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Enforcing Mediation Provisions In Real Estate Agreements

By Brian J. Sommer, Esquire
Dornish Law Offices, P.C.

Parties to many real estate transactions, especially those in connection with residential sales, utilize a standard form agreement of sale that includes a mediation clause. Nevertheless, one or both parties often ignore this clause when a dispute arises. Oftentimes, they do so on the belief that courts routinely fail to enforce the mediation provision. However, this belief is mistaken as at least one recent case illustrates.

In a case involving the purchase of undeveloped land located in Fayette County, the Buyer and Seller entered into a Standard Agreement of Sale for Vacant Land (the “Sales Agreement”) for purchase of 61.13 acres. Critically, the Sales Agreement contained a mediation clause which required the Buyer and the Seller to mediate all disputes or claims that arose from the Sales Agreement prior to the initiation of legal proceedings. The only exception to the mediation clause was an allowance for the filing of a writ of summons to preserve the statute of limitations.

Not long after the closing, it came to the Buyer’s attention that the Seller did not deliver 61.13 acres as called for in the Sales Agreement. Rather, after both a discussion with a neighbor and having a new survey done, it became clear to the Buyer that the Seller delivered approximately 11.5 fewer acres than the 61.13 acres stated in the Sales Agreement. The Buyer, through their counsel, then contacted the Seller about the discrepancy in order to resolve it without the need for either mediation, or litigation. Unfortunately, Buyer’s attempts were effectively met with silence from the Seller. Accordingly, the Buyer filed a praecipe for a writ of summons in order to protect the statute of limitations and then filled out and filed the Request to Initiate Mediation Transmittal Form with the Pennsylvania Association of Realtors (“PAR”) as required by the mediation clause. Buyer’s counsel also informed Seller’s counsel as to both the filing of the writ of summons and the request to initiate mediation with PAR. However, instead of accepting the request to initiate mediation, the Seller filed a praecipe and rule to file a complaint, while also formally rejecting the request to initiate mediation from PAR. The Seller took both actions despite the clear language of the Sales Agreement requiring mediation.

Given the nature of the dispute and in light of the potential savings of both cost and time that could be accomplished with mediation, the Buyer elected to file a motion to strike the praecipe and rule to file a complaint and order the parties to mediation.  n it, the Buyer argued that the parties entered into a binding agreement that required the mediation of any disputes prior to substantively initiating legal proceedings with the Court, noting that it axiomatic that parties may write their own contracts, that it is the function of the Courts to interpret those contracts and enforce them as made, and that this includes the enforcement of alternative dispute resolution clauses, because the law favors the non-judicial resolution method to which the parties have agreed. cfn. Dickler v. Shearson Lehman Hutton, 596 A. 2d 860, 862 (Pa. Super 1991), Boulevard Association v. Seltzer Partnership, 664 A.2d 983, 987 (Pa. Super 1995). Accordingly, the Buyer argued that requiring the filing of a complaint under the circumstances was contrary to the Sales Agreement’s mediation clause and the prevailing law.

Nevertheless, the Seller argued that the mediation clause was, despite the clear contractual language to the contrary, not required but merely a suggested alternative which could not be initiated without the consent of both parties. In addition, the Seller also argued that mediation should not be compelled because it was unlikely to resolve the differences between the parties.

The Court disagreed with the Seller and their arguments. Consequently, the Court ordered (a) the praecipe and rule to file complaint stricken because the parties were required to proceed to mediation pursuant to the Sales Agreement and (b) that the parties were ordered to mediate their dispute accordingly.

As this case demonstrates, the mediation clause of agreements of sale for the purchase of real estate are just as enforceable as any other alternative dispute contractual provision under the law. Therefore, counsel should not assume otherwise or hesitate to utilize them and/or seek their enforcement should that become necessary.