Commercial Real Estate Law: A Guide To Handling Disputes And Litigation

Scarinci Hollenbeck LLC


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Commercial Real estate disputes can arise from a variety of circumstances, including conflicts over property boundaries or encroachments, breaches of real estate contracts or construction...
United States Real Estate and Construction
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Commercial Real estate disputes can arise from a variety of circumstances, including conflicts over property boundaries or encroachments, breaches of real estate contracts or construction agreements, and disagreements between landlords and tenants or licensors and licensees. No matter the cause, litigation involving commercial real estate issues can be complex and costly, which makes it imperative to understand how to navigate the judicial system effectively.

A skilled attorney who understands the common causes of commercial real estate litigation can help clients anticipate potential risks and take proactive steps to minimize them. Because almost all real estate transactions involve written contracts, breach of contract claims are typically at the center of many real estate lawsuits. Therefore, real estate agreements are drafted to minimize potential disputes between the parties. In many cases, the contract (whether it's a lease, purchase, and sale agreement, construction agreement, license agreement, or any other kind of real estate contract) will outline what steps the parties must take to recoup their losses and identify what remedies are available.

Specifically, Landlord-tenant disputes are a frequent source of commercial real estate suits. Claims may involve a tenant failing to make timely rent, additional rent, common area maintenance, or use and occupancy payments. A landlord may also have non-monetary claims due to a tenant's failure to maintain the property as agreed and other lease violations. Conversely, tenants may have similar claims against the landlord if the Landlord doesn't properly maintain the structure of the premises or the tenant is constructively evicted due to a loss. Both landlords and tenants have specific rights and obligations under their lease agreements and New York law.

Fraud and misrepresentation claims are also common in commercial real estate litigation. For instance, you may have a claim if a property seller or landlord provides false information about the premises or fails to disclose material facts about a property that may impact your decision to rent or buy it. Other frequent sources of real estate litigation include conflicts over joint ventures, financing, title issues, environmental contamination, and land use, zoning, and permitting issues.

Key Strategies to Avoid Real Estate Litigation

Commercial real estate litigation can have significant financial implications for the parties. In addition to litigation costs, the uncertainty associated with an ongoing lawsuit can impact property values, as well as the ability to sell or refinance a property. Requests for injunctive relief in commercial real estate actions are common, and when granted by Courts, parties can be prohibited from selling or otherwise using their equitable interest in real estate.

Accordingly, the best way to save both time and money is to prevent a commercial real estate dispute from ever happening in the first place. Here are a few tips:

  • Communicate effectively with all parties: Many legal disputes can be traced back to miscommunication or non-communication by parties and their counsel. That's why it is imperative to document important communications in writing, whether negotiating the purchase and sale of a property, amending the terms of a lease, or reaching an agreement over a property boundary.
  • Execute clear and enforceable real estate agreements: A well-drafted real estate agreement will clearly establish each party's rights and responsibilities, which reduces the risk of disputes. A comprehensive contract also addresses what happens when one party breaches the agreement, which can help avoid protracted litigation. Parties that execute ambiguous real estate contracts do so at their own peril.
  • Conducting comprehensive due diligence: Doing your research and having competent counsel guide you through the due diligence process is essential before completing a commercial real estate transaction, and it can also help avoid disputes later. The exact nature of the due diligence process will vary depending on the type of transaction. For instance, when purchasing a property, key issues to address include a title search, property inspection, environmental risk assessment, zoning and permitting, and litigation history.
  • Retaining the help of skilled professionals: Given the complexity of commercial real estate transactions, consulting with experienced real estate professionals, architects, engineers, contractors, inspectors, accountants, real estate brokers, appraisers, etc., can be invaluable. For instance, a broker can help you understand the current market conditions when looking to purchase or lease commercial space; a licensed inspector or structural engineer can uncover issues with the property that you may not see; and an appraiser can help you accurately determine a property's value.

Navigating Commercial Real Estate Disputes

Even with a detailed and thorough review of your real estate contract, sometimes real estate litigation is unavoidable. However, when faced with a dispute, you do have options. Competent counsel can resolve many real estate disputes through settlement discussions or outside the courtroom through either arbitration or mediation.

Mediation is the most informal form of alternative dispute resolution (ADR). It simply involves using an experienced third party (usually an attorney or a judge) to see if the parties can reach common ground and settle their disputes. While mediation is non-binding, nonetheless, it can be an effective way for parties to reach a resolution without engaging in drawn-out legal proceedings.

Arbitration is another form of ADR, which also has both advantages and disadvantages. Arbitration typically proceeds a bit more quickly than traditional litigation and, therefore, can be less costly. Other advantages of arbitration include the ability to select the arbitration tribunal, venue, procedural rules, and governing law together with the opposing party and their counsel. In the context of real estate disputes, the parties can agree to use an arbitration forum and/or arbitrators that specialize in real estate and, thus, may be more knowledgeable about the industry's complex legal issues. The potential downsides of arbitration include limited avenues for appeal and the inability to pursue certain remedies or rely on certain procedural rules required by Courts. Court decisions are also based on established court precedents, which can make them more predictable than arbitration, which is based on the discretion of the arbitrators, provided that their decisions are not arbitrary and capricious.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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