Common Interest & TIC Disputes - Interview with Mediator Paul Merlyn
San Francisco home ownership is rife with complex ownership and financing arrangements. Combine these with the ridiculously high cost of real estate and it isn’t surprising to find disputes arising among home owners. Paul Merlyn of CID Resolution specializes in helping home owners find workable solutions to their disputes via mediation. Paul graciously took some time out of his day to chat with us about home ownership disputes and the role mediation can play.
What should home owners know about the Davis-Stirling Act?
The Davis-Stirling Common Interest Development Act (DSA) is the common name for a portion of the California Civil Code that begins with section 1350 and ends with section 1378. The DSA sets out California’s laws for the governance and operations of so-called common-interest developments (CIDs)—that is, apartment communities, condominium projects, and planned-unit developments like townhouse communities. The DSA complements the more specific Covenants, Conditions, and Restrictions (CC&Rs) that each community will have devised for its owners and residents. In cases of conflict between the DSA and a community’s CC&Rs, the DSA takes precedence. Likewise, the CC&Rs take precedence over any ad hoc rules that a homeowners association (HOA) may have enacted.
Specific topics addressed by the DSA include rights and responsibilities relating to ownership interests, insurance, assessments, architectural improvements, association meetings, and election of the board. Most relevant to my work are sections 1363 and 1369, which detail the procedures for dispute resolution that arise in CIDs. Basically, these sections require disputants to try to reach a resolution via mediation before duking it out in court. That’s generally good news for the over-crowded court system. It’s also good news for disputants because about 80% of the time, mediation results in a settlement. Insomniacs can find the full text of the DSA here.
What are the common issues that arise among TIC co-owners?
Tenants in common are foremost business partners in a real estate investment. They may also be virtual roommates as well as friends or even romantic partners. In many cases, it’s a volatile mix of business and pleasure, and a lot can go wrong in the personal relationships between co-owners after they’ve all signed their TIC Agreement.
The most common issues are disputes over bill payment/unauthorized expenditure, fund appropriation for building repair and maintenance, property use (e.g. sharing a tandem garage), and property development. One co-owner, for example, might be strongly in favor of condo conversion whereas the other might have different priorities. At CID Resolution, we’ve also helped people reach an equitable settlement when one co-owner wants to buy out the ownership interest of the other.
Tear Down/Rebuilds are common in San Francisco. On one hand a property owner wants to have the best possible home for the space allowed and better/bigger homes generally add to appreciation in a neighborhood. The flip side is that neighbors are faced with years of construction hassles as well as changes to the neighborhood which they may not feel are in their best interest (blocked views, less sunlight, etc). Where do you see problems arise in tear down/rebuilds?
I think your question captures the issues very well. These are land use disputes, and they typically involve multiple parties, including neighbors/residents associations, the city, architects, and sometimes nature conservancy advocacy groups. Mediation sessions will typically extend over a period of months. This isn’t a focus of CID Resolution, but there are mediators who specialize in land use disputes.
Condo conversion is a hot issue in San Francisco as seemingly every TIC owner wants to convert. What are the "do's and don'ts" for TIC co-owners and/or tenants when it comes to converting?
First, if you’re set on conversion, really take the time to explore whether your prospective co-owner(s) share that goal before you buy the property. Talk over some scenarios. What if one of you lost your job? How much capital investment might be necessary to perform the conversion? What’s a realistic ROI? If you don’t have a common perspective on condo conversion, this probably isn’t the right partnership for you.
Even if you think you’re on the same page, don’t trust to a nod and a wink. Be sure to address the issues of condo conversion in your TIC Agreement. (A good real estate attorney—preferably one who specializes in TICs like San Francisco’s Andy Sirkin—can help you think through all the scenarios and contingencies.) The TIC Agreement will then be a foundation for navigating the hazards of condo conversion as they arise.
One more caveat: Condo conversion entails a visit to your building by a city inspector. The inspector prepares a report, citing any safety or permit issues and any water/energy conservation violations that need to be rectified. Here’s the rub: Even if you subsequently decide to withdraw your application, you’re still required to commission the work cited by the inspector. One way to mitigate the risk of conversion regret is to hire a private consultant before you submit your application. The consultant will conduct an unofficial inspection of your building and help you anticipate what a city inspector would require if you submitted an application.
To what degree do you service tenant/landlord disputes?
Most of my work is with TICs and CIDs, but I’ve done several landlord-tenant disputes over the years. The issues are usually disputes over security deposits, habitability, and noise. Because the tenant isn’t an owner, the relationship between the parties is quite different than in TIC- or HOA-type cases. Also, the stakes are generally lower in landlord-tenant disputes. For that reason, public-sector agencies like San Francisco’s Community Boards provide low-cost mediation services staffed by volunteer mediators.
Let's play word association. I'll give you the word, you tell us your immediate thoughts on it.
Verbal agreements: Not worth the paper they're written on! (Seriously, we generally record our clients’ agreements in a written document that we can make legally binding if they wish.)
Parking: When I first moved from suburbia to the city, I parked on the street and collected three tickets in as many months. I still suffer from the associated PTSD – parking trauma stress disorder.
Pets: Barking dogs are a huge issue in community mediation (neighbor-neighbor disputes) and are best handled by volunteer mediators. The economics of pet disputes don’t usually justify professional mediation.
Contractors/Improvements: CID Resolution has just begun serving this constituency. It’s a lot cheaper for everyone to work it out in mediation rather than court.
Property lines: The roots of these disputes usually have nothing to do with property lines. The property line is just the presenting issue, the surface manifestation of other grievances. However, to the extent that the property line needs to be established, the only authority would be a licensed surveyor. But don’t expect that to lay the dispute to rest.
Why choose mediation?
I’ll give you half-a-dozen reasons:
- The parties keep control. Mediators don’t make decisions for you. Litigation, in contrast, places control in the hands of judges and attorneys, which can make the outcome of any dispute a veritable coin toss. In an age when people feel less control over their lives, mediation allows us to reassert ourselves as the principal decision maker.
- You don’t have to settle. Mediation is risk-free. If someone declines the terms of a proposed settlement, they won’t lose the right to their day in court. Nor will they prejudice their case because the entire mediation session is legally confidential. This means any information disclosed in mediation wouldn’t be admissible if the case subsequently went before a judge.
- You can still consult with an attorney. We encourage parties to consult with attorneys. Your attorney can help assess your case and provide independent legal advice. Your attorney can also accompany you in mediation if you wish, although most attorneys will generally adopt a consultative rather than a participative role during mediation.
- Mediation doesn’t destroy relationships. When the dust settles, parties in real estate disputes often have to live together as co-owners and neighbors. By promoting communication, clarifying miscommunication, and providing a safe environment to express differences, mediation helps maintain these important relationships.
- Mediation is efficient. Approaching a dispute as a problem rather than a contest, mediation directs parties’ energy into attacking the problem rather than each other. We resolve many disputes in a single mediation session rather than the weeks or months you’d likely spend in litigation.
- You’ll save a lot of money. Mediation typically costs each party no more than a couple of hundred dollars. That’s a lot cheaper than litigation. For example, one California homeowner spent $40,000 to sue his HOA over a $750 fence. The homeowner lost in court and was ordered to pay the association’s $61,000 legal fees.
If there is a downside to mediation? What is it?
Of course, there’s your time and money invested in mediation, which you might spend and still not get a resolution. However, the odds are in your favor since about 80% of cases settle in mediation. Furthermore, even if your case doesn’t settle, you’ll know you tried to work it out before you took the fight to the courthouse.
The only other downside I can think of is mediation won’t help if you’re really looking for vindication. People in conflict usually believe in the legitimacy of their respective claims. Sometimes, however, their relationship to the conflict runs deeper. They begin to see themselves as crusaders for justice, intent on vanquishing one another. They may genuinely want to resolve their dispute, but this want is second to their need for vindication.
Crusaders are better served by litigation than mediation. This is not because they are likely to find vindication in a judge’s ruling, but rather because they won’t find it in mediation. Mediation is a problem-solving process. It’s oriented towards settlement without ascribing blame to either party.
Home ownership conflicts create both emotional and financial stress for the parties involved. In what ways do you help your clients manage these troublesome times?
Mediators have to be acutely sensitive to the parties’ emotions. Such emotions include anger at a perceived betrayal, fear of a financial catastrophe (perhaps from a threatened lawsuit), and shame, embarrassment, or sadness at being unable to fulfill an obligation. I work closely with parties on an emotional level, taking time to meet with them in private when appropriate so I can really understand their emotional state as well as their financial needs.
Indeed, emotions often drive behavior, and any mediator who expects parties to be consistently logical and rational is doomed to fail—unless he’s mediating between Deep Blue and Mr. Spock. That said, mediation isn’t psychotherapy. I keep my sessions goal-oriented so that my clients can reach a durable settlement as quickly as possible. People generally want to put their disputes behind them and move on with the rest of their lives.
Paul Merlyn and CID Resolution can be contacted via the info noted below: