Commercial real estate transactions can quickly grind to a halt when a dispute arises between the invested parties.
Real estate disputes have the potential to become a costly and detrimental legal issue. It is always best to avoid issues through due diligence, careful planning, and constant communication. If a contractual dispute does arise during the purchase process, you may need arbitration, mediation, or a commercial real estate expert witness to help settle the issue.
Breaches and Disclosure
Several causes exist for real estate disputes—breaches of the contract and failed contingencies are particularly common. For example, an outright breach of contract occurs when one party does not comply with part of the contract. This could be missing items that were included in the sale price or undisclosed information that should have been disclosed prior to sale (such as building damage).
A failed contingency means that something tacitly implied to be a guarantee fails. Financing that falls through, a poor inspection report, or unexpected demands such as a change in the purchase price are all examples of failed contingencies.
Save the Closing
Generally, disputes occur before the final closing. In commercial real estate transactions, contracts are carefully developed and standardized to leave little wiggle room. Problems after the closing are much rarer, although disputes may also rise from leasing disagreements. For example, both parties may disagree on who is responsible for property maintenance like mowing the lawn or replacing the light bulbs.
Ideally the dispute can be settled by setting a deadline to which both parties can agree. This allows for friendly and personal negotiations, while still ensuring that the deal will be consummated.
When a breach of contract occurs, the parties involved have several options to resolve the dispute. In commercial real estate transactions, this typically involves arbitration, mediation, or small claims court.
When a dispute cannot be settled without a third-party judgment, the case is escalated to arbitration. In arbitration, the dispute is submitted to an arbitrator. This is a third party entity (not a court officer) who settles the dispute after examining the legal documents, the details of the dispute, the property, and any other important factors in the dispute—as well as possibly consulting a commercial real estate expert witness.
Frequently, a contract will stipulate an arbitration requirement in case of a dispute. An arbitration clause is one of the faster ways to guarantee a timely resolution. Because you avoid entering a court case, the clause can save both parties time and money.
Mediation also calls upon a third party, but here the mediator works with the disputing parties and helps them reach a compromise rather than deciding the matter themselves as an arbitrator does.
Mediation begins with an opening statement, and then allows each party to submit position statements regarding their particular stance on the dispute. The mediator then examines this information in order to find a compromise, alternative, or deeper issue. Again, an expert real estate witness may become involved. Once a compromise has been reached, a finalized agreement is signed.
This form of resolution also avoids court cases, and can help both parties reach a satisfactory arrangement that can save their long-term business relationship. However, it may take more time than arbitration. If neither party is willing to back down on a specific point, then mediation may fail and lead to a court case.
Small Claims Court
Small claims court helps resolve cases in which the amount in dispute is less than the state-mandated limit. In Arkansas, the claim limit is $5,000. Small claims are often singular disputes that are part of much larger deals. So if you have a $1.3m commercial real estate deal, but you are in dispute over a $4,500 repair to the roof, it could still be considered a “small claim.”
A commercial real estate expert witness may be called to testify on finer points of the real estate contract when necessary. This helps avoid many of the fees associated with larger civil court cases, which is the other common recourse in serious disputes where no resolution can be reached.
If you need an experienced commercial real estate expert witness, contact Ferstl Valuation Services at 501.313.0641 to schedule a free consultation.