guide To Understanding Commercial Lease Agreements Part Three: Dispute Resolution

Last time, in part two of our commercial lease agreement series, we reviewed common pitfalls, mistakes, and problems tenants and landlords make during and after the finalization of their commercial lease agreements. By recognizing common problem areas, prospective tenants can help avoid disputes with their landlords before problems emerge.

Unfortunately, disputes and disagreements between parties to a real estate lease are not always avoidable. When entering into a commercial lease agreement, it is imperative to understand and prepare for the possibility of one or more disputes erupting between yourself and your landlord. These can range from minor misunderstandings that can be settled with normal correspondence to significant disagreements over contract terms that necessitate legal action.

When disputes do arise, each party has a number of options to pursue to help resolve the matter without immediately turning to a potentially damaging litigation process. Depending on the circumstances surrounding the dispute, the resources available to and the disposition of each party, they may choose one or more of the following recourses:

Negotiation

Negotiations are an informal process that involve an open dialogue between the parties to reach a mutually satisfactory resolution to the dispute. Negotiations are often limited to an exchange between the parties (or their employed representatives), though some parties prefer all discussions go through legal channels. 

The primary benefit of the negotiation process is its flexibility. Thanks to the unofficial nature of the negotiation, it allows for personalized solutions that can quickly address the matter at hand without needing a more expensive intervention.

Mediation

Mediation provides another avenue for an amicable solution if initial negotiations fail to make headway. Mediation involves an impartial third party, known as a mediator, who assists in finding common ground during a non-binding informal negotiation process. Many real estate contracts contain mandatory mediation provisions, which if not followed, prohibit collection of attorney’s fees.

Mediators are neutral and work with both sides in a dispute, ensuring that one or another doesn’t feel like they are getting the short end of the stick. Ultimately, a mediator can guide the negotiation to a mutually beneficial end, but the resolution still relies on a voluntary agreement by the parties involved.

Arbitration

Arbitration is a more formal approach similar to mediation in that it involves a third party, referred to as an arbitrator. The process of arbitration involves both sides making a case for their side of the dispute, after which the arbitrator hands down a binding decision.

Rather than seeking a collaborative resolution that is beneficial for both parties as they would through mediation, the arbitrator imposes a decision on the parties. These decisions can be binding, which means they are enforceable in court. By nature, this process is more contentious and potentially damaging to landlord and tenant relationships than the previous two options. However, arbitration can be quicker and more cost effective than litigation and the proceedings can be made confidential. Similar to Mediation, many real estate contracts contain arbitration clauses that must be followed.

If a dispute gets to the point where arbitration is involved, it is heavily recommended that tenants utilize the services of a legal representative. Real estate attorneys can provide expertise and precision during the process, significantly increasing the likelihood of a beneficial outcome.

Litigation

Litigation is the process of taking the dispute to court, where a judge or jury will ultimately hear the case and render a judgment. Litigation is usually seen as a last resort, as the process can be extremely costly and potentially take months or years to resolve, depending on the circumstances of the dispute. The parties must be mindful of applicable statutes of limitations or filing deadlines so not to waive their rights. 

Litigation may become necessary if the parties have exhausted all other options. When it becomes apparent that the dispute will be taken to court, enlisting a law firm specializing in real estate law will become necessary. In the San Diego area, Villasenor Law Office is the premier law firm specializing in the drafting, negotiation, and enforcement of commercial lease agreements and can provide litigation services if a dispute arises during the term of the lease.

Commercial lease agreements are critical in establishing the legal framework for the landlord-tenant relationship in commercial property rentals. Understanding the key provisions, being aware of potential pitfalls, and knowing what resources are available to you in case of a dispute is essential for both parties. Seeking professional legal advice can provide invaluable guidance in navigating the complexities of commercial lease agreements and ensuring a mutually beneficial and legally sound rental arrangement.

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