Mediation in the Real-Estate Sector
Real Estate

Mediation in the Real-Estate Sector

Implicit or explicit agreements are a way of human life; contracts, written and unwritten, pervade our day-to-day lives and govern our relationships, interactions and transactions. And, as long as contracts exist, there will be scope for disagreements and disputes, simply because no agreement can be so detailed as to cover all possibilities and connotations, and close all loopholes for disputes. Conflicts inevitably arise owing to opposing interpretations of open-ended or subjective clauses, occurrence of unforeseen events, situations going beyond the control of either party, loss of trust, bankruptcy, inadequate upfront disclosures and other such issues. Disputes fester until resolved and, therefore, dispute resolution mechanisms assume great relevance in our lives, businesses and society as a whole. Historically, in India we have been overdependent on formal justice systems—the courts—and have somehow not given alternate or informal resolution of disputes the place it deserves. May be this because of the hangover of our colonial legal systems or perhaps the absence of enabling legislation or even our cultural biases. In any case, the result has been a huge backlog of cases in civil suits and criminal cases clogging up the judicial pipeline up to the Supreme Court, leading to the unfortunate phenomenon of justice being inordinately delayed, and thus effectively denied.

Real estate: The context
The total number of cases pending in our courts is in excess of 3 crore. The real-estate industry in India has more than its rightful share of unfulfilled promises, delayed payments and/or deliveries, opaque regulations, cases of apparent abuses of dominance, reported non-compliances, defects in construction quality, commercial issues around valuations, taxes, etc—all giving rise to obvious disputes and consequent litigations moving at a slow pace through our labyrinthine adjudication processes, such that the litigants’ grandchildren ultimately settle suits filed by their grandfathers.

If we were to expand the domain of real estate to include all land and immovable properties, the intensity of real-estate disputes in the family and corporate sectors will appear mind-boggling. Given this stifling ambience, the sector has been ripe for interventions and disruptive regulatory changes. And these have now arrived in the form of REIT and the Real-Estate Regulation Bill. Although some rules/clarifications are still awaited, and the Regulator Bill will only have teeth once states get their act in place by appointing regulators, one must accept that these are very welcome developments that may nip some potential litigations in the bud. But this will only be clear as matters unfold around these regulations.

Besides these regulatory developments, we also have a healthy and active Competition Commission and consumer courts, both of whom have been seen to be visibly active and supportive of consumers. The welcome entry of private equity or foreign institutional investors in the real-estate space will no doubt force improvements in governance standards in the sector. All these augur well for the future, although the present situation remains dismal and disappointing, to say the least.

Diverse stakeholders
In this scenario congested with disputes and litigations, the idea of mediation comes as a whiff of fresh air. Any process of dispute resolution that works on the principle of the disputants working together to arrive at an amicable win-win solution, and an agreement that is normally not up for further courtroom activity, has to be like a godsent tool! However, considering the sector has a diverse group of stakeholders pulling apart vigorously in different directions, it may not be an easy journey for mediation.

Who are the stakeholders? These are:

  • Developers
  • Contractors
  • Consumers/buyers
  • Landowners/farmers
  • Landlords and tenants
  • Regulators
  • Special-interest groups/NGOs
  • Lawyers, judges and arbitrators

For obvious reasons, some stakeholder groups might find it to their interest if the current spate of litigations continues unabated. To break this traditional pattern, more disruptive interventions are required to change mindsets.

Possible role of mediation: How is it different?
In recent years, our society and world have witnessed a dramatic increase in litigation. Going to the courts to resolve disputes seems to be an almost instinctive reaction of our citizens. However, the underlying reality is that lawsuits can be financially and emotionally challenging for all the litigants, and can even have an adverse impact on our economic progress in the long run, particularly when they immobilise businesses. While buyers and sellers of real estate are usually able to settle the smaller irritants that come up in the course of their deals, many other disputes sadly end up in the courts.

Fortunately, there are healthier alternatives to litigation for resolving disputes. Mediation is one such option that is growing rapidly in popularity in developed economies—a path that has the potential to dramatically reduce the time and cost of resolving disputes. Mediation can be the first step of resolution between parties.

Mediation is the term used to describe a relatively informal form of dispute resolution that occurs outside the dysfunctional court system. In mediation, the parties are facilitated by a neutral third person called a mediator. The mediator is not authorised to impose a decision on the parties or even suggest settlements; instead, the mediator only catalyses or promotes negotiation between the disputants with the aim of helping them reach a mutually acceptable settlement of their dispute.

To understand how mediation is different from other dispute resolution processes, it is helpful to keep in mind that both litigation as well as arbitration are adjudicatory in nature wherein an empowered body or person(s) decides the outcome. In both these processes, the disputants automatically take up adversarial positions, which leads to loss of trust and fissures in relationships. Perhaps the most attractive aspect of mediation, which scores over the other choices (arbitration or litigation), is that, here, the disputants find no need to resort to appeals and prolong the dispute, as the settlement arrived at is mutually agreeable! So, it is evident that mediation should be the first choice of people in the real-estate sector. But what needs to be done to popularise this mode of alternate dispute resolution?

The way ahead
The following lines of action can be recommended to make mediation the first choice of all parties:
Increase awareness about mediation, its positive effects, and why it is far better than traditional channels of adjudication. For this, a professionally designed communication campaign must be put in place by the government, the bigger corporates in the sector, industry bodies and chambers and the large law firms, all acting together. For this purpose, an appropriate body may be formed by the ministry to coordinate all aspects of this promotion drive, something similar to PCRA or BEE.

We also have to nudge people towards mediation; for this, subject to legality, the Government may make it mandatory or recommendatory for all contracts or agreements to have a clause stipulating mediation as the compulsory first step in case of any disputes, much like the position enjoyed by the arbitration clause today. It has to be seen if this requires the passing of an appropriate act on mediation. Third, we have to strive to make mediation as friendly, soothing and non-adversarial in reality as it promises to be in theory. This can only be achieved if we avoid people with traditionally adjudicatory mindsets (such as most judges) who come from a position of power and authority, as well as people with deep-seated adversarial mindsets (such as most lawyers), as we create a facilitating kind of mediation universe in our country. Evidently, we do not need professionally judgemental personalities in this business because a mediator has to be the exact opposite of being judgemental. Obviously, people with insights into people’s minds, like those with education in behavioural sciences, and people with a negotiator’s bent of mind, like qualified interlocutors, as well as domain experts in relevant fields of dispute who will be able to quickly open up new and unseen opportunities of resolution with their expertise, are the right kinds of people to populate the roles of mediators. Anything less will make mediation stumble early on its journey, and it may quickly lose its appeal instead of gaining ground.

I end this article here, with the earnest hope that someone, somewhere, is listening and will, perhaps, consider to act on these suggestions.

About the author: to be added

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