Start Spreading the News: New York Reinstates Yellowstone Injunctions

In 2018, we wrote about the case 159 MP Corp. v. Redbridge Bedford, LLC, No. 2015-01523 (N.Y. App. Div. Jan. 31, 2018), which—surprisingly to some—permitted a landlord to enforce a contractual waiver of what had been considered a well-established common law remedy for commercial tenants in New York for the last fifty years.  That case involved a tenant’s right to a Yellowstone injunction (a mechanism for tenants to toll their cure period during the adjudication of a dispute arising from an alleged default under a lease), and the court held that a landlord in a commercial lease may prohibit a tenant from pursuing a Yellowstone injunction if the tenant expressly waived such right in the lease. However, last month, the New York State Legislature passed a new law re-establishing the previous status quo by prohibiting the enforcement of a Yellowstone injunction waiver.

Since 1968, the “Yellowstone injunction”, a New York specific remedy named after the seminal case First Nat. Stores, Inc. v. Yellowstone Shopping Ctr., Inc., 21 N.Y.2d 630 (1968), has allowed a commercial tenant in the state of New York, when served with a notice of default and threatened with eviction, to toll the running of the cure period for the default until a court can determine whether in fact a default exists and whether it is the tenant’s responsibility to cure. The Yellowstone injunction is a valuable defense tool for tenants because it shields tenants from having to choose between either challenging the validity of a default or trying to cure it within the prescribed time frame, as there is rarely enough time to accomplish both.  Ordinarily, tenants in New York can avail themselves of the Yellowstone injunction merely by demonstrating that: (1) they are a party to a commercial lease, (2) the landlord has provided the tenant with a notice alleging default, which provides a time frame for the tenant to cure, (3) the expiration of the time frame has not passed, and (4) if it is determined that a default exists, the tenant is ready, willing, and able to cure the default. See Redbridge. Without the protection of a Yellowstone injunction, if a tenant seeks to challenge a notice of default and loses, the tenant will face eviction if the cure period—which in some cases can be as short as a few days—has lapsed during the judicial proceedings.

In recent years, in an effort to prevent tenants from seeking Yellowstone injunctions, landlords began to negotiate waivers of their tenants’ right to seek declaratory judgement (the underlying action for which the Yellowstone injunction would be issued) into the lease documents, and the inclusion of such waivers in commercial leases became a hotly contested issue. Eventually, the debate as to whether such waivers were appropriate came to a head in January 2018 in the Redbridge case, where the plaintiff argued that Yellowstone waivers were unenforceable as a matter of public policy. However, the court disagreed and found that the controlling statute (Article 7 (Landlord and Tenant) of New York Real Property) was silent on the issue of whether it was appropriate to waive Yellowstone injunction protection and thus sophisticated parties to a particular transaction were free to contract as they saw fit.

In response to the court’s ruling in Redbridge that Yellowstone waivers were permissible and not contrary to public policy, the New York State Legislature passed a new law on December 20, 2019: New York Real Property §235-h, which states that “[n]o commercial lease shall contain any provision waiving or prohibiting the right of any tenant to bring a declaratory judgement action with respect to any provision, term or condition of such commercial lease. The inclusion of any such waiver provision in a commercial lease shall be null and void as against public policy.” In deciding to enact this legislation the New York State Assembly reasoned that:

“The ability to cure through [a declaratory judgement action] protects commercial tenants from landlords seeking to remove tenants in the middle of a lease period without appropriate ability to cure or [seek] judicial review. To allow waiver clauses of the Yellowstone injunction [would] be disruptive to commerce, unfair to commercial tenants, and allow landlords to use minor lease issues as a method to remove and replace tenants in the middle of lease terms. [Moreover] commercial landlords would be able to prematurely terminate leases whenever they wanted to force a tenant out, whether the default was legitimate or not, and the tenant who agreed to the waiver would have no recourse.”[1]

Now that the New York State Legislature passed §235-h, landlords may no longer enforce Yellowstone waivers and any such waiver will be deemed null and void. Tenants in New York can now take comfort knowing they will not be caught between a rock and a hard place when it comes to disputing an alleged lease default.

[1] New York Assembly Bill No. 2554, New York Two Hundred Forty-Second Legislative Session.

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