Real Estate Litigation 2026

Introduction: Real Estate Litigation in an Era of Structural Reset

The 2026 edition of the Chambers Practice Guide for Real Estate Litigation arrives at an uncertain moment for the industry. Last year’s cautious optimism that rates would fall, deals would return and the storm would pass has given way to a more complicated reality: a market that has partially recovered but is still carrying an extraordinary amount of distressed debt. The reckoning that analysts predicted is happening, but gradually.

There was no single systemic shock in 2025. Instead, the year was characterised by sustained pressure: interest rates stayed high longer than expected until modest easing arrived in the second half of the year, valuation gaps refused to close, maturity walls were prolonged by many lenders, and capital expenditures continued to fuel the boom in AI-driven infrastructure that is expected to be a new source of conflict in the future.

These market dynamics inevitably spilled into the courtroom. Distress has brought about disputes over loan modifications, foreclosures and workouts; the AI-fuelled surge in data centres sparked zoning battles, environmental challenges and financing disagreements; and broader trends in landlord-tenant relations reflected ongoing tensions from remote work shifts and inflationary pressures.

This Introduction surveys the major trends, disputes and legal developments that have shaped the global real estate litigation landscape over the past year, with primary focus on the United States, while also drawing on significant international developments.

I. The macro environment: a market in managed distress

The commercial real estate market entered 2025 carrying the accumulated weight of three years of elevated interest rates, shifting demand patterns accelerated by the pandemic, and a maturity wall that many lenders had been artfully kicking down the road. The Federal Reserve’s prolonged pause on rate cuts through most of 2025 – resisting market pressure and political rhetoric – ensured that real estate borrowers enjoyed little relief from the capital and refinancing squeeze that has expressed itself during this cycle.

Nearly USD1 trillion in commercial real estate loans came due in the United States in 2025, representing roughly 20% of all outstanding commercial and multifamily mortgages. Private credit played a crucial bridge role during the extended high-rate period: since 2020, non-bank real estate lenders raised more than USD137 billion through 430-plus closed-end debt funds.

Office CMBS delinquency rates hit a record 11.8% in October 2025 – worse than the peak of the Global Financial Crisis. The office sector, battered by hybrid work adoption, has seen some trophy assets recover (and new Class A properties thrive) while suburban and secondary-market Class B and C properties continue to decline. Meanwhile, multifamily loan delinquencies posted the steepest climb of any sector, jumping 88 basis points year-over-year to 1.47%.

Globally, similar pressures have played out with local variations. The United Kingdom faced a similar office-market reckoning, with major central London landlords renegotiating leases at reduced rents. Germany’s open-ended real estate funds are facing severe redemption pressures and valuation write-downs, prompting regulatory intervention and investor litigation. In Asia, China’s property sector – haunted by the shadows of Evergrande and Country Garden – remained in government-managed recovery mode, with foreign creditors pursuing cross-border enforcement and restructuring efforts with mixed success.

II. Distressed debt disputes

No area of real estate law generated more litigation over the past 12 months than the intersection of distressed debt and commercial lending. Guarantor liability litigation has been particularly active. Courts in New York and Delaware continue to produce nuanced decisions on questions relating to recourse liability and bad-boy guarantees. Lenders have largely prevailed in recent years, but borrowers appear to be gaining some traction on counterclaims alleging lender bad faith, particularly in cases where lenders delayed negotiations, refused to consent to reasonable modifications or blocked refinancing efforts. Lenders have also faced challenges in pursuing guarantors through New York’s expedited summary judgment in lieu of complaint procedures, with a number of motions being denied because courts identified issues of fact which precluded a quick lender victory.

The Uniform Commercial Code (UCC) foreclosure – long a tool available to mezzanine lenders – has emerged as a preferred enforcement mechanism. Mezzanine lenders and lenders holding dual collateral – a mortgage and a pledge of membership units – continued to successfully utilise non-judicial foreclosures pursuant to Article 9 of the UCC, thereby avoiding drawn-out disputes and gaining access to distressed assets without traditional courtroom battles. The UCC foreclosure saw elevated use in 2025 as lenders raced to foreclose on pledged equity interests before borrowers could deploy delay tactics, including by filing for bankruptcy. Several 2025 challenges to such foreclosures in New York focused on the validity of expedited sales, with borrowers challenging “commercial reasonableness” and alleging chilled bidding processes.

III. Foreclosures, receiverships and the bankruptcy play

US judicial foreclosure proceedings were down in recent years, but the first half of 2025 saw the beginning of a meaningful reversal. In the first half of 2025, lenders recorded nearly 150 commercial real estate foreclosures, the highest midyear total since 2014, with two-thirds of apartment foreclosures involving loans originated in 2021 or 2022 during the near-zero-rate era.

Receivership practice has continued its expansion as lenders seek operational control over distressed assets short of full foreclosure. A notable 2024 decision, In re 530 Donelson, LLC, No. 3:24-bk-00879-RSM, 2024 WL 1810790 (Bankr. M.D. Tenn. April 25, 2024), held that a state-court receivership order does not categorically bar the managing member of an LLC from seeking Chapter 11 relief – a ruling with significant implications for lenders.

On the bankruptcy side, courts have shown increasing impatience with Chapter 11 filings perceived as primarily tactical. For example, in In re Bedmar, LLC, 2025 WL 2496260 (Bankr. D. Del. Aug. 29, 2025), the Delaware Bankruptcy Court dismissed a case filed following a divisive merger that was completed for the purpose of capping leasing rejection claims in bankruptcy. Courts have been more willing to dismiss cases, deny plan confirmation, and scrutinise the good faith of debtors whose bankruptcy filings appear designed principally to frustrate legitimate lender remedies.

The hospitality sector saw notable bankruptcy activity: Los Angeles alone produced a cluster of hotel foreclosures including high-profile proceedings involving downtown and Hollywood properties struggling under the combined weight of elevated labour costs, reduced tourism and unmanageable debt.

Few hospitality insolvencies matched the dramatic scale of the Sonder Holdings Inc. collapse in late 2025. On 9 November 2025, Marriott International terminated its 20-year licensing agreement with Sonder – just one year after its inception – citing the short-term rental provider’s default. This termination triggered an immediate operational breakdown across Sonder’s global portfolio of approximately 9,000 units, forcing thousands of guests to vacate mid-stay with less than 24 hours’ notice. The following day, Sonder announced it would wind down all operations and pursue a Chapter 7 liquidation in the United States, alongside international insolvency proceedings. The collapse resulted in the immediate termination of roughly 1,000 employees, many of whom reportedly learned of their job losses through news reports.

Globally, the UK’s Restructuring Plan mechanism – modelled loosely on the US system – continued to mature as a restructuring tool, with several real estate-adjacent cases testing the boundaries of creditor cramdown authority.

IV. Landlord-tenant: the new battleground

The landlord-tenant relationship has seldom been more contested. On the commercial side, the post-pandemic tension between landlords seeking full rent enforcement and tenants seeking concessions, modifications or lease termination continued to generate significant litigation in New York and other major markets. Lease default disputes have become increasingly complex, with tenants deploying force majeure, frustration of purpose, and constructive eviction arguments with varying degrees of success. Courts have remained largely unsympathetic to commercial tenants seeking to excuse pandemic-adjacent underperformance.

In the residential arena, rent stabilisation and tenant protection regimes remained intensely litigated. New York’s Housing Stability and Tenant Protection Act of 2019 continues to produce disputes over the scope of preferential rent protections, deregulation eligibility and the retroactive application of its provisions. The state’s Good Cause Eviction Law, enacted in 2024, has begun generating disputes over what constitutes “reasonable” repairs, the validity of owner-occupancy claims, and mandatory documentation for increased costs, as landlords attempt to navigate the law’s requirements.

Personal guaranties, especially “good guy” guaranties in New York, remained fertile ground for dispute. In the landmark October 2025 decision, 1995 CAM LLC v West Side Advisors, LLC, 2025 NY Slip Op 05782, the New York Court of Appeals reshaped commercial leasing law by ruling that a “good guy” guarantor’s liability ends when the tenant vacates the premises, even if the landlord does not formally accept the surrender in writing. This decision overturned numerous lower-court decisions that had effectively turned limited guaranties into full personal guaranties – decisions many experienced practitioners long believed were incorrectly decided.

Internationally, residential tenant protections enacted or expanded during the pandemic have produced their own waves of disputes. Germany’s Mietpreisbremse (rent brake) legislation has been extended to 2029, opening the door for constitutional challenges which have been successful in narrowing the legislation in the past. The UK saw significant litigation over Section 21 “no fault” eviction notices as landlords raced to use the procedure before its legislative abolition in May 2026.

A notable development came from New York’s new mayor, Zohran Mamdani, whose administration intervened in the bankruptcy proceedings of Pinnacle Group, a landlord with approximately 5,100 rent-stabilised apartments. The City, claiming creditor status based on USD12.7 million in unpaid fines for housing code violations, sought to delay the sale of Pinnacle’s portfolio to Summit Properties USA, a motion that Federal Bankruptcy Judge David Jones of the Southern District of New York rejected. The decision illustrated the tension between municipal policy objectives and the federal bankruptcy law that prioritises efficient creditor resolution. The administration’s creation of a Mayor’s Office to Protect Tenants signals that municipal intervention in real estate legal disputes may become a recurring feature in New York City.

V. Construction, development and infrastructure

The construction and development sector faced a perfect storm in 2025: elevated materials costs, persistent labour shortages, supply chain volatility aggravated by tariff uncertainty, and a financing market that made new ground-up development economically challenging for many project types. The predictable result was a surge in construction defect claims, delay and disruption disputes, and disputes over termination rights under construction contracts.

Data centre construction emerged as a distinct and increasingly important category of construction dispute across the Americas. The explosive investment in digital infrastructure and new government regulations have brought with them novel legal issues around power delivery obligations, Power Usage Effectiveness covenant disputes, commissioning timelines and the allocation of risk, along with more traditional construction-related litigation. Notably, arbitration has emerged as a preferred venue for such disputes, in part because of common cross-border jurisdictional issues.

Financing disputes have also emerged. Stalled mega-projects, including reported infighting among major AI infrastructure partners, have highlighted fractures that may lead to litigation.

VI. The brokerage revolution and platform wars

The aftershocks of the National Association of Realtors (NAR) commission settlement continue to reshape the residential brokerage industry and its litigation landscape. The landmark USD418 million settlement required fundamental changes to co-operative compensation practices, and the Supreme Court’s January 2025 denial of NAR’s bid to block the DOJ investigation left intact the government’s authority to pursue further enforcement action – ensuring that antitrust and governmental scrutiny of the industry is far from concluded. Dozens of follow-on private cases remain in various stages of litigation or settlement across multiple states.

The brokerage platform wars generated their own significant disputes. In June 2025, Compass filed an antitrust lawsuit against Zillow in the Southern District of New York, challenging Zillow’s policy that excluded some listings from its platform. Separately, CoStar sued Zillow in federal court alleging that Zillow used CoStar’s copyrighted property photos without licence, seeking damages potentially exceeding USD1 billion.

VII. Artificial intelligence: the next frontier of real estate disputes

Artificial intelligence has arrived in commercial real estate and has the capacity to generate scores of novel legal disputes. AI tools are now being deployed in property valuation, tenant screening, lease abstracting, environmental due diligence and development feasibility analysis. Each application carries distinct legal risks.

AI-assisted valuation models have drawn scrutiny from both regulators and litigants. When AI-generated valuations underpin loan underwriting, acquisition decisions or CMBS securitisations, errors in the underlying model can produce losses at scale. Tenant screening algorithms have attracted fair housing litigation, with plaintiffs alleging that AI screening tools produce disparate-impact discrimination in violation of the Fair Housing Act. The practical challenge for defendants is the difficulty of explaining, in terms that juries and judges can evaluate, why an opaque model produced a particular output. The litigation risk is substantial and likely underappreciated by those quick to adopt generative AI tools.

VIII. On the horizon: disputes to watch in the coming year

As practitioners look through 2026 and towards 2027, several categories of disputes are positioned to dominate the real estate litigation agenda:

• The maturity wall litigation wave: With over USD1.5 trillion in commercial real estate loans in the United States maturing in 2026, the volume of default, foreclosure, guarantor and bankruptcy proceedings is set to increase materially. Further, as development projects underperform, look for lenders to focus on personal guarantees, including completion guaranties, carry guarantees, environmental indemnities and recourse carve-outs.
• Data centre disputes: As demand for AI infrastructure collides with power delivery constraints, zoning opposition and overbuilding risk, the first major wave of data centre construction and financing disputes is imminent. Expect disputes over power capacity representations, commissioning delays, lease termination rights and more.
• AI liability: The first significant cases involving AI-assisted real estate decisions – valuations, credit approvals, tenant screening – are likely to emerge in the coming cycle. These cases will establish precedents for how courts allocate liability across the AI technology stack.
• NAR and platform antitrust sequel: With DOJ enforcement authority intact and multiple private cases advancing, the antitrust restructuring of residential real estate brokerage is far from complete.
• Private credit disputes: As the private credit asset class has grown to exceed USD2 trillion in assets under management, questions about underwriting standards and documentation practices during the previous cycle’s competitive scramble for deals continue to surface. The prevalence of covenant-lite structures in private credit portfolios means that lenders may lack early warning signals of borrower distress, potentially leading to steeper losses when defaults occur. Disputes are already emerging over whether private credit valuations accurately reflect underlying credit quality.

IX. Conclusion

The landscape of real estate litigation from 2025 through 2026 reflects a market in transition – one marked not by sudden shock but by sustained pressure that has forced owners, lenders and tenants to litigate their way through unprecedented challenges. From distressed debt disputes to AI-powered decision-making risks, the disputes examined in this Guide demonstrate the remarkable resilience and adaptability required of practitioners navigating this terrain. The year ahead promises continued complexity as market participants test the limits of legal remedies and procedures.