Last week, in 159 MP Corp. v. Redbridge Bedford, the Court of Appeals upheld a recent decision of the Second Department that limits the rights of commercial tenants to obtain Yellowstone injunctions.

Yellowstone injunctions as powerful tools for tenants

Since the 1968 Court of Appeals decision in First Nat’l Stores v. Yellowstone Shopping Ctr, 21 N.Y.2d 630 (1968), New York state courts have permitted the granting of Yellowstone injunctions, which extend the notice and cure periods for commercial tenants and prevent the landlord from terminating the lease or commencing a summary proceeding at the conclusion of the cure period.

Yellowstone injunctions have become a powerful tool for tenants to maintain the status quo during the pendency of the tenant’s action. The Court noted that, in practice, Yellowstone injunctions are granted with “far less than the normal showing required” for injunctive relief under CPLR Article 63, citing Post v. 120 E. End Ave., 62 N.Y.2d 19, 25 (1984).

Importantly, Yellowstone injunctive relief can only be granted by a Supreme Court and not a District Court with jurisdiction over a landlord tenant matter. Accordingly, tenants have brought declaratory judgment actions as a mechanism to get their disputes into Supreme Court and obtain Yellowstone injunctions.

Public policy of freedom of contract outweighs public policy reflected in Yellowstone

In 159 MP Corp., the Court of Appeals laid out the framework for commercial landlords to mitigate the risk of a Yellowstone injunction:

• Commercial tenants and landlord, each represented by counsel, entered into an arm’s length, 20-year leasehold agreement to operate a Foodtown supermarket in Kings County. The lease included a provision providing that the tenants waived their “right to bring a declaratory judgment action with respect to any provision of this lease or with respect to any notice sent pursuant to the provisions of this lease.”
• After being served with a notice to cure, the tenants filed an order to show cause for a declaratory judgment that the tenants were not in breach of the lease and a Yellowstone injunction.
• The Supreme Court, Kings County dismissed the tenants’ action, finding that the declaratory judgment was prohibited under the lease agreement and, thus, the Court had no jurisdiction to consider the Yellowstone injunction. The decision of the Supreme Court, Kings County was then affirmed by the Second Department.
• The tenants argued that public policy dictated that the right to declaratory relief could not be waived. The Court of Appeals rejected the argument by holding that contract provisions in contravention of most public policy interests remain enforceable. The Court noted that there was no public policy interest in prohibiting waiver of the commercial tenants’ rights under CPLR 3001 that outweighed the public policy underlying the freedom of contract.

Potential impact on lease provisions

In making its determination, the Court of Appeals stressed that several forms of legal redress were still available to the tenants, including curing the defaults, seeking damages for breach of contract and tort and defending themselves in a summary proceeding in district court. Accordingly, the lease provision was upheld since it only removed the tenants’ preferred legal avenue, instead of foreclosing relief altogether.

Given the Court of Appeals decision, which clarified the broad scope of contractual waivers of rights that are enforceable in New York, landlords will likely insist on provisions prohibiting commercial tenants from seeking declaratory judgments and Yellowstone injunctions, as Judge Wilson predicted in his dissent. Conversely, landlord counsel will need to explain to their clients the impact of agreeing to such provisions on the legal rights many commercial tenants have come to expect in New York since 1968.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Melville, New York City, Rochester, Saratoga Springs, Syracuse, Uniondale and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.