Atwood, Haiman & Westerberg

Legal Topics February, 1999

It Can Be Costly To Ignore the Mediation / Arbitration Provision In Your Real Estate Purchase Contract
By D. Kent Westerberg
Today, the standard residential real estate purchase contract in California contains a provision for the recovery of attorneys' fees by the prevailing party in any dispute arising from the agreement, and a mediation and/or arbitration provision, which, if initialed by the parties, becomes a term of the agreement. While the language of these mediation/arbitration provisions may vary, they typically provide that if a party fails to mediate and/or arbitrate a dispute arising from the agreement prior to commencing a civil action, the court may, in its discretion, deny attorneys' fees to the party commencing the action, even if it prevails at trial. There is little, if any, case law Money on this subject, but in Steven and Carole Demkowski v. John and Concetta Lozon, et al. and related cross-actions, Santa Clara County Superior Court, Action No. CV748765, Atwood, Haiman & Westerberg successfully precluded the plaintiffs from recovering in excess of $800,000 attorneys' fees for failing to first mediate a dispute concerning alleged defects with a residence purchased by the plaintiffs.
Therefore, if you are buying or selling residential real estate in California, or are a licensed real estate agent, be sure to review the mediation / arbitration provision carefully before agreeing to mediation or arbitration. Most importantly, you and your attorney should study the mediation or arbitration provisions in your contract before commencing any lawsuit arising from the purchase or sale of property, because failure to comply with them may prevent you from recovering the attorneys' fees you incur in litigating your dispute.