The End of an Era in New York Commercial Lease Disputes?
May 28, 2019
Types : Alerts
Commercial landlords in New York are very familiar with Yellowstone injunctions. A Yellowstone injunction, aptly named for the landmark case National Stores, Inc. v. Yellowstone Shopping Center, 21 N.Y.2d 630 (1968), is a judicially created proceeding, filed in the New York Supreme court, whereby a commercial tenant seeks to enjoin the landlord from evicting a tenant for an alleged breach of the lease. The Yellowstone injunction preserves the status quo while the tenant challenges the validity of the notice to cure served by Landlord. Yellowstone injunctions are “routinely” granted and courts “accepted far less than the normal showing required for preliminary injunctive relief.” Post v. 120 E. End Ave., 62 N.Y.2d 19, 25 (1984).
Most, if not all, commercial leases contain default provisions, which require a landlord to afford tenant notice and opportunity to cure a complained of condition after service upon the tenant of a notice to cure. Once the period of time set forth in the notice to cure expires, the landlord can proceed to terminate the tenant’s lease by serving a termination notice, which is then followed by a summary proceeding in the civil landlord-tenant court seeking to evict the tenant. In an effort to avoid such adverse consequences, a tenant served with a notice to cure will often preemptively commence an action in the Supreme Court of the county where the property is located in order to extend a tenant’s time to cure via a Yellowstone injunction. Once a Yellowstone injunction is granted, the tenant’s cure period will not run until the Supreme Court determines whether a default exists and often the cure period will be extended.
Earlier this month, in 159 MP Corp. v. Redbridge Bedford 2019 NY Slip Op 03526 (May 7, 2019), the Court of Appeals upheld a recent decision by the Second Department that limits the rights of commercial tenants to obtain Yellowstone injunctions. The facts of 159 MP Corp. concerned a 13,000 square foot supermarket, where the lease in question contained a provision whereby the tenant agreed to waive the right to commence a declaratory judgment action as to the terms of the lease. After extensive discussion, the Court of Appeals upheld the contractual declaratory judgment waiver contained in the lease and determined that the “[f]reedom of contract prevails in an arm’s length transaction between sophisticated parties…, and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain.” 159 MP Corp. quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 695 (1995). In a strongly worded opinion, the dissent noted, “After this decision, commercial building owners and landlords will undoubted include a waiver of declaratory and Yellowstone relief in their leases as a matter of course.” 159 MP Corp.(dissent).
Going forward, Landlord’s seeking to avoid Yellowstone injunctions will need to take affirmative steps in their leases to ensure that the requisite waiver language is included.