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Yellowstone Injunctions Have Nothing to Do With Kevin Costner’s Leases

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  • Posted on: Feb 10 2023

By Jonathan H. Freiberger

A commercial lease can be a valuable asset for a business.  Accordingly, a tenant must be mindful of its rights in the face of a default/cure notice from a landlord.  Generally, a tenant that wants to retain its lease and disputes a curable default, or cannot remedy a curable default within the contractual cure period, should consider obtaining a Yellowstone injunction.  [Eds. Note: this Blog has previously discussed Yellowstone injunctions here, here, here, and here.]  

The “purpose of a Yellowstone injunction is to allow a tenant confronted by a threat of termination of the lease to obtain a stay tolling the running of the cure period so that, after a determination of the merits, the tenant may cure the defect and avoid a forfeiture of the leasehold.”  Empire State Bldg. Assocs. V. Trump Empire State Partners, 245 A.D.2d 225, 227 (1st Dep’t 1997) (citations omitted).  “In order to obtain a Yellowstone injunction, the commercial 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 the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.” Id., at 227-28 (citations omitted).

Yellowstone injunctions got their name from First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630 (1968).  The landlord in Yellowstone was ordered by the fire department to install sprinklers in tenant’s space but there was a disagreement as to whether under the lease landlord or tenant was responsible for same.  After unsuccessfully obtaining compliance from tenant, landlord sent a default notice with a ten-day notice to cure.  The tenant did not cure and, instead, commenced a declaratory judgment action to determine responsibility for the installation of the sprinklers.  Tenant also brought an order to show cause for a preliminary injunction, without seeking a stay, that was returnable after the expiration of the cure period.  Before the return date of the OSC, and after the expiration of the cure period, the landlord terminated the lease.

The Second Department in Yellowstone determined that tenant was responsible to install the sprinklers, but that the lease should not have been terminated because of tenant’s good faith in bringing the declaratory judgment action.  The Court of Appeals reversed, holding that once tenant’s leasehold interest was terminated, it could not be revived.  The tenant should have obtained a temporary restraining order to “preserve[] the status quo” prior to the end of the cure period – absent which, the Court was powerless to revive the lease post-termination. Yellowstone, 21 N.Y.2d at 637.

On February 7, 2023, the First Department, in Elite Wine & Spirits LLC v. Michelangelo Preservation LLC, affirmed supreme court’s grant of a Yellowstone injunction to plaintiff, tenant.  According to the Court, the “issue [in Elite] is whether the record supports Supreme Court’s finding that tenant engaged in good-faith efforts to remedy the defaults alleged by defendant-landlord, so as to support application of the extended cure period provided for in the subject lease.”  The Court agreed with supreme court and affirmed its “exercise[] [of] discretion in granting tenant’s Yellowstone application.

The landlord in Elite issued a 20-day notice to cure as to nine alleged defaults – seven of which were resolved. Tenant disputed the remaining two – a cracked sidewalk and an entrance step in violation of the Americans with Disabilities Act (the “ADA”).  Thereafter, landlord issued a second notice of default describing the crack and ADA issues “in greater detail” and adding that the sidewalk had been raised in a dangerous manner and, accordingly, a slab had to be removed and replaced.  In response, tenant advised that: the crack had been repaired; the raised sidewalk was caused by Con Edison (who should fix same); and, as to the ADA issue, there was insufficient room to install a permanent ramp because Con Edison equipment was in the way so instead, it “acquired a custom-made ‘removable ADA ramp,’ and placed a ‘notice on the window advising patrons of the availability of’ the ramp.”

In response, landlord issued a third and “final notice of default” claiming that the crack repair was improper, the raised slab was tenant’s responsibility notwithstanding its potential claim against Con Edison and the movable ramp was not ADA compliant.  The final notice further stated that tenant had previously received the “required” 20-day period to cure alleged defaults as provided under the lease. Landlord nonetheless expressly gave tenant an additional 10 days to cure the alleged defaults.”  The purported 10-day cure period passed, and landlord did nothing for two and one-half months at which time a “Notice of Cancellation” was issued due to the alleged failure to cure the crack, slab and ADA issues and advising that the lease would be cancelled in 10 days.

Prior to the termination date, tenant commenced an action seeking declaratory relief and in which it sought, by order to show cause, a Yellowstone injunction staying the cancellation of the lease.  Hearings were held, after which supreme court issued a preliminary injunction finding that “tenant timely addressed all nine defaults alleged in the first notice, immediately remedying seven. The court stated that in the second notice, landlord clarified the nature of the alleged defaults on the remaining sidewalk and step issues. By April 17, 2019, tenant attempted to cure by constructing a removable ramp and filling in a sidewalk crack. The court credited tenant’s explanation that it did not immediately repair the raised slab, believing that this was the responsibility of Con Edison.”  Supreme court further noted that tenant “was consistently responsive to Landlord’s requests and made good faith efforts to comply with same [and] that the lease itself provides for an indefinite period to cure where tenant is making good faith efforts to remedy the default….”  Supreme court, therefore, “held that tenant satisfied the requirements for a Yellowstone injunction.”

In affirming, the First Department stated that:

The lease provides an indefinite cure period where the alleged default cannot reasonably be remedied within the base 20-day cure period and tenant has demonstrated a good faith effort to remedy the default. Supreme Court found, after holding a three-day hearing, that issues of fact exist as to the nature of the alleged defaults and the effectiveness of tenant’s efforts to remedy them. These open questions include the repair of the raised slab and the feasibility of construction of a permanent ramp, as well as the suitability of the removable ramp to alternatively satisfy ADA requirements. While landlord disputes the effectiveness of tenant’s efforts, this merely generates issues of fact that Supreme Court properly declined to resolve within the context of the Yellowstone application.  [Citations omitted.]

The Court also rejected landlord’s claim that tenant’s Yellowstone application was outside 20-day cure period of the original notice because “[l]andlord’s argument ignores the lease’s provision for an extended cure period, and landlord itself extended the cure periods in its successive and distinct default notices.”  (Citations omitted.)

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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