New York: A Real Estate: Litigation Overview

Real estate litigation in New York has now settled comfortably into a post COVID-19 pandemic reality that allows litigants and the courts to take advantage of time-saving technologies (including videoconferencing) for many tasks that formerly required hours in the courthouse. However, we are now confronted with a new set of artificial intelligence (AI)-powered technologies that promise to disrupt the business of litigating in unpredictable ways which seem to change by the day. The sections that follow include observations about how these developments have impacted real estate litigation in New York’s courts, and also discuss some recent and ongoing developments in the law.

Litigating in New York’s Commercial Division

Because of the nature of the parties and disputes, much of New York’s real estate litigation is conducted in state court – and, in particular, in the commercial division of the Supreme Court of New York. This specialized segment of the court, established to adjudicate complex business disputes, has its own set of judges who adjudicate only commercial cases and 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 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. However, 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 that many non-final orders are immediately appealable to the Appellate Division, New York’s intermediate appellate court. Absent a specific order to the contrary, such an 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.

Use of AI in legal briefing has received substantial attention of late, and reports of attorneys being sanctioned for citing “hallucinated” cases continue to abound. In response, some individual judges have adopted rules requiring papers submitted to them to disclose whether AI tools were used in their preparation. Effective 1 June 2026, however, New York has adopted a statewide rule that:

• such disclosures “should not be required”; but
• individual judges may adopt rules “governing the use” of AI.

The statewide rule includes a “model” rule for individual judges that requires attorneys who use AI to “independently ensure” that their papers contain no “fabricated or fictitious” material, and provides that failure to do so may result in sanctions.

Although this troubling (and embarrassing) pitfall of AI research and writing tools grabs headlines, the use of AI in discovery, factual investigations, and all manner of document preparation outside of briefing is radically transforming the ways in which real estate litigators (and their clients) approach large, complex cases. Savvy practitioners are looking for ways to harness these tools to provide more efficient, cost effective, and hopefully better service to their clients. We are in the early stages of an operational sea change in business, and the practice of law is not exempt.

Recent and Ongoing Developments

Continued impact of COVID-19

Although we are now several years on from the COVID-19 pandemic, legal measures taken to alleviate its effects continue to be reverberate, especially in real estate litigation.

Executive Orders issued during the pandemic suspended the running of all statutes of limitations for a total of 228 days from 20 March 2020. Because in real estate litigation many claims are subject to a six-year limitations period (applicable to breach of contract, fraud, and certain claims for breach of fiduciary duty), this may mean that claims arising as long ago as late 2019 may not yet be time-barred. It therefore continues to be important to bear these Executive Orders in mind.

Moreover, a New York City ordinance enacted during the pandemic makes certain kinds of guaranties permanently unenforceable with respect to obligations that arose between 7 March 2020 and 30 June 2021. Litigation over the constitutionality of that ordinance continues to percolate in the lower courts and will likely find its way to the Court of Appeals (New York’s highest court) in due course.

“Good Guy” Guaranties

In previous versions of this Overview, we reported on a conflict among New York’s lower courts concerning the proper interpretation of a “good guy” guaranty. Such a guaranty is 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; however, as long at the tenant is otherwise in full compliance with the terms of the lease when it vacates (ie, a “good guy”), the guarantor’s liability ceases.

Many in the industry had long understood this to mean that, if the tenant is current on its rent and leaves the premises in appropriate condition, the guarantor’s liability automatically cuts off as soon as the tenant vacates. However, in recent years some lower court cases have held that, if the guaranty specifies that it terminates upon the tenant’s “surrender” of the premises (without separately defining that term), the guarantor is then not relieved from liability unless 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.

The Court of Appeals recently issued a decision that may give some comfort to those with existing guaranties that do not separately define “surrender”: applying general principles of contract law, the court found that the guaranty terminated when the tenant vacated, because to hold otherwise would render certain other provisions of the guaranty superfluous. However, in a portion of the holding clearly aimed at future drafters of guaranties, the Court also observed that the parties “could have expressed their intent in a much simpler and clearer way and avoided this litigation entirely.” Parties drafting guaranties should take heed of this admonition going forward.