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By: Ronald S. Greenberg, Natan Hamerman, Daniel Lennard, and Zachary C. Naidich, Kramer Levin Naftais & Frankel LLP
FOR MORE THAN 50 YEARS, A COMMERCIAL TENANT IN New York that was threatened with eviction could count on obtaining a Yellowstone injunction tolling its time to cure alleged lease defaults while challenging the legitimacy of those defaults. The result was that a commercial tenant could bring such a challenge without risking its lease should it be found in default. That all changed in May 2019, when the New York Court of Appeals ruled that commercial leases waiving the right to seek Yellowstone injunctions did not violate public policy. Seven months after that decision, the status quo ante has been restored, with the New York State Legislature enacting a law stating that such waivers are “null and void as against public policy.”1 This article discusses the importance of Yellowstone injunctions to commercial tenants in New York and the significance of the Legislature’s decision to revive them. A Yellowstone injunction—named after the Court of Appeals decision in First Nat. Stores, Inc. v. Yellowstone Shopping Ctr., Inc.2—is available to a commercial tenant that has been issued a notice of default and disputes that it is in default during the cure period, but is willing and able to cure if the default is found to exist. A Yellowstone injunction stops the running of the cure period during the litigation. Without an injunction, a commercial tenant must choose between challenging the default and trying to cure it. There is rarely time to do both. With the injunction, a tenant can challenge the default while preserving the opportunity to cure if the court ultimately finds in favor of the landlord. Moreover, a tenant seeking a Yellowstone injunction does not need to satisfy the typical elements required for a preliminary injunction, such as likelihood of success on the merits and irreparable harm.3
A Yellowstone injunction is typically sought in support of a declaratory judgment action, brought in New York State Supreme Court, which asks the court to declare that the tenant is not in default. New York courts have been issuing Yellowstone injunctions with regularity for decades, and they have become a generally accepted part of New York’s commercial real estate practice. That all changed last May, when the New York Court of Appeals, in 159 MP Corp. v. Redbridge Bedford, LLC,4 enforced a lease provision waiving a tenant’s right to bring a declaratory judgment action, which necessarily prevented the tenant from obtaining a Yellowstone injunction. The court justified its decision by noting that “the Legislature has made certain rights nonwaivable in the context of landlord-tenant law . . . but has not precluded a commercial tenant’s waiver of interim Yellowstone relief.”5
The court’s decision in Redbridge turned Yellowstone injunctions into a hotly contested point of lease negotiations. Commercial tenants attempted to retain their ability to obtain Yellowstone injunctions, giving them an important tool to dispute the merits of alleged defaults while mitigating the risk of eviction. Landlords, for obvious reasons, negotiated to have their leases contain Yellowstone waivers. As a practical matter, inclusion of Yellowstone waivers in commercial leases became a matter of negotiating leverage.
However, just seven months after the Redbridge decision, Yellowstone waivers have been rendered null and void. On December 20, 2019, the New York State Legislature enacted N.Y. Real Prop. Law § 235-h, dictating: “No commercial lease shall contain any provision waiving or prohibiting the right of any tenant to bring a declaratory judgment action with respect to any provision, term or condition of such commercial lease.” The Legislature enacted the new law as a direct response to Redbridge. In explaining its justification for Section 235-h, the Legislature cited the Appellate Division, Second Department’s decision in Redbridge, which the Court of Appeals later affirmed, and noted that the Second Department “found that the legislature ‘has not enacted any specific or blanket statutory provision prohibiting as void or unenforceable a tenant’s waiver of declaratory judgment remedies.’”6 The Legislature explained that “[t]his legislation seeks to enact such a provision as a matter of public policy and restore the right of commercial tenants to cure under a declaratory judgment action as has been the practice since 1968.”7
Some might argue that the wording of the statute—which only explicitly addresses “declaratory judgment action[s],” not Yellowstone injunctions—leaves the door open for lease provisions that continue to restrict Yellowstone rights. For example, we expect at some point an enterprising landlord will attempt to enforce a lease provision that either bars injunctive relief altogether or makes injunctions only obtainable under the more rigorous standards applicable to ordinary injunctions, rather than the easier-to-satisfy Yellowstone requirements. However, given the Legislature’s clear desire to resurrect Yellowstone, as reflected in Section 235-h’s legislative history, we expect the courts will reject any landlord-imposed hurdles making Yellowstone relief effectively impossible for a tenant to obtain.
Ronald S. Greenberg, chair of Kramer Levin’s Real Estate Litigation practice group, is an accomplished litigator with 30 years of experience litigating complex business and real estate disputes, at both the trial and appellate levels. Ron represents banks and developers as well as commercial landlords and tenants in real estate matters and counsels individual and corporate clients in a wide variety of commercial disputes.
Natan Hamerman is an experienced trial lawyer with Kramer Levin who litigates a diverse range of civil and complex commercial cases, with particular focus on bankruptcy and real estate-related litigation. Natan represents developers, lenders, landlords, and tenants in a broad range of disputes.
Daniel Lennard is a litigator at Kramer Levin who works on civil litigation, including securities, antitrust, and real estate litigation, as well as white collar criminal and regulatory defense. Daniel has assisted in the defense of individuals and corporations in a variety of sensitive and high-profile matters.
Zachary C. Naidich works on civil and antitrust litigation matters at Kramer Levin. He also commits significant time to pro bono matters, including housing and tort actions in state and federal court.
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RESEARCH PATH: Real Estate > Commercial Leasing > Landlord-Tenant Litigation > Articles
For a discussion on the New York Court of Appeals ruling that a commercial tenant could waive its right to seek a Yellowstone injunction, see
> NEW YORK COURT OF APPEALS UPHOLDS WAIVER OF TENANT’S RIGHT TO SEEK YELLOWSTONE INJUNCTION: CLIENT ALERT DIGEST
For guidance on the office leasing process in New York, see
> OFFICE LEASING RESOURCE KIT (NY)
RESEARCH PATH: Real Estate > Commercial Leasing > Lease Agreement > Practice Notes
For assistance in drafting a lease for a mixed-use building, shopping center, or stand-alone property in New York, see
> RETAIL LEASE AGREEMENT (LONG FORM) (NY)
RESEARCH PATH: Real Estate > Commercial Leasing > Lease Agreement > Forms
1. N.Y. Real Prop. Law § 235-h. 2. 21 N.Y.2d 630 (1968). 3. See Ameurasia Int’l Co. v. Finch Realty Co., 90 A.D.2d 760 (1st Dept. 1982). 4. 33 N.Y.3d 353 (2019). 5. Id. at 367. 6. 2019 Legis. Bill Hist. NY A.B. 2554 quoting 159 MP Corp. v. Redbridge Bedford, LLC, 160 A.D.3d 176 (2d Dept. 2018). 7. 2019 Legis. Bill Hist. NY A.B. 2554 quoting 159 MP Corp. v. Redbridge Bedford, LLC, 160 A.D.3d 176 (2d Dept. 2018).