Commercial-Real-Estate-Article-201710241521In 159 MP Corp. v. Redbridge Bedford, LLC, — N.E.3d —-, 2019 WL 1995526 (N.Y.), 2019 N.Y. Slip Op. 03526, a monumental decision that was issued last week, a sharply divided (4-3) Court of Appeals ruled that a commercial tenant waives the right to seek a Yellowstone injunction where its lease contains a specific waiver provision covering “declaratory judgment actions.” For over half a century, the Yellowstone injunction has served as the commercial tenant’s most powerful sword when faced with eviction, which, at least according to the dissenting opinion in 159 MP Corp., may now be totally eviscerated.

The ‘Yellowstone’ Injunction

The Yellowstone injunction was espoused by the Court of Appeals in First National Stores v. Yellowstone Shopping Center, 21 N.Y.2d 630 (1968), which held that a commercial tenant is entitled to a Yellowstone injunction where the tenant: (1) holds a commercial lease; (2) received from the landlord a notice of default, a notice to cure, or a threat of termination of the lease; (3) has requested injunctive relief prior to the expiration of the cure period in the notice; and (4) is ready, willing, and able to cure the default short of vacating the premises. See also Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Associates, 93 N.Y.2d 508 (1999).

Yellowstone injunctions maintain the status quo where the tenant has been served with a notice to cure an alleged lease violation by tolling the curative period contained in the landlord’s notice. The tolling allows the tenant to cure the defect even where there is a subsequent adverse ruling issued against the tenant on the merits in order to avoid forfeiture of a tenant’s valuable leasehold. Since the Yellowstone injunction has served as the single most powerful tool for commercial tenants to protect their leases, its extinguishment could substantially debilitate a tenant’s ability to save their leases in situations where a landlord attempts to recapture the space for a lease infraction, even a trivial one such as a missing exit sign above a doorway. Predictably, landlords seek to recapture commercial spaces with greater frequency when extraneous market factors increase property values in the neighborhood where the space is located; especially where a tenant holds a long term lease, so that the landlord can relet the space to another tenant for higher rents.

Given the elementary showing required for the issuance of a Yellowstone, it comes as no surprise that courts routinely grant commercial tenants Yellowstone relief. In fact, there are only two limited instances where Yellowstone relief is inapplicable: when the eviction is purely based upon the nonpayment of rent, and when the tenant’s insurance policy has lapsed. See Trump on the Ocean v. Ash, 81 A.D.3d 713 (2d Dept. 2011); see also Kyung Sik Kim v. Idylwood, N.Y., 66 A.D.3d 528, 529 (1st Dept. 2009) (holding that the lapse in insurance coverage exposes the landlord to an unknown universe of potential damages, and therefore incapable of a cure).

Aside from upholding the waiver of Yellowstone in commercial leases, of equal import, the decision is a direct broadcast from the Judiciary to businesses that they can freely do business within the state of New York without fear that their agreements will later be overturned by the courts.

Illuminatingly, the 159 MP Corp. decision opens:

In New York, agreements negotiated at arm’s length by sophisticated, counseled parties are generally enforced according to their plain language pursuant to our strong public policy favoring freedom of contract.

The opening paragraph of the decision is instructive, and echoes the central holding of the ruling that knowledgeable business entities that have independent counsel negotiate their leases will be held to the benefit of their bargain. Thus, the decision imparts stability into parties’ contractual agreements, which provides companies a true level of comfort when doing business in New York. This message is particularly significant following the recent fiasco where Amazon’s plans to open corporate headquarters in Long Island City were torpedoed by state and local politicians.

Is the ‘Yellowstone’ Injunction Dead?

While the majority opinion in 159 MP Corp. holds that parties can freely contract to just about anything in their agreements insofar as what they are contracting for is not illegal, the dissent fears that the decision “will result in the elimination of the Yellowstone Injunction,” which violates public policy. In that vein, the dissent writes that following the decision, “commercial building owners and landlords will undoubtedly include a waiver of declaratory and Yellowstone relief in their leases as a matter of course.”

While it is true that landlord’s transactional counsel will invariably seek Yellowstone waivers in all of their commercial leases, the converse is equally true in that tenant’s transactional counsel will seek to remove such provisions from all of their leases. Therefore, going forward, there will be a major battle between the parties’ transactional counsel during the negotiation of commercial leases concerning the waiver of Yellowstone injunctions. However, in light of the current fledgling retail market in New York City, which doesn’t appear to be giving any signs of immediate recovery, commercial tenants may maintain the upper bargaining hand at the negotiation table, thereby successfully keeping out any Yellowstone waiver provisions from their leases. If this is the case, then the Yellowstone injunction will be alive and well. Perhaps once the retail market fully recovers, and there is increased demand for commercial spaces from tenants, then the balance of negotiating power will definitively shift back to landlords, thereby ringing the Yellowstone injunction’s death knell.

In addition, given the extremely narrow ruling, any future shift in the composition of the Court of Appeals could lead to the reversal of the narrow decision in 159 MB Corp., which would provide some much needed solace for commercial tenants, who then would not have to test their luck at the negotiating table to secure Yellowstone relief.

Conclusion

For now, only time will tell whether the Yellowstone injunction is truly dead or alive, but what we do know is that the battle over Yellowstone or declaratory judgment waivers in commercial leases will greatly intensify at the transactional level in the near term. This will certainly lead to heavy negotiations between the parties with regard to these waiver provisions, with landlords asking for explicit blanket Yellowstone waivers, while the tenants seek specific carve-outs for Yellowstone relief. It will be interesting to see how things play out, but there does appear to be some potential life for the Yellowstone injunction following the 159 MP Corp. decision after all.

Massimo F. D’Angelo is a partner at Desiderio, Kaufman & Metz, PC.