Tannenbaum Helpern Syracuse & Hirschtritt, LLP
About Us Careers Contact Us Search
Home Practice Areas Industries Case Results Attorneys Publications Events Press Room

NY Appellate Court Shifts Balance of Power in Commercial Real Estate Leases: Upholds Yellowstone Injunction Waiver

Click here to download PDF

In a recent decision by the New York Appellate Division, Second Department, a tenant’s waiver of its right to file an action for a declaratory judgment and a Yellowstone action was held to be enforceable and not contrary to public policy. The decision effectively allows landlords to include Yellowstone waivers in commercial leases, thereby gaining a substantial edge in subsequent disputes with tenants over alleged lease defaults. Tenants and their counsel should be forewarned about the adverse implications that these waivers create and their effect on a tenant’s rights.

Background

Ever since the seminal decision of the New York Court of Appeals in First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630, 290 N.Y.S.2d 721 (1968), if a landlord served a tenant with a notice to cure a lease default, then the tenant, with relative ease, could file an action for a declaratory judgment and a Yellowstone injunction in New York Supreme Court. For nearly 50 years tenants, through the filing of a Yellowstone action, essentially had the right to a temporary restraining order and eventually a preliminary injunction staying the time to cure. Typically, the tenant may secure a Yellowstone injunction on a simple showing of the existence of a notice to cure and that the time to cure had not expired. The tenant is not required to make any further showing or satisfy any of the traditional standards for the issuance of a preliminary injunction, such as “probable success on the merits”. The Yellowstone injunction not only effectively “tolls” the cure period available to the tenant to cure the default, while the issue of whether a default had occurred is litigated, but allows the dispute with the landlord to be determined in a Supreme Court plenary action (rather than Landlord/Tenant Court) where the Court has equitable powers and the parties can avail themselves of the full range of discovery available in that Court. The “clock” on the tenant’s cure period is not commenced until the Court determines that the alleged default did exist and, in some cases, with the Court determining that the cure period itself should be extended.

Upon the tenant’s cure period expiring following the landlord’s delivery of a notice of default, the landlord is free to serve a notice of termination and commence a summary eviction proceeding in Landlord/Tenant Court. At that juncture, the tenant will lose its lease if it ultimately determined that the default did occur. Unlike the Supreme Court, the Landlord/Tenant Court does not have the power to grant equitable relief, including “tolling” any time to cure.

Accordingly, without the protection of aYellowstone injunction, upon receipt of a notice of default from the landlord, the tenant is faced with the choice of either (a) avoiding the risk of losing the lease, by curing the default in question within the required cure period under the lease at whatever the cost may be (even though the tenant may have real grounds to believe that no default exist under the lease) or (b) risk losing the lease (by allowing the cure period to expire) with the hope that the tenant will convince the Court in the eviction proceeding that no default exists.

With the protection that a Yellowstone injunction provides tenants, landlords have been faced with the prospect of being forced to undertake an expensive and time-consuming litigation in Supreme Court over whether a default under the lease occurred, knowing that if the landlord prevails, the tenant could still, thereafter, cure the default and maintain its lease.

The Second Department Decision

How does a landlord prevent a tenant from getting a Yellowstone injunction? Up until the recent decision of the Appellate Division, Second Department in 159 MP Corp. v. Redbridge Bedford, LLC, 2018 NY Slip Op. 00537 (2d Dep’t. January 31, 2018), most commercial landlords assumed they had no means to prevent a Yellowstone injunction, since it was generally understood by real estate transactional lawyers and litigators that it was highly unlikely that courts would enforce a waiver of such an important right.

The Second Department’s three to one decision in 159 MP Corp. materially changes the commercial leasing landscape. In 159 MP Corp., the landlord was able to get the tenant to agree to a provision in the lease in which the tenant waived the right to file an action for a declaratory judgment and get the court to issue a Yellowstone injunction. The Court rejected the tenant’s argument that the waiver should be unenforceable as a matter of public policy and, after observing that the landlord and tenant apparently had relatively equal bargaining power, enforced the waiver.

The Implications

In the absence of authority from the three other Appellate Division Departments and, of course, the Court of Appeals, 159 MP Corp. is now the law across the State of New York. Specifically, in a commercial lease, a tenant’s waiver of its right to seek aYellowstone injunction will be enforced.

Depending upon bargaining power, landlords may now consider having tenants agree to lease provisions which waive their right to file declaratory judgment actions requesting Yellowstone injunctions and, thereby, forcing tenants to have alleged defaults determined in a summary eviction proceeding in Landlord/Tenant Court without the benefit of the tolling of their time to cure. Tenants and their counsel need to be extremely wary of the impact of this waiver, and should attempt to negotiate them out of the lease to the extent of their bargaining power.

A potential middle ground, which we have recommended over the years (particularly where the tenant has little bargaining power to negotiate the complete removal of a waiver of its right to seek a Yellowstone injunction) is for the tenant to agree to the waiver, but with the tenant being giving time to cure following the determination in a summary proceeding in Landlord/Tenant Court that a default does in fact exist. Only time will tell whether 159 MP Corp. is upheld and, accordingly, it may be advisable for landlords to consider including such a right to cure in the waiver provision at the outset in order to enhance the chances that the waiver will be enforced in the courts.

* * *

For more information on the topic discussed, contact Eric S. Schoenfeld at schoenfeld@thsh.com, Vincent J. Syracuse at syracuse@thsh.com, or contact the attorney with whom you work regularly.

About Tannenbaum Helpern Syracuse & Hirschtritt LLP

Since 1978, Tannenbaum Helpern Syracuse & Hirschtritt LLP has combined a powerful mix of insight, creativity, industry knowledge, senior talent and transaction expertise to successfully guide clients through periods of challenge and opportunity. Our mission is to deliver the highest quality legal services in a practical and efficient manner, bringing to bear the judgment, common sense and expertise of well trained, business minded lawyers. Through our commitment to service and successful results, Tannenbaum Helpern continues to earn the loyalty of our clients and a reputation for excellence. For more information, visit www.thsh.com. Follow us on LinkedIn and Twitter: @THSHLAW.



Publications
BulletPoint
GlobalNote
Business Litigation Bulletin
Employment Notes
Note from the Real Estate Group
THSH E-Alert
Other Publications
Inclement Weather Policy
Other Publications Archive
President Obama Seeks to Broaden Overtime Protections for Employees
Privacy regulation in the United States
The Broad Scope of Franchise Laws: Traps for the Distribution Contract Drafter
Managing Distribution: How to Develop a Corporate Legal Compliance Program
Internet Distribution, E-Commerce and Other Computer Related Issues
Distribution Contracts
What Impact Will FATCA Have on Offshore Hedge Funds and How Should Such Funds Prepare for FATCA Compliance?
The American Taxpayer Relief Act of 2012: What It Means to You
Privilege and the In-House Counsel: Protecting Your Communications Through Proper Registration and Careful Understanding
Are your digital communications protected by attorney-client privilege and what if privileged information is disclosed?
THSH Private Equity Roundtable Summary
Post Grant Review Under the America Invents Act
Bench-Bar Conversation with Justice Carolyn E. Demarest
Proposed Changes Set to Alter Estate and Gift Tax Structure in New York: Time to Make a Gift?
New York City Paid Sick Leave – What Staffing Firms Need to Know
New York State Estate and Gift Tax: The Hidden Costs of Tax Reform
Assessing Never-Examined SEC-Registered Investment Advisers: An SEC NEP Priority
Changes to NY Minimum Wage
NLRB Strikes Again
Bench-Bar Conversations with Justice Elizabeth Emerson
Attorney Professionalism Forum: What should an attorney do when the client wants to present false information and what happens
Reducing the risk of violating competition law
NY Rings in 2015 with a Minimum Wage Increase
Distribution & Agency 2015 - Q&A on the distribution of goods and services in 17 jurisdictions worldwide
Fair Chance Act
Sales Taxes on Construction Projects
Forget Big Brother, What Happens When it’s Opposing Counsel is Doing the Recording?
E-Discovery Identification & Preservation Guide For Lawyers (Version 2.0)
On the Horizon: What to do before selling your staffing business
Striking the Right Encryption Balance after FBI, Apple Fracas
Delaware Court Reiterates Need for Unambiguous Non-Reliance Provisions in M&A Agreements
Finalizing a Divorce? Wait, Just One More Thing …
IRS Proposed Changes to IRC 2704 Affect Business Succession and Estate Planning Valuation Discounts
Trump and the Estate Tax: What We Know
Actual-Intent Fraudulent Transfers and the Crime/Fraud Exception
Proposed NYS DFS Cybersecurity Regulations to Significantly Impact FS Companies
New Guidance for Human Resource Professionals to Avoid Antitrust Violations
Merger and Scènes à Faire: Two Defenses to Substantial Similarity in Copyright Litigation
What’s New in the Revised New York State Proposed Cybersecurity Regulation?
The Law of Insider Trading: A Primer For Investment Managers
Recent Cyber Attack On Law Firms Serves As A Wake-Up Call For Professional Services Firms
The Ambac Decision and the Future of the Common Interest Privilege Under the New York Law
Overview of Data Privacy and Cybersecurity Regulatory Landscape for Investment Advisers and Other Financial Services Companies
Global Ransomware Attack: Basic Security Measures Every Business Should Adopt
Distribution & Agency 2017- Q&A on the distribution of goods and services in 17 jurisdictions worldwide
New Copyright of Resource: Copyright Protection
Attorney Professionalism Forum: Using Per Diem Attorneys Plus An Addendum To The June Forum On Cybersecurity Ethics
Congressional Republicans Propose Sweeping Tax Reform
Attorney Professionalism Forum: Attorney-Client Confidentiality vs. the Customs Agent: Who Wins?
Attorney Professionalism Forum: Confidentiality Issues When Clients Don’t Tell The Truth
Rules for Equity Crowdfunding Effective May 16, 2016
Estate Planning Under Comprehensive Tax Reform
Attorney Professionalism Forum: Attorney Websites, Branding and Using Social Media
Attorney Professionalism Forum: Attorney Advertising And Self Promotion
NY Appellate Court Shifts Balance of Power in Commercial Real Estate Leases: Upholds Yellowstone Injunction Waiver
Recent Developments in Neighbor Litigation
Attorney Professionalism Forum: Communicating With Clients With Diminished Capacity
Attorney Professionalism Forum: Litigation Financing
Groundbreaking bipartisan Congressional Legislation could pave the way to fully legalized Marijuana
Conditions Precedents in Construction Contracts
Distribution & Agency 2018 - Q&A on the distribution of goods and services in 18 jurisdictions worldwide
Data Privacy Alert: California Consumer Privacy Act of 2018 Just Enacted
Attorney Professionalism Forum: Litigation Financing Confidentiality and Marijuana Ethics For Lawyers
U.S. Markets See First Cannabis IPO
NYS Department of Financial Services Issues Guidance to Banks on Servicing the Marijuana Industry
THSH Cyber Alert: GoDaddy the latest to leave S3 Bucket Unsecured
Legalized Adult-Use Marijuana Coming to New York?
NYS and NYC Sexual Harassment Prevention Laws
Are Your Website and Privacy Policy GDPR Compliant?
Attorney Professionalism Forum: Ethics and Best Practices For Law School Clinics
Beware of the AIA Form of Performance Bond
Attorney Professionalism Forum: Referral Fees and Using a Client as an Expert
Anecdotes from World’s Largest B2B Cannabis Conference
Attorney Professionalism Forum: Restrictive Covenants In Agreements Employing Lawyers
Turndown Service with that Hack: Marriott Hotels Announce Massive Data Breach
Attorney Professionalism Forum: Handling Confidential Client Information
Groundbreaking 2018 Farm Bill Portends Huge Changes to U.S. Cannabis and Hemp Industries
Attorney Professionalism Forum: The Challenges of Litigating Against Pro Se Parties
Articles By Topic
HRMinute
Cyber & Privacy Alert
New York Law Journal
Attorney Professionalism Forum
Join Our Mailing List
Publication
Like us on FaceBook Follow us on Twitter Get LinkedIn with us Pin It! Email Us Print this Page

Sitemap |Terms of Use | Privacy | Attorney Advertising

Tannenbaum Helpern Syracuse & Hirschtritt LLP provides legal advice only to individuals or entities with which it has established an attorney-client relationship and such advice is based on the particular facts and circumstances of each matter. Contacting us through this site, or otherwise, will not establish an attorney-client relationship with us. Any e-mail or other communication sent to THSH or its lawyers through this site will not be treated as subject to the attorney-client privilege or as otherwise confidential and you should not include any confidential information in any such communication.