What Is a Mediation Clause?

A mediation clause denotes language in a contract, lease, or other legal document in which both parties agree to negotiate to settle any future dispute. Also called a dispute resolution clause, the mediation clause serves as an alternative to litigation when either party believes terms of the contract have been violated. Its purpose includes a negotiation process that leads to continued business relationships without resorting to battles in court. Laws in some areas require mediation clauses in all formal contracts, but they might not be binding in court.

Mediation clauses generally outline how to choose a mediator if a dispute arises. The selection of a mediator typically must be approved by both parties to the disagreement, and language explaining the exact process usually appears in the mediation clause. A difference of opinion on a qualified mediator might be settled if each side chooses one mediator, and those two people decide on a third person to help with negotiations. Mediation clauses usually state the cost of the mediator will be shared equally.

Typical language in a mediation clause spells out time limits for negotiation. It might state negotiations must start within a certain number of days after one party alleges a breach of contract. In some contracts, it specifies the minimum number of hours that must be spent trying to reach a settlement and where negotiations will take place. Work with a mediator typically occurs in a neutral setting and represents a quicker way to settle a difference of opinion than filing a lawsuit. When successful, mediation might preserve business relationships that could be harmed by a prolonged court proceeding.

The mediator’s role includes providing an unbiased evaluation of the disagreement while treating both sides fairly. His or her job centers on settling the dispute to the satisfaction of both sides. A mediator weighs the circumstances of the misunderstanding while considering the obligations and rights of each party. During the negotiation process, the mediator commonly refers to past experience in similar disputes and accepted business practices in the area.

In addition to a mediation clause, some contracts also include an arbitration clause. This legal language covers instances when mediation fails and employs an arbitrator to devise a solution. Arbitration decisions are recognized by courts in some jurisdictions as binding in court. An arbitrator usually orders an award he or she feels is equitable.