The COVID-19 pandemic has put New York in triage mode. From overwhelmed hospitals working to save lives with limited resources, to exhausted parents working from home without childcare assistance, everyone has been forced to juggle and prioritize in unprecedented ways, including the state courts. As a result, the state courts are accepting only those new matters deemed "essential" pursuant to Administrative Order 78/20 (AO/78/20), which was enacted on March 22, 2020 and remains in effect indefinitely. Many prospective litigants, whose claims can wait, will suffer no permanent harm, particularly given that a parallel Executive Order has tolled all statutes of limitations. One important matter, however, has fallen through the cracks: an action seeking a Yellowstone injunction, a commercial tenant's only way to challenge an alleged default without forfeiting the ability to cure (and therefore maintain the tenancy) if that challenge fails.

Under a typical commercial lease, the landlord can issue a notice of default threatening lease termination for any number of reasons, including because the tenant has missed a single rent payment—a scenario that is particularly troubling during this period when many businesses have lost revenue due to legally mandated closures. For more than 50 years, a commercial tenant who wanted to challenge a dubious notice of default (e.g., by asserting a legal defense to non-payment of rent based on force majeure or frustration of purpose) without risking forfeiture of the leasehold could count on a so-called Yellowstone injunction, named after a 1968 New York Court of Appeals case. A Yellowstone injunction tolls the cure period in the notice of default and enjoins the landlord from terminating the lease pending determination of the merits of the alleged default. Without such relief, a commercial tenant who wants to challenge a notice of default faces a Hobson's choice: either (1) don't cure the alleged default (e.g., don't pay the rent demanded in the notice of default), in which case the landlord can terminate the lease, and the tenant's only real hope of reviving the lease is to later convince a court that there was no default (see Titleserv v. Zenobio, 210 A.D.2d 311, 313-14 (2d Dept. 1994) ("The purpose of the Yellowstone injunction is to prevent termination of the lease because, once the lease expires, a court is powerless to revive it absent a showing of fraud, mutual mistake, or some other acceptable basis for the reformation of a contract.")); or (2) cure a default that may not exist to avoid the risk of an irreversible termination of the lease and loss of a valuable leasehold. Underscoring the importance of Yellowstone relief, just five months ago, in December 2019, the New York Legislature enacted a statute making it non-waivable in commercial leases. See New York Real Property Law §235-h.

Despite the recognized importance of Yellowstone relief, AO/78/20 has effectively denied this long-standing remedy by barring any new filings except those on a list of "essential proceedings" that omits Yellowstone applications. And while AO/78/20 was premised on the view that it was "consistent with the Governor of New York's recent executive order suspending statutes of limitations in legal matters" (Executive Order No. 202.8), Executive Order 202.8 does not (or at least does not clearly) suspend the normal requirement that a Yellowstone application must be filed within the lease's cure period and before a lease is terminated. Moreover, while Executive Order 202.8 also suspended evictions for 90 days, it did not suspend lease terminations. Thus, a gap exists between AO/78/20 and Executive Order 202.8 that eliminates a critical layer of protection for commercial tenants. It is therefore imperative that the Chief Administrative Judge expand the list of "essential proceedings" to include Yellowstone applications.

The Nature of 'Yellowstone' Relief

The precursor to a Yellowstone proceeding is the landlord's service of a notice of default to a commercial tenant, setting forth a time to cure the default on pain of termination of the lease. If the commercial tenant fails to cure within the time provided, and the landlord issues a notice of termination, the tenant's lease will come to an end, subject only to a successful challenge to the default in a post-termination eviction proceeding.

A Yellowstone injunction preserves the status quo by tolling the cure period and enjoining the landlord from terminating the lease based on an alleged breach until the alleged default's merits are determined. This temporary relief preserves the tenant's ability to cure should the court ultimately determine that the tenant is in breach and thus protects its substantial investment in the leasehold. That is, it "preserve[s] the lease until the merits of the dispute c[an] be settled in court," thereby avoiding a drastic "all or nothing" scenario in which the tenant either successfully proves a lack of default, or "forfeit[s] everything because the lease ha[s] terminated." Post v. 120 East End Ave., 62 N.Y.2d 19, 25 (1984). See generally Daniel Cohen and Fielding Huseth, The Dos and Don'ts of 'Yellowstone' Injunctions: A Brief Survey, NYLJ (Nov. 8, 2017).

Yellowstone injunctions are "commonplace" and "routinely" granted. Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assocs., 93 N.Y.2d 508, 514 (1999). Further, such relief is available even when nonpayment of rent is the only issue. Greystone Owners v. Greystone Bldg., 4 A.D.3d 122, 123 (1st Dept. 2004). To obtain relief, the commercial tenant need only show that it: (1) holds a commercial lease; (2) received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) requested injunctive relief prior to the termination of the lease; and (4) is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises. Graubard, 93 N.Y.2d at 514.

By contrast, the tenant need not show likelihood of success on the merits of its underlying claim that no default occurred. The tenant can simply deny the alleged breach of its lease. See Artcorp v. Citirich Realty, 124 A.D.3d 545, 545 (1st Dept. 2015).

Importantly, however, the timing of a Yellowstone application is critical: It typically must be made "prior to the expiration of the cure period set forth in the lease." Korova Milk Bar of White Plains v. PRE Props., 70 A.D.3d 646, 647 (2d Dept. 2010).

The 'Gap' and the Current Dilemma

The current regime appears to create a gap in the law that imposes upon commercial tenants the very dilemma Yellowstone relief is designed to avoid, i.e., the choice between expending badly needed funds on what may be an unnecessary cure, or receiving a notice of termination. The gap arises as follows.

First, while Executive Order No. 202.8 (as extended, for example, by Executive Order No. 202.14) presently bars eviction proceedings, it does not bar lease terminations based upon nonpayment of rent or other lease default. As such, it does not prevent the devastating consequences that lease termination itself can have for a commercial tenant, even if eviction is delayed. When a lease is terminated, the tenant stands to lose the considerable sums it may have invested in the leasehold (e.g., building a restaurant on the premises) and may face massive damages under the lease as a result of the termination (including, for example, being required to pay any deficiency in rent between what was owed under the lease and what the landlord can collect from another tenant). And, of course, nothing stops the landlord from commencing a future eviction proceeding (i.e., a "holdover" proceeding) based upon a lease termination effectuated while Executive Order No. 202.8 was in effect.

And while the Order tolls "any specific time limit" for filing a legal action that is prescribed by "the procedural laws of the state" (e.g., the CPLR) or "by any other statute, local law, ordinance, order, rule, or regulation, or part thereof," that toll does not apply (or at least clearly apply) to the deadline to file a Yellowstone proceeding—i.e., before the termination of the cure period—because it can be said that this deadline does not arise under any of the preceding categories of enactment but rather is created by common law precedent.

Furthermore, AO/78/20 prohibits any county clerk or any court from accepting for filing any papers in any matter of a type not included on a list of "essential proceedings," attached as Exhibit A to the Order, which does not include Yellowstone proceedings. Exhibit A does have a catch-all provision, category "E(1)," consisting of "any other matter that the court deems essential," id., but this is reserved for "very rare cases." Administrative Order: "Virtual Courts" and Expanded Activity in Certain Pending Nonessential Matters (effective April 13, 2020), NYCourts.gov (emphasis added). Thus, under the current regime, an action seeking Yellowstone relief can proceed only if the assigned judge receiving the application decides that the matter falls in this very narrow category of undefined "other essential matters."

It is, of course, impossible to know how many Yellowstone applications have been declined since AO/78/20 was adopted—because, to our knowledge, there is no public record of such declinations on NYSCEF. But we can say two things, having reviewed recent NYSCEF filings: (1) since March 23, 2020, none of the new cases approved for filing under AO/78/20 in New York, Kings, Bronx, Queens, or Nassau Counties involves a Yellowstone proceeding; and (2) the authors themselves made a Yellowstone application—on behalf of a business that was mandatorily closed by operation of Executive Order No. 202.3 and received a notice of default when it did not timely pay its April rent (which payment it believed was excused by the doctrine of frustration of purpose)—and the application was denied as involving a "non-essential" matter.

Thus, Yellowstone relief appears effectively unavailable at present. That is an unfortunate development. Absent such relief, despite the present ban on eviction proceedings, many commercial tenants may face an outcome that is at least as bad as eviction—termination of their leases based upon their current inability to challenge alleged defaults. The mere fact that the landlord cannot commence an eviction proceeding for some months will provide little solace to the tenant who has lost his valuable leasehold today. Although one could try to file a post-termination Yellowstone application once AO/78/20 is lifted and argue that Executive Order No. 202.8 did in fact toll the deadline for seeking Yellowstone relief (despite the obstacles to such an argument identified above), tenants have no way to test that argument at present. They are thus forced into the same Hobson's choice that a Yellowstone injunction was designed to prevent: spend money now to cure a disputed default that may not exist or challenge the alleged default later at the risk of forfeiting the leasehold. In that light, what makes Yellowstone relief quintessentially "essential" is the fact that, without it, the tenant has no adequate legal remedy if, by making the wrong choice, the tenant loses its lease over an otherwise curable default.

Given the critical importance of Yellowstone relief, the Chief Administrative Judge should immediately add Yellowstone injunctions to the list of essential matters that will be accepted for filing. While we recognize that court resources are limited during this pandemic, it is a questionable state of affairs when all non-essential pending matters (e.g., a routine contract dispute for monetary damages) have been allowed to resume pursuant to recent Administrative Orders signed on April 8 and April 30, 2020, but commercial tenants facing immediate lease termination are still denied access to the courts.

During the pandemic, when many commercial tenants have been ordered to close their businesses, there may be legitimate defenses to nonpayment of rent (including the aforementioned frustration of purposes defense). The availability of Yellowstone relief is now more important than ever to allow commercial tenants to withhold rent and assert these defenses without risking loss of their valuable leasehold. It is time to end the Catch-22 whereby commercial tenants are not allowed to use the well-established Yellowstone process to assert defenses based on COVID-19 because of COVID-19.

Timothy Macht is a partner of Walden Macht & Haran, a commercial litigation firm whose practice areas include commercial real estate litigation. Daniel A. Cohen is a senior counsel and Jacob Gardener is an associate of the firm.