Real Estate Litigation 2025

Real Estate Litigation: Key Developments From the Past 24 Months

The legal framework surrounding real estate continues to evolve as courts, legislatures, and regulators around the world address critical and time sensitive issues affecting the commercial and residential real estate industries. This introduction provides a brief survey on recent litigation and regulatory trends across key categories of real estate-related disputes, many of which are addressed in this Guide, offering a global perspective. Additionally, this introduction discusses areas of likely real estate disputes to watch for in the coming year. 

Real Estate Finance Disputes

Over the last 24 months, there have been significant market and legal challenges in the real estate industry. In particular, the interplay between rising interest rates, increasing expenses, shifting property values, and high-profile bank failures has significantly influenced litigation between borrowers and lenders, particularly in the commercial real estate sector. In the United States, the collapse of Signature Bank and others in March 2023 added a layer of complexity to an already strained market, while globally, central banks have faced the challenges of navigating high inflation and an uneven recovery from the COVID-19 pandemic.

In the United States, the commercial real estate market has faced extraordinary headwinds stemming, at least in part, from the Federal Reserve raising the federal funds rate from near-zero in March 2022 to a peak of 5.5% by July 2023. This rapid increase elevated borrowing costs, challenging borrowers’ ability to service real estate debt and refinance loans.

The rise in interest rates and tightening of credit has contributed to declining property values, particularly in some sectors of the office market, where hybrid work trends have already reduced demand. This depreciation eroded loan-to-value ratios, triggering various disputes, including disputes relating to covenant breaches, valuation fights, maturity defaults and non-recourse guarantees.

The failure of Signature Bank and other banks in March 2023 exacerbated these tensions. Signature Bank held a massive USD36 billion commercial real estate loan portfolio. These collapses – driven by the rapid rate hikes, deposit runs, and exposure to underwater assets and unrealised losses – disrupted lending relationships, creating an environment ripe for litigation. 

Recent rate cuts have offered some relief, potentially reducing the stress on the real estate market by easing refinancing pressures. The office sector, however, remains a likely tension point, with values on average down more than 20% from 2022 to 2024.

Globally, the commercial real estate landscape mirrors US trends, but varies by region due to differing monetary policies and market conditions. China’s property sector, strained by a spike of high-profile developer defaults, has seen notable government interventions with troubled firms. Globally, declining property values – particularly in office and retail – have led to negative equity, prompting legal battles and debt restructuring.

Guarantor liability – as borrower defaults increased, often by judgment-proof special purpose entities, personal guarantors have been targeted by a surge in legal claims. Many cases involve disputes over the applicability and enforceability of non-recourse (or “bad boy”) carve-outs from guarantees that remove liability protections for guarantors when certain triggers occur, including the filing of a bankruptcy or misrepresentations made to the lender, among others.

Foreclosure proceedings – with respect to real estate foreclosure proceedings, surprisingly, US judicial foreclosure proceedings were down 10% in 2024 and down 35% from pre-pandemic levels. It is hard to tell, however, whether the decrease in judicial foreclosure filings is indicative of fewer defaults and disputes concerning commercial real estate, especially because many loans are now structured to permit lenders to pursue non-judicial foreclosure on interests in the underlying real property or entities which own the real property.

Lender liability claims – lenders had a string of victories in 2023 and 2024 in cases alleging breaches of the implied covenant of good faith and fair dealing. Still, anecdotal evidence suggests borrowers may be gaining traction on claims and counterclaims against lenders under theories that lenders contributed to the borrower’s default by failing to comply with provisions of loan agreements. 

Receiverships – obtaining a receiver following a loan default was once a sure thing. More recently, some borrowers in default due to an inability to refinance, rather than poor management, have successfully convinced courts that receivers should not be appointed because they would not best preserve the assets or value of the property. Expect this trend to continue as the law on this subject is rewritten by the courts.   

While the depth of property value declines is still being realized and understood by the market, 2025 brings renewed optimism for a stabilization, if not recovery, of global real estate. Some market participants are publicly articulating the view that this year presents an opportunity for the industry to turn the page on the challenges of the last 24 months. Interest rate cuts and a new US administration offer hope that refinancing may get easier, and credit will loosen, in the coming months. 

Landlord-Tenant Disputes

Courts continue to adjudicate disputes over eviction protections, lease enforcement, residential rent control and stabilisation laws, and the scope and enforceability of personal guarantees in connection with commercial leases. A pending onslaught of lease terminations by the federal government may well test the established law on commercial leases in the US. 

In 2024, the US Supreme Court again declined to review a challenge to New York’s rent-stabilisation system based on 2019 amendments, leaving in place protections for tenants. Also in 2024, New York enacted the “Good Cause Eviction Law”. The new law prohibits the eviction or removal of tenants from all housing accommodations without “good cause”. The law also imposes rent increase caps and additional notice requirements on landlords. The law automatically applied to New York City, but other municipalities need to opt in and may make certain modifications. Pro-tenant legislation will likely continue to be tested in other jurisdictions around the country that enacted similar reforms, including the District of Columbia, Maine, Michigan, New Jersey, Oregon and Washington, particularly if these state initiatives are put at odds with rolled-back federal protections, including the Renter’s Bill of Rights. 

Rent control remains a contentious issue in major European cities like London, where legislation proposing the abolition of no-fault evictions has been introduced, and Berlin and Paris, where legal challenges have emerged over government-imposed rental caps.

In the US, the change in administration has brought leases with the federal government under intense scrutiny. Over the course of 2025, expect novel challenges from the government to settled commercial leasing law and standard contract notions. 

Challenges to Real Estate Practices and Tools as Anti-Competitive

Nearly a dozen class-action lawsuits have been filed over the last several years challenging traditional real estate commission structures as anti-competitive and alleging that rules governing broker compensation violate antitrust laws. 

In November 2024, a court approved a USD418 million settlement proposed by the National Association of Realtors, with other entities agreeing to pay hundreds of millions more. New rules regarding the compensation of brokers and agents were also implemented in mid-2024, including those that allow for direct negotiations over commissions. If followed and enforced, these rules could have a lasting impact on the purchase and sale of residential real estate in the US.

In a similar vein, in August 2024, the US Department of Justice sued RealPage, alleging that its pricing algorithm is an “unlawful scheme to decrease competition among landlords in apartment pricing and to monopolise the market for commercial revenue management software that landlords use to price apartments”. The Department of Justice has asserted in other cases that using algorithmic tools to set prices can amount to illegal price-fixing, even if the parties using the tools do not communicate directly.

European regulators are likewise investigating commission structures, including in connection with property rentals, for potential anti-competitive practices. 

Real Estate Disputes to Watch in 2025

In the US, litigation over the Corporate Transparency Act remains ongoing, with the vitality of the law still unclear. The law, which requires business to report information regarding the beneficial ownership of corporate entities, could have significant ripple effects on the commercial real estate market and real estate investment structures, if upheld.

With the rise of digital infrastructure, including data centres, as a premier real estate asset class, expect litigation connected to digital infrastructure and appropriate zoning for these spaces to rise and play a prominent role in 2025. Likewise, litigation related to energy and water supplies needed to power and cool data centres should be anticipated to grow along with the development of this sector.

With the increased popularity of property-related technology and applications, legal battles over data privacy, smart contracts and tech failures in property management will likely increase.

Litigation surrounding “greenwashing” and ESG-related disclosures in real estate, as well as regulatory and class action activity regarding non-compliance with emerging environmental regulations, will likely play a prominent role in 2025. 

Conclusion

The real estate sector continues to be a source of varied legal disputes, driven by economic, legislative and societal shifts. With rising interest rates, fluctuating tenant protections, and increased scrutiny of lenders and brokers, combined with the shifting priorities of a new federal administration, real estate disputes continue to reshape the industry’s landscape. While market participants look ahead to 2025 with a renewed sense of optimism, major court decisions and regulatory actions will continue to play a pivotal role in the industry.