How mediation can help resolve leasehold disputes

Service charge and lease extension premiums are two of the most common types of leasehold dispute and prompt a significant number of applications to the First-tier Tribunal (Property Chamber), the FTT.

However, where the FTT has authority to act, applicants are currently offered a half-day of mediation as an alternative to a tribunal hearing, at no cost. If an agreement is not reached at mediation, the claim will proceed to a hearing.

The informality creates a less intimidating atmosphere, promoting communication and collaboration. As such, parties are more likely to participate in discussions focused on finding common ground and working towards a settlement.

Unlike legal proceedings, mediation also allows for flexible and customised outcomes. Parties are encouraged to explore a wide range of options without the constraints of court and tribunal jurisdictions.

For example, a leaseholder may be unhappy with the level of service charge costs for grounds maintenance, and the specification and the working days or hours in the grounds maintenance contract.

In this case, the FTT would have jurisdiction under section 27A of the Landlord and Tenant Act 1985 to determine the reasonableness and payability of service charges, but no power to decide the specification or working days or hours.

In mediation, however, jurisdictional barriers do not apply, so the parties would be able to reach an agreement on the specification, working hours or anything else at issue.

This can result in creative resolutions that suit the parties' specific needs and circumstances, leading to greater satisfaction with the terms of the settlement agreement and a greater likelihood that both will honour them.

By contrast, in adversarial dispute resolution procedures such as litigation one party wins and the other loses.

Mediation instead results in a negotiated settlement facilitated by a mediator. The mediator does not decide the dispute; rather, they help the parties to reach their own agreement and think about settlement terms they had not previously contemplated. 

Mediation on the other hand encourages landlords and tenants to find common ground. This collaborative approach often results in a more respectful resolution, helping reduce the risk of future conflicts.

The process also means both parties are able to influence the outcome, keeping decisions in their hands rather than those of a judge or third party, with the mediator guiding discussions and helping evaluate their options. By contrast, the decision of a court or tribunal may suit neither party.

The confidentiality of mediation may put parties at ease, and encourage them to speak openly about their concerns and interests. This enables them to explore potential resolutions and make offers, safe in the knowledge that these cannot be used against them in any proceedings. 

Furthermore, resolving residential leasehold disputes through litigation can be time-consuming and expensive. Court or tribunal proceedings may take months or even years, with significant disruption to landlords and tenants alike.

Conversely, mediation offers a quicker, more streamlined and cost-effective option. Sessions can often be scheduled much more efficiently than court or tribunal hearings, providing a quicker resolution.

Such representation may be sought because leases can be highly complex, containing legal jargon and technicalities with which the parties may not be familiar.

When disputes do arise, they can be emotionally charged and highly stressful. Anger, frustration and mistrust can hamper productive communication during sessions, making it difficult to reach viable resolutions.

To overcome some of these challenges, it is important to ensure that all parties have access to appropriate representation, or professional advisers, such as a lawyer, surveyor or valuer as appropriate, as well as a fair and impartial mediator.

While this will incur some costs, they will be much less than those of litigation.

While mediation is voluntary for FTT claims, there is significant potential for mandatory mediation following the Court of Appeal decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416.

This landmark decision effectively empowered, and even encouraged, judges to stop litigation and order parties to mediate where they felt it was appropriate to do so.

The Ministry of Justice (MoJ) has also been exploring potential for making mediation integral to the civil justice system.

In May 2023, it became mandatory in all small claims actions in England and Wales, and the ministry is now looking at making forms of alternative dispute resolution (ADR) – including mediation – compulsory across the wider civil justice system.

Moreover, RICS' own Dispute Resolution Service is working with the MoJ and like-minded bodies such as the Civil Mediation Council and Chartered Institute of Arbitrators (CIArb) on ways this can be achieved, in addition to relevant logistics and governance as well as standards for mediators.

Overall, mediation can be a valuable tool generally but particularly in resolving leasehold disputes by providing a more efficient, collaborative and satisfactory resolution for all parties.