The Court of Appeals issued a significant real estate decision showcasing a debate on the freedom to contract and the circumstances under which parties’ negotiated contract terms will be disregarded based on public policy grounds. In 159 MP Corp., et al., v. Redbridge Bedford, LLC, the court issued a 4-3 split decision enforcing a contractual provision waiving a commercial tenant’s right to bring a declaratory judgment regarding the lease terms. The waiver of the declaratory judgment suit also operates as a waiver of the right to seek a “Yellowstone injunction,” which tolls the cure period for an alleged breach of a lease until the declaratory judgment is issued, allowing the tenant to occupy the rented space while the parties’ rights are being determined and, if the tenant loses on the merits, an opportunity to cure the defect. The majority, in a decision authored by Chief Judge DiFiore and joined by Judges Stein, Garcia and Feinman, held that the lease contract should be enforced as written and the waiver should be given full effect. The dissent, authored by Judge Wilson and joined by Judges Rivera and Fahey, argued that the public policy favoring declaratory judgments should trump the policy favoring freedom of contract.

The case concerns leases for a large grocery store, Foodtown, occupying 13,000 square feet in the Williamsburg section of Brooklyn. The tenants, 159 MP Corp. and 240 Bedford Ave Realty Holding Corp. (collectively, “MP”), signed leases in 2010, each with a 20-year period with an option to renew for another 10 years after that. The leases were originally signed with BFN Realty Associates LLC, which sold the building to defendant Redbridge Bedford, LLC in 2012. In 2014, Redbridge sent MP notices of default with 15 days to cure. The default notices stated that the tenant had built out the premises without obtaining proper permits; that the configuration of the store violated egress requirements under the lease and posed a fire hazard; that the tenant had illegally combined premises in configuring the store; that the ventilation system violated the lease and was a nuisance; and that the tenant failed to provide the fire department with inspection access to the sprinkler system.