With dozens—and sometimes hundreds—of people living in a community governed by neighbors, acquaintances and friends, it should be no surprise that disputes occur in condo buildings from time to time.

The possibility of disagreements among residents, boards and even vendors is there, and when those disagreements arise, the specter of litigation can loom large over the affected parties, creating worries on costs, both financial and in terms of time, as well as concerns of bad feelings and an uncomfortable environment for the community as a whole. There are plenty of reasons to find other ways to settle disputes before getting lawyered up and going to court.

Fortunately, alternative dispute resolution (often called simply ADR) offers two options—mediation and arbitration—for settling and moving on from issues. Both are effective and can help shareholders, unit owners and boards resolve thorny issues without either party ever setting foot before a judge. In fact, New Jersey's Condominium Act requires that boards offer mediation as an alternative before the feuding residents or resident and board head to court…more on that later.

Common Points of Contention

Although any incident can spark a conflict in a close-knit co-op or condo community, some things happen more frequently than others. “Disputes arise with shareholders versus shareholders and shareholders versus owners,” says Jeffrey T. Zaino, Esq., vice president for the American Arbitration Association, based in New York. “The most common [conflicts] are shareholder versus owners for problems in their condo.”

The issues at the root of these conflicts vary widely. They can include “disagreement over an action the board has taken—redoing the lobby or hallways is a particularly contentious example,” says attorney Phyllis Weisberg, a partner with the law firm of Montgomery McCracken Walker & Rhoads LLP, with offices in New York, New Jersey, Delaware, and Pennsylvania. “(Or) the board’s failure to resolve a dispute one shareholder has with another shareholder, such as over noise, governance issues, failure to make certain repairs, or disapproval of a planned alteration.”

“The most problematic issue is usually nuisance behavior between shareholders or unit owners,” says Dean Roberts, a member of Norris McLaughlin & Marcus, a law firm with offices in New York, Pennsylvania, and New Jersey. “Those are the things that bother boards the most. Noisy behavior and oddball issues.”

Roberts cites one example regarding the installation of a small booster antenna on the side of a residential building that resulted in significant and vocal concerns over safety from residents. Those concerns ultimately led to its removal and a broken agreement with the installer of that antenna.

Arbitration vs. Mediation

When a problem arises and all parties involved fail to find a resolution, the first thought is often litigation with one or both sides threatening to take the other to court—a very expensive first step. Fortunately, mediation and arbitration offer effective alternatives.

Although both are methods of ADR, they are very different from each other. “One is reconciliation, and one is determination,” says Roberts. “Mediation is focused on settlement and working out some sort of agreement. It’s not interpreting facts of law. Arbitration is more like a trial, based on findings. It’s decision-driven.”

Zaino agrees. “Mediation is less formal than arbitration and is non-binding. Also, ex parte communication is permitted with mediations,” he says. Ex parte communication means someone who is a party to the case or someone involved with a party can communicate with the mediator.

Another difference is that “arbitrations are binding and decisions of arbitrators are difficult to vacate,” says Zaino. “There is a very high legal standard for vacatur,” which is an order of the court vacating a legal proceeding.

The ways in which mediation and arbitration commence are often different, as well. “Arbitration is typically required by contract,” says Weisberg.

Mediation tends to offer more flexibility as well because it is not so closely tied to a winner versus loser model. “You tend not to lose in mediation because you can go on to litigate or arbitrate,” says Roberts. “With mediation, you can treat it half like therapy.”

Should mediation not resolve the issue, the next step up the ladder can be arbitration versus court. “Arbitration is a legal proceeding that’s not in a judicial setting,” says Roberts. “There’s an argument, your putting evidence into place or stating your case on why you’re right in this situation.”

The advantage of arbitration over court is “acceleration of the process,” Roberts says. Parties do not have to wait for a court date that can be six months in the future, for example. “Arbitration gives you structure but it’s much faster.” And with that speed comes a reduction in overall cost for everyone involved.

How it Works

The process of mediation may seem mysterious; normally, it is not the subject of network television, lacking the tension of high profile court cases. It is, however, effective and efficient at getting to the bottom of a disagreement.

In mediation, “a mediator is selected by the parties by mutual consent,” says Zaino. “Organizations like the AAA provide lists of suggested mediators for the parties to review. Once a mediator is selected, he or she prepares an oath and makes any disclosures such as conflicts of interest.”

Then the homework begins. “Typically a mediator will review advance submissions by the parties, a summary of their positions,” says Zaino. Then, interested parties share perspectives on the conflict. “The mediator will meet with the parties to discuss their positions and will caucus with them individually to provide them with his or her personal insights and recommendations.”

After the mediator hears all the discussions and offers a recommendation, the matter can be settled, if everyone agrees. “If the parties reach a settlement during the session, they should draft the settlement agreement and sign it at that time,” Zaino says. “At that point, a binding contract is created.”

Arbitration is different in that “arbitration is a creature of contract or submission,” says Zaino. “The normal process involves the parties receiving a list of approximately 10 names and biographical information on the arbitrators. The parties strike and rank the list, leaving as many names as possible. The lists are not exchanged, but submitted directly to the neutral provider who sees if the parties mutually agree on someone.”

Once the arbitrator is decided upon and appointed, that individual signs an oath and makes disclosures on any conflicts of interest, just as a mediator does. If there are no conflicts of interest, then a hearing is scheduled.

“The arbitrator acts more like a judge in this process, in comparison to mediation,” says Zaino. “The arbitrator will swear in witnesses and hear arguments from each side. The process, however, is far less formal than litigation and the rules of evidence need not apply. There can be no ex-parte communication. When the evidentiary hearings conclude, the arbitrator will draft an award and issue a decision within 14 or 30 days. The award can be reasoned if the parties request that.”

The Effectiveness of ADR

Mediation tends to be a positive and effective avenue for resolving issues for individuals involved with condo-based disagreements. Often, if the interested parties do not enter into mediation on their own, the courts may do it for them. “In the context of litigation, courts will often order mediation by a court mediator,” says Weisberg.

For the most part, alternative dispute resolution is effective, says Roberts. Mediation, in particular, is “most effective in disputes where it’s not winner-take-all,” he adds. When ADR does not achieve an agreement that all parties accept, litigation is still an option.

Undertaking ADR

The first step to successful ADR is just entering into it. “Typically, the trick is to convince the parties to agree to ADR…which is often difficult to do,” says Weisberg. “Once the parties agree, however, ADR is generally [effective] in resolving the dispute. It can often be particularly helpful in shareholder versus shareholder disputes, such as noise issues, and the board can be helpful in urging the parties to mediate.”

Organizations like the Community Associations Institute of New Jersey (CAI-NJ) offer mediation services. CAI-NJ's Alternative Dispute Resolution (ADR) Program is an alternative to the traditional judicial system for resolving disputes between and among parties who live or work in community associations. The ADR Program includes non-binding negotiation and mediation with a third party, who is a trained and qualified mediator. This service is offered to individuals or businesses who live or work in a community association. For more information on the ADR program, contact the CAI-NJ office at 609-588-0030 or email adr@cainj.org.

According to Zaino, mediation also can be effective on a larger scale. Following Hurricane Sandy, the Storm Sandy Mediation Program run by the American Arbitration Association handled more than 3,000 mediations between the insured and insurance companies.

Another benefit—for both sides—is the savings. “ADR is far less expensive than litigation,” says Zaino. “You can represent yourself with all ADR methods. The hourly rates for a mediator or arbitrator range from $250 to $600 per hour. Small disputes should only take a few hours.”

Ultimately, if all parties involved can agree to commit to alternative dispute resolution, “it is very effective with respect to both time and cost,” says Zaino. “If parties sit down for a mediation session, there is an 85 percent chance that the case will settle.”

Those are good odds, especially when court can be so expensive and time consuming. Mediation and arbitration can get to the heart of the matter quickly, efficiently and effectively, helping resolve disagreements in ways that satisfy all parties involved and rectify situations that could escalate. With the help of unbiased third parties, a willingness to talk and work toward a solution can prove to be very beneficial.     

Liz Lent is a freelance writer and a frequent contributor to The New Jersey Cooperator. Staff writer Mike Odenthal contributed to this article.