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The Appellate Division, First Department, Reiterates That A Commercial Tenant Cannot Obtain A Yellowstone Injunction When Faced With Notice Of An Incurable Default

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  • Posted on: Mar 6 2019

Around two centuries ago, German writer and statesman, Johann Wolfgang von Goethe, wrote that “precaution is better than cure.”  While von Goethe’s quote is applicable to a variety of situations, it seems particularly prescient in the context of Yellowstone injunctions as made plain in the recent decision of the Supreme Court of the State of New York, Appellate Division, First Department, in Bliss World LLC v. 10 West 57th Street Realty LLC, decided on March 5, 2019.

This Blog has previously addressed issues involving Yellowstone injunctions: “Commercial Tenants Must Remain Aware Of Yellowstone Injunctions” and “Appellate Division, Second Department, Enforces Waiver Of Declaratory Relief In Commercial Lease Resulting In The Denial Of Tenant’s Yellowstone Injunction,” so the history of such relief will not be recounted.

By way of brief background, “[t]he purpose of a Yellowstone injunction is to maintain the status quo so that the [commercial] tenant served with notice to cure an alleged lease violation may challenge the propriety of the landlord’s notice while protecting a valuable leasehold interest.”  Garland v. Titan West Associates, 147 A.D.2d 304 (1st Dep’t 1989) (citing, among other cases, First Nat. Stores v. Yellowstone Shopping Center, 21 N.Y.2d 630 (1968)).

“To obtain a Yellowstone injunction, the tenant must demonstrate that (1) it holds a commercial lease, (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease, (3) it requested injunctive relief prior to both the termination of the lease and the expiration of the cure period set forth in the lease and the landlord’s notice to cure, and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.” Riesenburger Props., LLLP v. Pi Assoc., LLC, 155 A.D.3d 984 (citation and internal quotation marks omitted).)

The ability and desire to cure the alleged default is critical to obtaining Yellowstone injunctive relief.  Bliss World.  A plaintiff makes such a showing “by indicating in its motion papers that it is willing to repair any defective condition found by the court and by providing proof of the substantial effort it has already made in addressing the default listed on the notice to cure.”  146 Broadway Assoc., LLC v. Bridgeview at Broadway, LLC, 164 A.D.3d 1193 (2nd Dep’t 2018).

It is axiomatic that incurable defaults are not amenable to Yellowstone injunctive relief.  In Kim v. Idylwood, N.Y., LLC, 66 A.D.3d 528 (1st Dep’t 2009), the tenant sought a Yellowstone injunction following receipt of a default notice predicated on the failure to “previously and continuously maintain[] insurance coverage as required by their commercial lease….”  Kim, 66 A.D.3d at 529 (citations omitted).  In affirming the denial of Yellowstone relief, the Kim court noted the “incurable” nature of the “violation”  and noted that, “[p]laintiffs’ attempt to demonstrate their ability and readiness to cure the alleged violation by procuring, during the cure period, insurance coverage prospectively for the remaining 10 months of their lease term is unavailing, as such policy does not protect defendant against the unknown universe of any claims arising during the period of no insurance coverage.”  Kim, 66 A.D.3d at 529.

Issues similar to those decided in Kim were decided in Bliss World in which the Appellate Division, First Department, reversed supreme court’s grant of tenant’s motion to extend a Yellowstone injunction.  The notice to cure in Bliss World related to, inter alia, the tenant’s failure to procure insurance.  While the Court noted that the “tenant provides various steps that it will take to cure if it is ultimately found to be in material violation of the insurance provisions of the lease[,]…[the] proposed cures [do not] involve any retroactive change in coverage, which means that the alleged defaults raised by the landlord are not susceptible to cure.”  Bliss World (citations omitted).

Simply because the commercial tenant in Bliss World was not entitled to a Yellowstone injunction does not necessarily mean that it will lose its lease because the denial of the Yellowstone injunction, does not resolve the merits of the underlying default notice.  As the Court noted “[t]here is still an ongoing dispute between the parties regarding whether the landlord’s claimed defaults are meritorious, either because they are not really defaults or they are not sufficiently substantial.”  Indeed, the reversal by the First Department in Bliss World “does not relieve the landlord of proving the bona fides of the claimed default or prevent the tenant from defending itself … [as the underlying disputes] will be resolved either in connection with the complaint and counterclaim in this action or in a subsequently commenced commercial summary holdover proceeding.”

The Bliss World Court also rejected the Tenant’s claim that it was still entitled to a preliminary injunction even though it was not entitled to a Yellowstone.  Because the necessary showing to obtain a Yellowstone injunction is far less than that which is required for a preliminary injunction, the Court held that if “the Yellowstone injunction fails, the preliminary injunction does as well.”  The Court continued:

[i]n any event, no injunction is needed to preserve the status quo because the landlord cannot evict the tenant unless and until there is a determination of the merits in the landlord’s favor.  If the tenant prevails, then there will be no eviction.  The right lost by the denial of a Yellowstone injunction is the right to cure any default.

 

TAKEAWAY

The Yellowstone injunction can be effectively employed to preserve a commercial tenant’s rights in a valuable commercial lease when faced with a default notice from a landlord.  However, “precaution is better than cure.”  It is in the tenant’s best interest to take all reasonable steps to avoid lease defaults and related Yellowstone injunction and/or other lease default litigation.  As highlighted by the Bliss World and Kim Courts, among others, it is critically important that commercial tenants avoid incurable defaults, which, if proven by the landlord, could result in the termination of a valuable lease without the right to cure.  

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