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You work hard to manage your property well in order to avoid litigation and the stress of going to court. That said, if you manage rental properties for long enough, chances are that disputes will arise. Going to court is typically a last resort, but there are times when Landlords and Tenants should recognize that they’re simply not going to be able to reach a common view of an issue. There should be a discussion about a settlement in which the parties ‘agree to disagree’ but still try and reach a financial outcome that both parties view as good enough to make the issue go away. Should the parties be unable get to that point, there are few good options left outside the legal system.
Of the options within the legal system, Small Claims Court is by far the least expensive and most expedient. This feels counter intuitive, but sometimes Small Claims Court is the most efficient path to resolving an issue.
Pros & Cons
Of course, even with a potentially productive process there are disadvantages as well as advantages.
The downsides of Small Claims Court are: You must represent yourself (unless your property is held by a corporation), and the potential amount you can win is limited to typically $5,000.
The upside is: Your opposing party must represent themselves as well, and the potential amount you can lose is limited to that same $5,000.
The costs of professional legal representation usually won’t make financial sense to use an attorney to initiate a lawsuit for less than a $20,000 claim. In litigation, you’re not only risking your attorney’s hourly rate, but the potential of having to reimburse the other party’s legal expenses if you lose. This dynamic can quickly lead to an arms race where both parties are so afraid of losing that they let their attorney’s fees escalate way out of proportion to the original claim amount. In my experience, unless one party wins 100 percent of the arguments, judges won’t award actual attorney fees, meaning that both parties (win or lose) go away with a financial loss when considering what they spent on their own attorney.
Mediation
Another benefit of many Small Claims Courts is court-sponsored pre-trial mediation. Participation in mediation, and any settlements arrived at, are voluntary, and the process is FREE. Often, by this time, the parties believe they’ve already failed to reach an out-of-court settlement and that they’ll continue to fail to reach one. But it’s different when there’s a neutral mediator present, who’s emotionally un-involved and is solely focused on reaching a workable resolution. Mediation is a great alternative option because that neutral party in the room relieves the stress and often helps translate the needs of each party to one another. Mediation is also an opportunity to reach a solution based on the ‘fairness’ of a situation because this process isn’t about the law; it’s about finding a common understanding from which a settlement can emerge.
It’s about legality
Whether mediation fails, or the parties decide not to try it, in court it’s not about fairness or common understandings. Court is about a judge discerning the relevant legal issues. They will let both parties provide evidence, and then apply the law. To prepare for this, understand the relevant legal issues and rehearse how you are going to present the pertinent facts. Time is precious in court; parties are typically given only 5 to 10 minutes each. It’s important for parties to concisely state what the issue is, why they feel the other party is wrong, and what evidence they have.
When you present your case, dress and speak respectfully, be organized, and be honest. Again, it’s counter intuitive, but it can be a relief (regardless of the verdict) to let a third party reach a decision and put the issue to rest.
