The state’s highest court handed down a decision Tuesday that could allow commercial building owners and landlords to restrict the number of options for their tenants to seek relief through litigation when faced with claims of violating their lease.
The Court of Appeals, in a split decision, ruled that part of a lease signed by a commercial tenant in Brooklyn that precluded them from asking a judge to assess whether they violated their lease or not was executed lawfully and completely enforceable under state law.
Chief Judge Janet DiFiore wrote in the court’s majority opinion that the freedom to execute a contract in New York outweighed the tenant’s claims that the provision of the lease wasn’t lawful.
“Here, the declaratory judgment waiver is clear and unambiguous, was adopted by sophisticated parties negotiating at arm’s length, and does not violate the type of public policy interest that would outweigh the strong public policy in favor of freedom of contract,” DiFiore wrote.
Jonathan Lupkin, from Lupkin PLLC in Manhattan, represented Redbridge Bedford LLC, the winner in the case.
“It is, in my view, gratifying to see the Court of Appeals has vindicated the long-standing right of parties, specifically sophisticated parties, to chart their own destinies through the freedom of contract,” Lupkin said.
The lawsuit was brought by 159 MP Corp. and 240 Bedford Ave Realty Corp., the lessees, against Redbridge, which owns the building in Brooklyn. Those businesses had entered into two leases for a supermarket and storage space in the building in 2010.
Those leases included a rider, which was covered with handwritten changes, that ultimately led to the litigation. The provision waived the right of the tenants to bring a declaratory judgment action against the building owner over a part of the lease, instead opting for adjudication through summary proceedings.
“Tenant waives its right to bring a declaratory judgement action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease,” the rider said.
Redbridge bought the building from its previous owner in 2012, during which the tenants transferred over. Two years later, Redbridge sent notices to 159 MP Corp. and 240 Bedford Ave Realty Corp. saying they had allegedly violated parts of their lease. Redbridge gave the companies 15 days to cure those violations before their tenancies would be terminated.
The companies then sued Redbridge, seeking a declaration from the court that there were no lease violations, which would allow them to stay in the space without curing the alleged breaches. They them moved for a so-called Yellowstone injunction, which would have allowed the companies to pause the cure period while the court considered their request for declaratory judgment.
In other words, the companies wanted to block Redbridge from terminating their lease while the court considered whether to assess if they had actually violated the terms of their lease.
But Redbridge moved to dismiss the lawsuit based on the waiver those companies had signed in 2010. The waiver, Redbridge argued, had specifically barred the companies from seeking declaratory judgment from the court. That meant they couldn’t seek a Yellowstone injunction, according to Redbridge, because there would be no declaratory judgment for the court to consider.
The attorney for 159 MP Corp. and 240 Bedford Ave Realty Corp. told Court of Appeals judges in March that an adverse decision would make it commonplace for lawyers representing landlords and building owners to include such a waiver in contracts.
“If you allow this to happen, it will increase, it’ll become standard practice in New York, and that’s why this decision has such a monumental impact,” Joshua Ehrlich, a solo practitioner in Albany, argued in March.
Ehrlich declined to comment on the decision when reached by phone on Tuesday.
Associate Judge Rowan Wilson offered a dissent, which drew concurrences from two other judges. He argued the majority rule would do away with the decades-old practice of using a Yellowstone injunction because attorneys will start including similar waivers in agreements to avoid future litigation against their clients.
“The majority’s decision today will result in the elimination of the ‘Yellowstone injunction’, a common-law precedent that has existed in New York for more than half a century,” Wilson wrote. “After this decision, commercial building owners and landlords will undoubtedly include a waiver of declaratory and Yellowstone relief in their leases as a matter of course.”
Wilson urged state lawmakers to act in response to the decision by moving to guarantee that tenants can seek declaratory judgment, which would make a waiver in contracts similar to the one in question unenforceable.
“The majority’s decision will alter the landscape of landlord-tenant law, and of neighborhoods, throughout the state for decades to come, absent legislative action,” Wilson wrote.
Wilson was joined on the dissent by Associates Judges Eugene Fahey and Jenny Rivera. DiFiore was joined on the majority opinion by Associate Judges Leslie Stein, Michael Garcia, and Paul Feinman.