With dozens and sometimes hundreds of people living in a community governed by neighbors, acquaintances and friends, it should be no surprise that disputes can happen in co-op and condo buildings. The possibility of disagreements among residents, boards and even vendors is there, and when those disagreements arise, the specter of litigation can loom large over the affected parties, creating worries on costs, both financial and in terms of time, as well as concerns of bad feelings and an uncomfortable environment for the community as a whole. There are plenty of reasons to find other ways to settle disputes before getting lawyered up and going to court.

Fortunately, alternative dispute resolution (often called simply ADR) offers two options—mediation and arbitration—for settling and moving on from issues. Both are effective and can help shareholders, unit owners and boards resolve thorny issues without either party ever setting foot before a judge.

Common Points of Contention

Although just about any incident can spark a conflict in a co-op or condo community, there are some that happen more often than others. “Disputes arise with shareholders versus shareholders and shareholders versus owners,” says Jeffrey T. Zaino, Esq., vice president for the American Arbitration Association, based in New York.

The most common [conflicts] are shareholder versus owners for problems in their condo.”

The issues at the root of these conflicts vary widely. They can include “disagreement over an action the board has taken—redoing the lobby or hallways is a particularly contentious example,” says attorney Phyllis Weisberg, a partner with the New York office of Philadelphia-based law firm Montgomery McCracken Walker & Rhoads, LLP. “(Or) the board’s failure to resolve a dispute one shareholder has with another shareholder such as over noise, governance issues, failure to make certain repairs, or disapproval of a planned alteration.”

Attorney Dean Roberts, who is in the New York office of the law firm of Norris McLaughlin & Marcus, P.A. in Bridgewater, New Jersey, says that “the most problematic issue is usually nuisance behavior between shareholders or unit owners. Those are the things that bother boards most. Noisy behavior and oddball issues.” Roberts cites one example regarding the installation of a small booster antenna on the side of a residential building that resulted in significant and vocal concerns over safety from residents. Those concerns ultimately led to its removal and a broken agreement with the installer of that antenna.

Arbitration vs. Mediation

When a problem arises and all parties involved fail to find a resolution, the first thought is often litigation with one or both sides threatening to take the other to court—a very expensive first step. Fortunately, mediation and arbitration offer effective alternatives.

Although both mediation and arbitration both fall under the category of alternative dispute resolution, they are very different. “One is reconciliation and one is determination,” says Roberts. “Mediation is focused on settlement and working out some sort of agreement. It’s not interpreting facts of law. Arbitration is more like a trial, based on finding or determination. It’s decision-driven.”

Zaino agrees. “Mediation is less formal than arbitration and is non-binding. Also, ex parte communication is permitted with mediations,” he says. Ex parte communication means someone who is a party to the case or someone involved with a party can communicate with the mediator. Another difference is that “arbitrations are binding and decisions of arbitrators are difficult to vacate,” says Zaino. “There is a very high legal standard for vacatur,” which is an order of the court vacating a legal proceeding.

The ways in which mediation and arbitration commence are often different as well. “Arbitration is typically required by contract,” says Weisberg.

Mediation tends to offer a bit more flexibility as well because it is not so closely tied to a winner versus loser model. “You tend not to lose in mediation because you can then go on to litigate or arbitrate,” says Roberts. “With mediation, you can treat it half like therapy.”

Should mediation not resolve the issue, the next step up the ladder can be arbitration versus court. “Arbitration is a legal proceeding that’s not in a judicial setting,” says Roberts. “There’s an argument, your putting evidence into place or stating your case on why you’re right in this situation.”

The advantage of arbitration over court is “acceleration of the process,” Roberts says. Parties do not have to wait for a court date that can be six months in the future, for example. “Arbitration gives you structure but it’s much faster.” And with that speed comes a reduction in overall cost for everyone involved.

How it All Works

The process of mediation may seem mysterious; it is not usually the subject of network television shows, lacking the tension of high profile court cases. It is, though, a highly effective and efficient method for getting to the bottom of a disagreement, especially in the hands of highly-skilled mediators.

In mediation, “a mediator is selected by the parties by mutual consent,” says Zaino. “Organizations like the AAA provide lists of suggested mediators for the parties to review. Once a mediator is selected, he or she prepares an oath and makes any disclosures such as conflicts of interest.”

Then the homework begins. “Typically a mediator will review advance submissions by the parties, a summary of their positions,” says Zaino. Then it is the interested parties, who have the opportunity to share their perspectives on the conflict. “The mediator will meet with the parties to discuss their positions and will caucus with them individually to provide them with his or her personal insights and recommendations.”

After the mediator hears all the discussions and offers that recommendation, the matter can be settled, if everyone agrees. “If the parties reach a settlement during the mediation session, they should draft the settlement agreement and sign it at that time,” Zaino says. “At that point, a binding contract is created.”

Arbitration is different in that “arbitration is a creature of contract or submission,” says Zaino. “The normal process involves the parties receiving a list of approximately 10 names and biographical information on the arbitrators. The parties strike and rank the list, leaving as many names as possible. The lists are not exchanged but submitted directly to the neutral provider that sees if the parties mutually agreed on someone.”

Once the arbitrator is decided upon and appointed, that individual signs an oath and makes disclosures on any conflicts of interest, just as a mediator does. If there are no conflicts of interest, a hearing is then scheduled.

“The arbitrator acts more like a judge in this process in comparison to mediation,” says Zaino. “The arbitrator will swear in witnesses and hear arguments from each side. The process, however, is far less formal than litigation and the rules of evidence need not apply. There can be no ex-parte communication. When the evidentiary hearings conclude, the arbitrator will draft an award and issue a decision within 14 or 30 days. The award can be reasoned if the parties request that.”

The Effectiveness of ADR

Mediation tends to be a positive and effective avenue for resolving issues for individuals involved with co-op and condo-based disagreements. In fact, the New York City Bar Association has a mediation program specifically for co-op/condo disputes, says Weisberg. “The mediators are not only skilled mediators but have substantial experience in the field of co-ops and condos.” For more information on the mediation program contact the New York City Bar at 212-382-6600.

And often, if the interested parties do not enter into mediation of their own accord, the courts may do it for them. “In the context of litigation, courts will often order mediation by a court mediator,” says Weisberg.

For the most part, alternative dispute resolution is effective, says Roberts. Mediation, in particular, is “most effective in disputes where it’s not winner-take-all,” he adds.

And when ADR does not achieve an agreement that all parties are willing to accept, litigation is still an option. Roberts recalled an instance when a co-op he represented had hired a contractor and there was a dispute over the work. This was a façade project for which the contractor had some issues and repeatedly was unable to meet deadlines. The contract was terminated. “Arbitration found we had cause to terminate,” Roberts says. The contractor was not happy and felt he had been wronged, so the case went to court.

The first step to any sort of successful ADR process is just starting the process. “Typically the trick is to convince the parties to agree to ADR, which is often difficult to do,” says Weisberg. “Once the parties agree, however, ADR is generally effective in resolving the dispute. It can often be particularly helpful in shareholder versus shareholder disputes, such as noise issues—and the board can be helpful in urging the parties to mediate.” And while the state of New York does not mandate alternative dispute resolution before a lawsuit can be filed, “the court may order mediation during the course of litigation,” she adds.

According to Zaino, mediation also can be effective on a larger scale. Following Hurricane Sandy, the Storm Sandy Mediation Program run by the American Arbitration Association, handled more than 3,000 mediations between the insured and insurance companies.

Another added benefit for both sides is the cost savings that stem from ADR. “ADR is far less expensive than litigation,” says Zaino. Rather than having an attorney represent the parties involved, “you can represent yourself with all ADR methods and discovery is limited,” Zaino says. “The hourly rates for a mediator or arbitrator range from $250 to $600 per hour. Small disputes should only take a few hours.”

Ultimately, if all parties involved can agree to commit to alternative dispute resolution, “it is very effective with respect to both time and cost,” says Zaino. “If parties sit down for a mediation session, there is an 85 percent chance that the case will settle.”

Those are good odds, especially when the other available option can be so expensive and time-consuming. Mediation and arbitration can get to the heart of the matter quickly, efficiently and effectively, helping resolve disagreements in ways that can satisfy all parties involved and rectify situations that could escalate without warning. With the help of unbiased third parties, a willingness to talk and work towards a solution can benefit all involved.     

Liz Lent is a freelance writer and a frequent contributor to The Cooperator.