There are many times when a real estate contract is in dispute. Parties think that the only way to resolve their dispute will be through the courts and litigation; however, many real estate contracts require mediation in order for a prevailing party to recover attorneys’ fees. It is important for parties to recognize this requirement if they are looking to recovery attorneys’ fees.

A case in the California Court of Appeals exemplifies why it is important to thoroughly understand the contact you are entering into and to follow the requirements of the contract when in a dispute. In Cullen v. CorwinPlaintiffs had purchased real estate from Defendants. Plaintiffs discovered a defective condition in the garage roof after the purchase of the real estate. Plaintiffs filed a lawsuit against Defendants for failing to disclose the defective condition.

The parties to the real estate purchase entered into a “standard form” purchase agreement that provided the prevailing party in a legal dispute to recover attorneys’ fees. However, as part of this “standard form” purchase agreement, a prevailing party was prohibited from recovering attorneys’ fees if he or she did not attempt to resolve the dispute through mediation or refused to mediate after another party requested medation.

The Sellers of the property prevailed in the lawsuit after succeeding on their Motion for Summary Judgment because the statute of limitations had passed for the buyers to file their lawsuit. The Sellers prevailed on their Motion for Attorneys’ Fees for $16,500 in legal fees. The Buyers appealed the trial court’s decision because they argued that the Sellers had refused to mediate their dispute.

After the Complaint was filed, the Buyers requested mediation twice; however, the Sellers refused to go to mediation. The Sellers argued that they wanted to pursue some written discovery and depositions in order to file a Motion for Summary Judgment, which they believed they could prevail and save some cost in not having a mediation. Sellers believed that a mediation without any discovery would be a waste of time and argued that mediation was never brought up before the filing of the lawsuit.

On appeal, the Court found that the Sellers had breached the purchase contract when they refused to mediate their dispute. The purchase agreement’s provision for mediation was intended to settle a dispute early on and did not allow for excuses to refuse mediation. It found that particularly because discovery can become costly, the provision to mediate a dispute was in the purchase agreement in order to lower attorneys’ fees and settle disputes earlier rather than later.

This case provides an important warning for parties to a real estate contract that contains this sort of provision. These provisions are very common in real estate contracts and tend to require mediation early on in order to avoid costly legal bills. For example, the current California Association of Realtors Income Property Purchase Agreement has a similar requirement for mediation in Paragraph 35. However, each real estate contract may have a differently worded provision, so it is important to note what your real estate contracts says.

If you are in a dispute over a real estate agreement, please consult Attorney Anthony Marinaccio at (818) 839-5220. Anthony offers a free initial consultation to discuss your matter.