Prepared by the Brady Solicitors Litigation Team. Brady Solicitors advises leaseholders, managing agents, freeholders, RTM companies and RMC directors on service charge recovery, block management disputes and residential leasehold litigation.
For a managing agent or RMC, a service charge dispute is rarely only about the money. The leaseholder on the other side will often still be in the building when it is over, still receiving demands and still part of the community the agent has to manage. That is why the question we are asked is often not whether a claim would succeed, but whether there is a way to resolve the dispute without a hearing. Mediation is usually the first option considered, and it is worth understanding what it can and cannot deliver before proposing it.
Mediation in a service charge dispute may resolve it faster and at lower cost than the First-tier Tribunal or county court, and allows the parties to agree outcomes a tribunal cannot order. However, it is not guaranteed to work. Private mediation costs money whether or not it succeeds, and choosing the wrong moment may mean the dispute is too entrenched to resolve. This article sets out what mediation can realistically do in service charge dispute resolution, what it cannot, and when it tends to be worth pursuing.
What is mediation and how does it work in service charge disputes?
Mediation is a structured negotiation facilitated by a neutral third party. The mediator does not decide anything. Their role is to help the parties reach an agreement themselves. Any agreement is voluntary and only binding once written down and signed. The process is confidential and without prejudice: if it fails, what was said cannot be used in later proceedings.
In a service charge context, mediation may take place before any proceedings are issued, after a case has been filed with the county court or First-tier Tribunal, or privately between the parties at any stage. Most service charge claims against individual leaseholders fall under the Pre-Action Protocol for Debt Claims, which requires both sides to consider alternative dispute resolution before issue.
In the county court, mediation is no longer optional for most small claims. For money claims under £10,000 issued on or after 22 May 2024, the court refers the parties automatically to the HMCTS Small Claims Mediation Service: a free, one-hour telephone session, usually within 28 days of referral, which both parties are required to attend. A party who fails to attend may face costs sanctions.
In the First-tier Tribunal, the tribunal’s rules require it to draw the parties’ attention to alternative dispute resolution and, where the parties wish, to facilitate it. Applicants are offered mediation by a tribunal-appointed mediator at no extra cost, and the tribunal may adjourn to allow mediation to proceed.
For managing agents and freeholders the key point is: mediation is available at any stage, and in a small claim it will usually happen whether or not you propose it. It tends to be more productive before positions harden and before significant costs have been incurred on both sides.
What mediation can do that a court or tribunal cannot
One of the main advantages of mediation over litigation is flexibility. In a service charge claim, the court or tribunal is deciding what is payable and when. It will not, in those proceedings, resolve the maintenance complaint that often sits behind the non-payment, require a managing agent to change its practices, or address the underlying relationship.
Mediation allows the parties to agree almost anything that is legally permissible. A leaseholder who is withholding service charges partly because of a maintenance complaint may agree to pay the arrears in exchange for confirmation that a specific repair will be carried out. None of that could be extracted from a tribunal determination on the arrears alone.
In our experience, agreements reached through mediation are also often easier to enforce in practice than judgments, because both parties have chosen them. For an RMC or freeholder, a mediated outcome also tends to preserve a working relationship with the leaseholder, which a judgment rarely does.
What mediation cannot do
Mediation does not suit every service charge dispute, and it does not replace litigation where a binding determination is needed.
Legal questions. If the dispute turns on a genuine legal question (whether a particular charge is reasonable, whether a demand was validly served, whether a lease is a qualifying lease under the Building Safety Act 2022), mediation may not resolve it, because the parties are likely to have fundamentally different views on the law. A mediator cannot determine those questions. Where the legal point is the substance of the dispute, the FTT or county court may be the better route.
Good faith. Mediation also requires both parties to engage. Nobody can be made to settle. However, mediation is no longer simply voluntary: a party who refuses to attend mediation that has been ordered or automatically referred, or who attends and does not engage, risks costs consequences. Where one party will not engage seriously, the result may be a wasted half-day and, in a private mediation, a bill for the mediator’s fees.
Enforcement. Mediation does not itself produce a judgment or determination. If no proceedings are on foot, a party who fails to comply with a mediated settlement has to be sued for breach of the agreement. Where proceedings are already under way, the terms can be recorded in a consent or Tomlin order in the county court, or a consent order in the FTT, we cover this in our article on the hidden dangers of service charge payment plans.
We recommend that any settlement is in writing, clearly drafted, and reviewed by solicitors before it is signed. A written agreement that specified sums are payable may also prevent a later challenge to those sums in the FTT. It may also satisfy the requirement under section 81 of the Housing Act 1996 that arrears be admitted or determined before forfeiture can be considered, but this depends upon the wording of the agreement and whether it constitutes an admission of the relevant arrears.
Timing: When does mediation work best?
Timing matters considerably. Mediation tends to work best when both parties have enough information to negotiate seriously but before the costs on both sides have made the financial stakes of settlement too high.
In the county court, the automatic small claims mediation appointment comes early and is often the right moment for a straightforward arrears dispute. However, a common difficulty is that by the time it takes place, the leaseholder has already paid the debt and the real issue has become the legal costs, which the small claims track restricts unless the lease allows them to be recovered. At that point the mediation agenda has changed.
In the FTT there are two potential routes. The tribunal’s own mediation is free and relatively short, but it is not always offered. Whether it is available depends upon the tribunal’s arrangements and the suitability of the dispute. Alternatively, private mediation, arranged and paid for by the parties, is a full-day process that may involve counsel on one or both sides, with the mediator’s fee usually shared between the parties.
Private mediation is the more expensive option. However, for complex disputes, or those involving multiple issues across a block, it offers a flexibility that neither tribunal mediation nor a directions hearing does.
For managing agents and freeholders, the question is not simply whether mediation will work but whether the likely cost of settlement is lower than the likely cost of the proceedings that will follow if it does not. We recommend making that comparison with legal advice.
Mediation tends to work best when:
- the facts are largely agreed and the dispute is about payment terms, timing or a related complaint;
- both parties have something to gain from a continuing relationship; and
- it happens before significant legal costs have been incurred on either side.
It tends to not work so well when:
- the dispute turns on a point of law that only a court or tribunal can decide;
- one party is using the process to delay rather than to settle; or
- the debt has already been paid and only the costs remain an issue.
The costs consequences of refusing mediation
A party who unreasonably refuses to mediate may face costs consequences in both the county court and the FTT, although the two regimes differ, with the FTT being more restricted on the costs they can award.
For managing agents and freeholders, the practical point is this: refusing mediation is not a neutral decision. Where the other party has proposed it in good faith, or the court has referred the case to it, declining without good reason may ultimately cost more than the mediation itself.
If you are dealing with a service charge dispute and are unsure whether mediation is appropriate, please get in touch and our team will be happy to help.
Frequently asked questions
How quickly can mediation be arranged?
Significantly faster than litigation. A private mediator can often be engaged within one to two weeks, and the small claims mediation appointment usually takes place within 28 days of referral. An FTT hearing, by comparison, can take many months to be listed, depending on the region and the case.
What happens if the other party refuses to mediate?
If the other party refuses without good reason, that refusal may be raised before the court or tribunal and may count against them in costs. It does not prevent you from proceeding with the substantive claim.
Is mediation compulsory in a small claims service charge case?
For most money claims under £10,000 issued on or after 22 May 2024, yes in practice. The court refers the parties automatically to the HMCTS Small Claims Mediation Service for a free one-hour telephone session, and both parties are expected to attend. Nobody can be made to settle, but a party who does not attend risks costs sanctions.
How much does service charge mediation cost?
The HMCTS small claims mediation service and FTT’s own mediation are free. Private mediation is paid for by the parties, usually in equal shares, and the mediator’s fee depends on their seniority and the length of the session.
