Litigation has been the mainstay for conflict resolution in Germany. But new legislation is helping establish mediation as another way of resolving disputes, say Thomas Wiegelmann and Winfried Schwatlo
Mediation is increasingly recognised as a speedy, cost-effective and confidential way of resolving real estate disputes. Within EU countries such as Germany, mediation is being integrated into both new and existing legislation.
Experience shows that approximately 80% of all mediation cases result in a settlement. The Royal Institution of Chartered Surveyors (RICS) Deutschland offers advice to parties in dispute and has established a training programme leading to the qualification of Business Mediator RICS. The new law on mediation is expected to further establish mediation as a dispute resolution mechanism in Germany.
The real-estate industry is characterised by particularly high conflict potential, fuelled by the complexity of business processes, which typically involve numerous parties with conflicting interests.
Furthermore, conflicts frequently escalate due to the incomplete contractual binding of the parties involved. Typical examples of conflicts include those between a buyer and seller during the transaction process, investor and financing partner, landlord and tenant, or between construction parties.
Mediation is a proven and amicable dispute resolution process, during which individuals or parties negotiate under the guidance of a neutral third party (the mediator) to settle a conflict independently and out of court. With this procedure, real-estate conflicts can be resolved efficiently, with a high level of confidentiality and lasting results.
In contrast to open-ended, long-term and costly litigation, the essence of mediation is to empower the parties to make decisions over their conflict. As such, mediation provides a forum in which parties can gain an understanding of each other, and work together to identify and discuss their interests and explore options for resolution.
The mediator takes a neutral role and attempts to help negotiations between the parties in dispute, helping them to consider alternatives and giving them the chance to reach a settlement that is satisfactory to both parties. The complexity of real estate disputes requires a skilled, knowledgeable and objective mediator with a high level of integrity.
It is easy to understand why mediation is almost always a better solution than court action. The dispute is dealt with immediately, while it can take years for a case to be heard in the courts.
The courts can only consider what happened in the past and do not take into account the present or the future situation of either party. The only thing that can be considered is whether the parties acted properly in relation to the law. As a result, a judicial enforcement always produces a ‘win-lose' result that is often unsatisfactory for both parties - even for the winning party, as good relationships are essential for business success.
In contrast, mediation provides a solution in a very short time. The mediation process can also consider the past, but only with the objective of finding a solution to the dispute. As a result, mediation solutions tend to be creative and focus on finding a solution with a forward-looking approach that the law is unable to take.
The RICS in the UK is consulted in some 10,000 cases a year to provide a business mediator or adjudicator for alternative dispute resolution proceedings - evidence of the benefits seen by real estate professionals.
The introduction of the new German mediation law, MedG, will fuel a similar process to meet the rapidly growing demand for commercial dispute mediation.
The German Bundestag unanimously passed MedG last December, and it is currently pending approval by the Bundesrat. It will come into force later this year.
The objective of the law is to strengthen awareness of mediation, thus reducing the number of court cases and speeding up the legal system. The law addresses provisions such as the confidentiality obligations of the parties involved, professional standards and procedures, and the required skills and experience of the mediator.
The feedback from political parties in Germany regarding the law has so far been very positive, showing a strong political will. The traditional belief that only lawyers and the courts could deal with conflict resolution has now been changed with the introduction of a formal conciliation process.
RICS Deutschland welcomes this law as a move in the right direction. The dispute resolution process is changing, creating a constructive conflict culture with both extra-judicial and judicial mediation in Germany being granted a legal basis for the first time.
As the leading organisation for real estate professionals and taking a global view, RICS Deutschland has become the leader in the development of real estate mediation. The importance of this is proved by the fact that real estate training centres in Germany now also offer mediation training, providing a focus on our real estate business. The demand for these courses is rapidly rising.
Parties in dispute have to select a mediator. In this context, the German real estate industry has benefited from the introduction in 2008 of the RICS Business Mediators qualification. Qualified mediators have to complete an intensive 220-hour course and gain solid theoretical insights and practical training.
In addition to in-depth mediation and real estate know-how, such mediators are governed by the high standards of the RICS. Another RICS training course for business mediators has recently been launched in cooperation with EUCON (the European Institute for Conflict Management), the leading organisation for business mediation in Germany.
Requests for mediation services may be initiated by either party to a dispute, provided that: (i) the parties in dispute have mutually agreed to pursue dispute resolution as an alternative to the courts, or (ii) the underlying contract or agreement contains an ‘alternative dispute resolution' clause.
A mediation clause has been drawn up by RICS Deutschland and its use is advised in contractual documentation. It is well proven and applicable to a variety of contract types, including development and construction contracts, purchase and lease agreements, service agreements and debt financing contracts.
The clause states: "It is the wish of both parties that any difficulties arising in connection with this agreement be settled amicably by means of negotiation. The parties hereby undertake to make a serious effort to settle any difficulties of opinion amicably in business mediation proceedings to avoid any such dispute being made pending before an ordinary court of law."
Today, parties tend to litigate because they know of no better alternative. However, as the benefits of mediation become more widely recognised and become covered by MedG, mediation will undoubtedly become a more widely applied and established tool for resolving real estate disputes in the future.
Dr Winfried Schwatlo (left) serves on the RICS faculty board for dispute resolution; Thomas Wiegelmann, FRICS, is a mediation specialist