Making the Cake Bigger in Commercial Mediation Work
The idea of ‘adding value’ to a settlement to achieve agreement is not a new one. It can work wonderfully well when a Mediator/Solicitor is faced with a seemingly intractable problem.
Several years ago I received instructions to mediate where there were three main parties. Briefly, the problem revolved around a well-known high street shop, which was owned by overseas nationals and let out to other overseas nationals who ran the premises as a dry cleaners. The properties had been built in the 19th century. There was a small mews running to the back of the high street where, in days gone by, stables would have been. The stables had been converted into some very nice mews houses with gardens which backed on to the garden serving the high street shops. There was a gap of about 40 metres between the back of the high street shops and the back of the mews houses. Each property had a back garden of about 20 metres long. Overseas nationals had bought the mews house immediately behind the dry cleaners.
Problems had arisen when the owners of the mews house (which had been used for storage purposes for many years), became aware that the tenants of the shop had expanded their dry cleaning business not only into the back garden of the property which they rented, but to within 3 metres of the back of the mews house! A lengthy extension had been constructed out of breeze blocks built from the inside and roofed over. The extension housed an office and various storage rooms for dry cleaning and associated.
On the day of the mediation three parties turned up each with an interpreter and their solicitors. The tenants of the shop were claiming ‘adverse possession.’ The owners of the mews house wanted the unauthorised extension to be demolished where it was on their land and damages. Proceedings had been issued by all three parties seeking declarations and damages.
The matter had been adjourned in the court so the parties could try mediation.
From an initial meeting with all three parties, it appeared the problem was fairly intractable. The commercial interests of the dry cleaning shop dictated they needed the larger space to continue trading. The landlords of the dry cleaning shop were involved, having been joined as third parties and were furious that their tenants had breached planning regulations and built, without authority, over their garden. The owners of the mews house were very angry as their property had been devalued. At the time the mediation started, the claim from the owners of the mews house was for the extension on their land to be demolished, damages and legal costs. A figure for damages of £100,000 was being progressed against the landlords and dry cleaning shop tenant.
All parties, with their solicitors and interpreters were placed in separate rooms.
I encouraged all parties to think of their best alternative position to the strict basis of their various claims. I made a couple of circuits speaking to each party for about 10/15 minutes to try and establish whether there was any room for negotiation or settlement along the lines that any of them were seeking. There was not.
I then began to think about alternative ways to solve the problem. I asked the landlords of the dry cleaning business whether they would be interested in purchasing the garden of the mews house behind if the owners were willing.
It was confirmed to me that in principle they would be.
I went to the owners of the mews house and asked whether they would be interested in selling the back of their garden, bearing in mind that they seemed to use the premises purely for storage. They confirmed in principle they would be.
I approached the owners of the dry cleaning business on the basis that there might be an increase in rent, but that might be preferable if their landlords bought the garden from the owners of the mews house behind. The tenants were willing, in principle, to pay increased rent. It was pointed out to them that planning permission would have to be obtained at the expense of their landlords. They confirmed they would pay half the planning charges. Their thinking was that if they moved at a later date then the landlord had a better property to let.
At this stage, the litigation solicitors for the three parties began telephoning the Partners in their law firms who dealt with conveyancing and land law to see whether contracts, leases and agreements could be drawn up to reflect these positions.
I established with the owners of the mews house that they wanted £200,000 for the garden. After some negotiation over a couple of hours with the other parties, a price of £120,000 was agreed. The landlords wanted to be sure that the increased rent they could obtain from the dry cleaning shop tenants would not leave them out of pocket in any way. They agreed to foot half the planning charges.
The incentive to the dry cleaning shop tenants was that, subject to a retrospective approval from the local Town Planning Department, they could keep their extension and continue trading very profitably. As part of the overall settlement it was agreed that the dry cleaning shop tenants would pay for the legal costs of the other parties and themselves arising out of the proceedings. (These were relatively low at this stage as proceedings had only just been issued and there had been one short directions hearing before the district judge when mediation was encouraged).
The solicitors liaised extensively with their commercial personnel in their firms to put together a draft contract subject to planning permission, clear searches and the approval of the court. A simple court order was drawn up indicating the case would be adjourned for a further period to allow the conveyancing to go ahead.
The settlement took about four hours to reach in mediation.
The parties reached an agreement that the court could not have ordered. The parties avoided possibly a year or eighteen months of litigation and legal costs, which could easily have run to £60,000 each (bearing in mind the complexities of the original situation). The parties themselves all benefited.
I later heard that the local authority had approved the extension retrospectively as many of the shops had built to the back of the high street and purchased portions of the gardens behind the mews houses.
Seemingly, I was pretty lucky to have parties who could be flexible and funds to put in motion the mediated settlement in the circumstances of this case. However, the same principles apply in many cases subject to the parties means and the dispute.