Multi-Tiered Dispute Resolution Clauses in Real Estate Agreements: Conditions Precedent, Exceptions, Enforceability

This CLE webinar will examine multi-tiered dispute resolution (MTDR) clauses (also known as escalation clauses) in real estate agreements. The panel will discuss when counsel and their clients should consider using these provisions that specify how the parties will proceed in the event of a dispute—requiring less adversarial measures before heading to either arbitration or litigation. The panel will examine how these clauses have been enforced in various jurisdictions and offer best practices for drafting enforceable MTDR clauses to protect client interests and reflect the parties' intent if a dispute arises.

While parties to real estate transactions usually include alternative dispute resolution clauses in their agreements, many choose MTDR clauses that specify how the parties will proceed in the event of a dispute. MTDR clauses prescribe non-binding conditions precedent such as notice, negotiation, and/or mediation to be satisfied by the parties before they move on to binding arbitration or litigation. 

These conditions precedent provide the parties with the opportunity to resolve disputes in such a manner that is private, less adversarial than litigation or arbitration which may preserve the commercial relationship between the parties, and may save time and money if the parties can come to a settlement. 

However, disagreements may arise as to the application of the MTDR clause to the dispute, including whether and to what extent the conditions precedent must be satisfied before the parties may pursue a binding alternative. Exceptions, such as the futility exception, may apply. And the courts enforce these provisions differently on a case-by-case basis. For example, some have held that an agreement to use best efforts to reach an agreement was enforceable, while others have found that an agreement to negotiate in good faith was too vague to be enforceable. 

MTDR clauses have a better chance of being enforced where they contain specific language such as a limited duration of negotiation or mediation, specified negotiation participants, or mediation pursuant to specified rules. Therefore, counsel should understand how different jurisdictions enforce these clauses and best practices for drafting provisions to best protect their clients' interests and reflect the parties' intent in the event of a dispute.

Listen as our expert panel closely examines multi-tiered dispute resolution clauses, discusses when these should be used in real estate agreements, and offers best practices for drafting enforceable MTDR clauses.