Should Leases Require Mediation? Here’s Someone Who Thinks So – a Suggestion From a Guest.

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A number of weeks ago, we posted a piece dealing with a landlord’s possible implied obligation to maintain its property even where the lease imposed no such obligation. One of the “private” responses I got was from Brendan Murphy, a Principal at New Directions: Delivered Solutions, a retail service provider in Ireland.

While I don’t agree with his proposed solution mostly, I think, on pragmatic and acceptability grounds, I was struck by his analysis of the source of tension between owners and occupants – landlords and tenants. In fact, his thoughts spill over into lease and other contract-negotiating parties. So, I’m not posting this as a vote for making mediation into the sole dispute resolution mechanism in a contract or lease, but for his insight.

I encourage responses about both aspects of his letter – his analysis and his proffered solution, but, on a personal level, I’m more interested in the former, not the latter.

And, here are some caveats. I couldn’t reach him to ask if I could republish his letter, but its context almost certainly implies consent. That’s a risk I’ll take. Second, I corrected the kind of typos that creep into informal correspondence. Third, I “fixed” the spelling, grammar, and usage items that creep in when English hops the Atlantic Ocean. After all, who said that “England and America are two countries separated by a common language”? [Answer – George Bernard Shaw.] Lastly, I left in the “Ira, you are right” part (even though, in context, it makes little sense) because I hear that so rarely these days (and maybe, rightly so). Without further adieu, here is what Brendan had to say:

Ira, you are right. Of course there are tensions that make people me-centered. I totally agree. I think though that it is extraordinarily hard to anticipate problems and that’s where mediation comes in.

For me, the whole problem is the basis of a relationship that is asset driven rather than performance driven. What I mean here is that the landlord looks at the shopping center as a piece of real estate; the tenant looks at it as a place to maximize sales. Both are blinkered and driven by selfish interest.

When tensions arise, it’s usually because one party is being too me-centered as you say. That’s why mediated solutions should be called for in a lease and should specify no recourse to the courts, but only to mediators.

Of course, the whole thing is complicated by the fact that property agents or real estate agents are contracted to manage shopping centers. For me, that’s not the skill set you require. What you want is a more pragmatic, business, and entrepreneurial-centered approach where control is predicated on health and safety concerns, shared enjoyment of facilities (for all tenants/operators), and legislative requirements.

If anything, the last five years have shown that developers who operate strictly as if they were asset managers and retailers who are blinkered by their own commercial self interest are doomed to costly conflict and the poor overall performance of a shopping center.

I will also say that most landlords and most tenants are quick to criticize and slow to collaborate. No lease can seek to resolve these issues in their entirety and the solution lies in the choice of mediator, the mediator’s background, and the mediator’s terms of reference.

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  1. I’ll skip my disagreement that we need to require mediation into any document (not sure it is a fast enough solution for occupants and not worth it if it only applies to major termination events), but I like the idea of each side analyzing the position they are taking for unintended consequences. For example, if a tenant drives too hard of a bargain that makes the asset not worth maintaining, how much did it win? If a landlord drives too hard of a bargain and the tenant can’t wait to relocate, how much did it win? This rabbit trail has lead me to start an article about whether we can justly enforce provisons like “the parties hereto expressly declare that, in connection with the activities and operations contemplated by this Lease, they are neither partners nor joint ventures” if we get too much inside each other’s motives. If anyone has any case law around the country on this point, please email it to me. Among other things, the house of lease insurance provisions may crumble if landlords and tenants are ever legally considered to be on a joint venture for profit!

    • I agree with much of what Brendan has said and would add that A whole lot of time and money would be saved if we would agree to mediate. Unfortunately I doubt that day will ever come. I would really like to believe we could get there some day, who knows, maybe when we leave these “bad times” behind us we will actually learn a few things. I would hope that we can all be a little more open minded and able to think in more creative ways in order to problem solve. I am certified in mediation and believe in it very strongly but bottom line is that both parties have to want to resolve the problem.

  2. Nichole A. Kennard says:

    I don’t believe that mediation is at the core of this debate. I believe it’s about shared responsibility. If landlords and tenants entered into a lease agreement as business partners rather than adversaries, the face of our business would change. This is a symbiotic relationship that continues to go unrecognized. If either fails, the other loses. Without great tenants, the value of a shopping centre is marginal at best. Without a great property, the retailer’s prospects are marginal at best. Until we agree that there is mutual benefit to doing business; that we need each other to be successful, then we agree to settle for mediocre results. Lease negotiations based on this premise would be a pleasure for both parties rather than a pain.

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