When An Owner Sues …

One of the thorniest issues faced by a condominium is unit-owners’ lawsuits against the board. In most instances, there will be some insurance coverage for these claims, but such lawsuits are nevertheless a tremendous drain on the resources and time of the board members, the condominium’s managing agent, and, sometimes, the building staff. As Justice Sheila Abdus-Salaam once observed, suits between unit-owners and the board members are worse than divorce cases, because at the end of the lawsuit, everyone still has to live under the same roof.

We have experienced a significant success rate in resolving unit-owner claims through mediation. However, mediation usually occurs only after a lawsuit has commenced, because it is rare to find a mediation clause in a condominium’s original bylaws or declaration. In many instances, mediation will take place when the parties experience “litigation fatigue” after years of battling in court.

Many boards are now considering implementing a bylaw provision that affords the board a unilateral right to require a unit-owner to mediate a dispute before he or she is allowed to initiate litigation. If a mediation provision is in the bylaws, it may be possible for the board to avoid litigation and all of its negative consequences. It should be noted, however, that not every claim or dispute is going to be appropriate for pre-litigation mediation. The board, together with its counsel, has to determine when a matter is ripe for mediation and when a dispute needs to proceed to litigation before the parties are in a posture where mediation can be successful.

When considering adopting a mediation clause in the bylaws, there are a few things that boards should keep in mind. The first is cost. Mediation can be expensive, as a mediator’s fees can exceed $500 an hour. Some boards have dealt with this issue by dividing the cost between the unit-owners and the board, and if the mediation is not successful and the case is litigated, then the prevailing party can recover its portion of the mediation costs.

Another issue that has to be given careful attention is how the mediator is selected. Both parties should have input in choosing the mediator. Mediation is often successful because it presents a forum for the unit-owner to personally present his or her side of the story to someone that the unit-owner deems to be competent and impartial. Under those circumstances, the unit-owner tends to be more receptive to criticism of his or her view of the matter in dispute, which enhances the likelihood of a successful settlement without having to resort to litigation.