Commercial Tenants Must Remain Aware Of Yellowstone Injunctions

• Posted on: Dec 1 2017

Yellowstone injunctions got their name from First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630, 290 N.Y.S.2d 721 (1968).  A commercial tenant that is faced with the threat of the termination of its commercial lease as a result of a lease default, must follow the procedures set forth in Yellowstone or it runs the risk of losing its lease.  While Yellowstone was decided almost fifty years ago, commercial tenants continue to lose their valuable leases by failing to follow Yellowstone’s relatively simple dictates.

By way of background, the plaintiff in Yellowstone was a supermarket tenant in a shopping center owned by the defendant landlord.  The fire department ordered the landlord to install sprinklers in the cellar of the space rented to the plaintiff.  None of the other units in the center were subject to the fire department order.  The landlord and the tenant disagreed as to who was responsible under the lease to pay for the sprinklers.  The tenant urged that the lease obligated the landlord to make repairs to the leased premises required by governmental authorities.  The landlord argued that the same provision relied upon by the tenant shifted to the tenant, the burden of repairs required by governmental authorities if necessitated by the tenant’s particular use of the leased premises.

After making numerous unsuccessful requests for the tenant to comply with the fire department’s order, the landlord sent the tenant a default notice pursuant to the lease requiring the tenant to cure within ten days.  The notice was received by the tenant on February 27, 1967.  Instead of curing the noticed default, the tenant commenced a declaratory judgment action on February 28, 1967 by the service of a summons only.  On March 9, 1967, the tenant followed-up with the service of a complaint and an order to show cause (without a stay) for a preliminary injunction (which was returnable on March 13, 1967).  On March 10, 1967 (more than ten days after tenant’s receipt of the default notice), the landlord sent the tenant a notice of termination.

The Appellate Division determined that the tenant was indeed responsible under the lease for the sprinkler repairs ordered by the fire department because the sprinklers were necessitated by the tenant’s particular use as the landlord was not ordered to install sprinklers in the cellar of any other tenanted spaces.  Accordingly, the Appellate Division determined that it could have declared the lease terminated.  However, the Court decided not to terminate the lease because the tenant acted in good faith in bringing the declaratory judgment action.  The Appellate Division determined that the lease should remain in force if, within twenty days, the tenant installed a satisfactory fire sprinkler system or reimbursed the landlord if sprinklers were already installed by it.

The Court of Appeals in Yellowstone, however, reversed the Appellate Division’s decision and determined that the lease was terminated in accordance with its terms and could not be revived.  Thus, in holding that the Appellate Division was “powerless” to reform the lease absent “a showing of fraud, mutual mistake or other acceptable basis of reformation” (Yellowstone, 21 N.Y.2d at 637, 290 N.Y.S.2d at 725), the Court of Appeals stated:

Here, the lease had been terminated in strict accordance with its terms.  The tenant did not obtain a temporary restraining order until after the landlord acted.  The temporary restraining order merely preserved the status quo as of the date it was obtained.  Once the Appellate Division determined that the tenant had in fact defaulted by not installing the sprinkler system, the conclusion had to be drawn that the lease was terminated in accordance with its terms.  The Appellate Division could not revive it unless it read into the lease a clause to the effect that the tenant could have an additional 20 days to cure is (sic) default before the landlord could commence summary eviction proceedings.  This the court was powerless to do absence a showing of fraud, mutual mistake or other acceptable basis of reformation.

(Yellowstone, 21 N.Y.2d at 637, 290 N.Y.S.2d at 725.)

Riesenburger Props., LLLP v. Pi Assoc., LLC, 2017 NY Slip Op 08294, __ N.Y.S.3d __ (2^nd Dep’t November 22, 2017), a case decided almost fifty years after Yellowstone, reiterates the importance of following the procedural requirements of Yellowstone.  The Riesenburger plaintiff, the landlord with respect to a commercial lease, sent the Riesenburger defendant, the tenant, fifteen-day notices of default.  The defaults were disputed by the tenant.  After more than fifteen days passed, the tenant was served with a three-day notice of cancellation of its lease.

The Riesenburger landlord commenced an action seeking a judgment of possession.  Thereafter, and more than thirty days after the expiration of the cure period, the tenant moved for a Yellowstone injunction, which the Supreme Court denied the motion as untimely.  The Supreme Court also denied the tenant’s subsequent motion to reargue.

On appeal, the Second Department affirmed the decision below because the tenant failed to “move for injunctive relief until after the cure period expired and after the notice of cancellation of the lease had been served”.  (Riesenburger, 2017 NY Slip Op 08294 (citation omitted).)

In succinctly explaining Yellowstone injunctions, the Second Department stated:

A Yellowstone injunction maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture of the lease.  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, 2017 NY Slip Op 08294 (citation and internal quotation marks omitted).)

The Riesenburger Court also recognized that “[w]here a tenant fails to make a timely request for a temporary restraining order, a court is divested of its power to grant a Yellowstone injunction.”  (Riesenburger, 2017 NY Slip Op 08294 (citation omitted).)

TAKEAWAY

Commercial leases can be an extremely valuable asset of any business.  A commercial tenant that is faced with a default notice, a notice to cure or is otherwise threatened with the termination of its lease, must act quickly to preserve its leasehold interest.  If a commercial tenant waits too long or otherwise fails to follow the relatively easy Yellowstone procedures, the court may be forced to terminate the tenant’s commercial lease.