Out-Of-Court Options to Resolve a Lease Dispute: Settlement and Mediation

Going to court (including a tribunal) for any dispute is a big decision, and this is particularly true for leasing disputes. Legal proceedings can be time-consuming, costly and risky. Although you can ‘win’ your legal case, more often than not, you will have spent a lot of time and resources achieving it. Therefore, this can reduce the value of commencing legal proceedings to begin with. Judges and lawmakers agree that exploring ways to resolve lease disputes without resorting to legal proceedings is worthwhile. This is referred to as alternative dispute resolution (ADR). Examples of ADR include engaging in settlement negotiations, attending informal negotiations between the tenant and the landlord or having a structured mediation process in which your discussions are facilitated by a qualified professional.

Other benefits of ADR are that all discussions are done on a without prejudice basis (meaning they cannot be used in court proceedings). The parties can then clarify any finalised agreement in a deed of settlement. With the variety of ADR options available, it can be difficult to understand what the best approach to take is. Therefore, this article will cover your options to resolve a lease dispute out of court using ADR.

Benefits of ADR Before Going to Court

If you find yourself in a leasing dispute, you may have a desire to immediately commence legal proceedings to sue the other party. However, rushing into this decision is not recommended because going to court or a tribunal may not necessarily maximise your chance of getting a successful outcome. 

Instead, it may be recommended (or required) to explore ADR using one (or several methods) as a preliminary step. The best method to use will depend on your circumstances. 

There are several factors to consider why ADR may be worthwhile exploring before going to court, set out in this table below.

Settlement Negotiations

Informal Process

The most informal type of ADR is settlement negotiations, which involves proposing and discussing potential offers of settlement. There are many ways to negotiate a settlement, including:

• in person; 
• over the phone; and
• through written correspondence (emails or letters).

The benefit of negotiations is that they are cost-effective, since you have control over the process and are not relying on a third party to make the decision for you. 

Without Prejudice Communications

All written and verbal offers of settlement should be stated or marked as without prejudice. In the context of resolving a lease dispute, the other party cannot use any ‘without prejudice offer’ as evidence in court. This allows you to speak openly about a dispute and discuss multiple solutions without having that information or proposals used as evidence against you later.

Deed of Settlement

If an offer is finalised and accepted, it is recommended to record the details in a deed of settlement. A deed of settlement is a binding legal document that sets out the terms of settlement and is signed by you and the other party. Further, a solicitor should prepare it.

A deed of settlement will contain provisions that set out (at least):

• the context or background of the lease dispute;
• any payments going to be made and when;
• what actions the parties must take (e.g. repair or return property);
• what happens to the lease (e.g. does it remain or is it surrendered);
• if all complaints are resolved (known as a release) or only specific issues; and
• the consequences when one party defaults on their promise.

Mediation

Process

Mediation is a popular type of ADR that involves appointing a qualified and independent mediator whose role is to facilitate discussions and problem solving between you and the other party. Unlike a Judge, a mediator may provide recommendations but will not make any binding decisions. It is standard practice to equally split the costs of mediation (unless otherwise agreed).

Additionally, you will need to agree with the other party who you want to appoint as a mediator. If you cannot agree, your lease may set out how to determine the right mediator, or you can ask the small business commission in your state or territory to appoint one for you. 

Mediation can be very valuable in preserving your relationship with the other party, particularly if the lease is continuing. On the other hand, court proceedings are likely to irreparably damage your commercial and personal relationship.

Without Prejudice Communications

Mediations take place in confidential settings, with all discussions happening on a without prejudice basis. You will have an opportunity to explain your perspective and hear the other party’s views in order to identify the issues preventing a resolution.

You should come to a mediation with an understanding of your legal position. However, the purpose of mediation is to find an agreeable solution and not argue who is correct.

Settlement Agreement

If you reach an agreement during a mediation session, then you will likely:

• sign a simplified settlement agreement setting out the key terms; and
• proceed to prepare a deed of settlement.

As a mediation can go for over a day and late into the evening, it is important to have some written record of the finalised agreement. You should do this even if it lacks some detail or specifics.

Key Takeaways

Avoiding legal proceedings can save you a lot of time, money and stress. In addition, ADR provides greater control and certainty of the outcome since it is driven by you discussing and reaching a settlement agreement with the other party. It is also more likely to preserve your relationship with the other party, which is important if the lease continues.

Your lease may also set out various ADR processes to follow. There are many ways to attempt to resolve a dispute, including:

• making written or verbal offers of settlement; 
• arranging informal negotiations; and
• appointing a mediator to facilitate confidential discussions of settlement.

All discussions of settlement should be on a without prejudice basis, so they cannot be used in court at a later date. You should always record a finalised settlement agreement in a formal deed of settlement to ensure you and the other party are clear on what was agreed, and your respective rights and obligations moving forwards. A deed of settlement will set out what happens to the lease and any consequences for not keeping your promise. If you need advice regarding a leasing dispute, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions