Understanding The Mediation Clause In The California Residential Purchase Agreement Is Crucial

Understanding The Mediation Clause In The California Residential Purchase Agreement Is Crucial

Whether you are buying or selling a residence inevitably you will discover a clause in the Standard California Residential Purchase Agreement under paragraph 26 entitled Dispute Resolution. This clause is extremely important and provides the parties with alternatives to the expense and headache of having to litigate their disputes, should any arise out of the agreement. The first section under this clause is its sub-section A; entitled Mediation. The second section of the clause is entitled Arbitration.

If both parties place their initials under the arbitration section they are giving up their rights to litigate their disputes in a court of law and agreeing instead to use arbitration as their forum to alternatively resolve their disputes. Unless crossed out in the agreement the prevailing party will be entitled to recovery of his attorney fees, awarded by the arbitrator, possibly all, but sometimes less, but there is one major proviso, one all important step one must take before legal fees are available to him.

That step is to either offer or accept mediation to first try to resolve any disputes. The important part in the agreement is first either to refrain from litigation or arbitration and offer to mediate or agree to mediate any dispute or claim to which this paragraph applies:

1. Any party commences an action without first attempting to resolve the matter through mediation.

2. Before commencement of an action, refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in such action. This mediation provision applies whether or not the arbitration provision is initiated.

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What this means is simply, whether a party seeks resolution of a claim either through arbitration, or if not through the court, a party who either does so without first offering to mediate, or a party when offered the right to mediate rejects it, that party will lose any rights to recover attorney fees. However, the right to attorney fees is still available to the party who offered to mediate.

I cannot begin to tell you how many people have come to me either as an attorney or mediator who either were never told about the meaning of these clauses, or having been told they just did not understand. Therefore they did not offer to mediate or failed to accept mediation as a way to resolve their disputes. If parties to these contracts, as well as their real estate agents knew and understood the severity of these clauses, they could simply follow the correct procedure and save themselves a great deal of money, by having their attorney fees awarded to them if their claim ended in arbitration.

Southern California Mediation Partners, LLC

Steven J. Eichberg, Attorney-Mediator