NEW YORK: An Introduction to Real Estate: Litigation

In New York, litigation in general – and real estate litigation in particular – continues to benefit from the remote tools that we were driven to develop in order to cope with the COVID-19 pandemic. Certain kinds of appearances that used to require attorneys to travel to the courthouse (and often spend hours of waiting time once they got there) are now handled efficiently through remote video or telephonic conferencing. That these tools appear to be here to stay is at least one positive legacy of the difficult pandemic years. 

In the sections that follow, we first discuss certain unique aspects of practice in New York state’s commercial division, where real estate disputes are often litigated. We then address some recent and ongoing developments. 

Litigating in New York’s Commercial Division

Much of New York’s real estate litigation is conducted in the commercial division of the Supreme Court of New York State, a specialised segment of the court established to adjudicate complex business disputes. The commercial division has its own set of judges, who adjudicate only commercial cases. It also has its own set of rules designed specifically to address the needs of such cases. A permanent Commercial Division Advisory Council – comprised of litigators, current and former members of the judiciary, and in-house counsel – continually studies the changing needs of the practice and regularly proposes and secures changes to those rules to meet those needs. The result is a modern, practical, and efficient system well-suited to business litigation in general, and to real estate litigation in particular. 

The judges of New York’s commercial division are well-versed in the principles and mechanisms of New York law that frequently arise in real estate litigation. But the ubiquitous use of Delaware limited liability companies for real estate transactions also often means that Delaware law applies to various aspects of disputes among members or investors in New York real estate developments. What results can be a complex combination of Delaware substantive law and New York procedural law – which the commercial division judges are also highly experienced in handling.     

One other noteworthy aspect of litigation in the New York state courts is the interlocutory appeal. Many non-final orders are immediately appealable to the Appellate Division, New York’s intermediate appellate court. Absent a specific order to the contrary, an interlocutory appeal does not result in a stay of proceedings in the lower court and therefore does not delay the litigation. It can, however, enhance efficiency: for example, if an order denying dismissal or summary judgment is ultimately going to be reversed on appeal, it is better to know that right away than to have to wait until the case is litigated to conclusion. 

In an effort to improve that efficiency, beginning in January 2022 the Appellate Division launched a pilot program shortening the deadlines for interlocutory appeals of certain discovery orders in commercial division cases originating in New York County or Bronx County. That program continues in effect, but has so far not been expanded.

Recent and Ongoing Developments

“Good guy” guaranties

Certain recent developments in the law respecting “good guy” guaranties have taken some practitioners by surprise. 

A good guy guaranty is a tool often used in connection with commercial leases: the guarantor agrees to answer for the tenant’s financial obligations for as long as the tenant remains in possession. If the tenant vacates the premises before the lease expires, the tenant may continue to be financially liable. But as long at the tenant was otherwise in full compliance with the terms of the lease when it vacated, the guarantor’s liability ceases. 

Many in the industry had long understood this to mean that, as long as the tenant was current on its rent and left the premises in appropriate condition, the guarantor’s liability was automatically cut off as soon as the tenant vacated. And this makes sense: at that point, the landlord can (at least in theory) rent the premises to another tenant. But some recent cases have held that if the guaranty specifies that it terminates upon the tenant’s “surrender” of the premises (without separately defining that term), then the guarantor is not relieved from liability unless and until the tenant complies with whatever the lease itself requires for a valid surrender – which often includes acceptance by the landlord. In practice, this can mean that the landlord can keep the guarantor on the hook simply by refusing to formally accept the tenant’s surrender. 

There is currently a conflict among New York’s lower courts over this issue, with at least one court going so far as to describe as “just nonsense” the notion that a landlord has this power – which many argue would defeat the whole purpose of this kind of guaranty. New York’s highest court (the Court of Appeals) was scheduled to weigh in on the issue late last year, but the appeal was ultimately withdrawn as the apparent result of a settlement. The issue thus remains unresolved, at least for now. 

Rent stabilisation

In 2009, New York Court of Appeals determined that rent stabilized apartments located in buildings that were subject to certain tax benefits could not be removed from rent stabilization while the tax benefits were in effect, even if their rent reached a level that would otherwise have qualified them for such removal. Because this was contrary to the practice that had until then been fully sanctioned by the governing agency (and followed by thousands of landlords), it spawned significant confusion about how to “re-regulate” apartments that had been mistakenly deregulated pursuant to that practice. It also spawned dozens of lawsuits (including many class actions) by tenants who sought significant rent roll-backs and damages for alleged rent overcharges.  

Since 2018, the Court of Appeals – which hears cases only by permission – has heard appeals in no fewer than eight such cases (most recently in early 2025), and the Legislature has twice passed significant amendments to the governing statute (most recently in 2024). But litigation in the State’s trial and intermediate appellate courts continues to abound. The stakes are high: if a tenant can establish a “fraudulent scheme to deregulate,” the rent will be recalculated pursuant to a “default formula” that generally results in a substantial reduction, with permanent effects. If the matter is a class action (as many of these cases are), those effects are multiplied. 

The law concerning the kind of evidence necessary to establish such a “fraudulent scheme” continues to evolve, and it seems likely that the Court of Appeals will be called upon to weigh in again in the relatively near future.