Yellowstone Update: Recent Decisions By the First and Second Departments
(Victor M. Metsch is a Senior Litigation/ADR partner at Hartman & Craven LLP. He can be reached at vmetsch@hartmancraven.com. He maintains a website at www.LegalVictor.net and can be found on Twitter at @LegalVictor1).
This article was originally published by Thomson Reuters.
The Yellowstone Legal Template
The purpose of Yellowstone relief on the one hand, and the legal standards therefor, on the other, are well established:
The purpose of a Yellowstone injunction is to maintain the status quo so that the tenant may challenge the landlord’s assessment of its rights without the tenant, during the pendency of the action, forfeiting its valuable property interest in the lease…As such, it may be granted on less than the normal showing required for preliminary injunctive relief…”
Lexington Ave. & 42nd St. Corp. v. 380 Lexchamp Operating, Inc., 205 A.D.2d 421, 613 N.Y.S.2d 402 (1st Dept. 1994); Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assoc., 93 N.Y.2d 508 (1999), 693 N.Y.S.2d 91 (1999); Garland v. Titan West Associates, 147 A.D.2d 304, 543 N.Y.S.2d 56 (1st Dept 1989).
To obtain a Yellowstone injunction, the tenant-movant must show that: (1) it holds a commercial lease; (2) the landlord served upon the tenant-movant a notice to cure or notice of defect, or that it faces threat of lease termination; (3) it sought 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 other than vacating the subject premises. Lexington Ave. & 42nd St. Corp. v. 380 Lexchamp Operating, Inc., supra; 225 E. 36th St Garage Corp. v. 221 E. 36th Owners Corp., 211 A.D.2d 420, 621 N.Y.S.2d 302 (1st Dept 1995).
A plaintiff makes a sufficient showing to warrant the granting of a Yellowstone injunction where plaintiff: (1) holds a commercial lease; (2) faces the threat of lease termination in that plaintiff received from defendant a notice to cure threatening lease termination if the alleged violation is not cured; (3) timely requested injunctive relief prior to the effective termination date; and (4) is prepared and maintains the desire and ability to cure any violation determined by this court, by a means other than vacating the subject premises. Terosal Props. v. Bellino, 257 A.D.2d 568, 683 N.Y.S.2d 581 (2nd Dept 1999); Lee v. TT & PP Main St. Rlty., Corp., 286 A.D.2d 665,729 N.Y.S2d 775 (2nd Dept 2001).
An injunction staying the cure period is proper to preserve the status quo and prevent the forfeiture of plaintiff’s valuable interest in the leasehold, prior to the adjudication of the parties’ rights. Lexington Ave. & 42nd St. Corp. v. 380 LexChamp Operating, Inc., supra; Caspi v. Madison 70 Assoc., Inc., 85 A.D.2d 583, 445 N.Y.S.2d 459 (1st Dept 1981).
Because “the law does not favor [the] forfeiture of…leasehold[s]…” [225 E. 36th St. Garage Corp. v 221 E. 36th Owners Corp., supra; Zaid Theatre Corp. v Sona Rlty Co., 18 A.D.3d 352, 797 N.Y.S.2d 434 (1st Dept 2005)], injunctive relief is rendered to maintain the status quo pending a determination of the parties’ claims and defenses.
In accordance with CPLR 6212(b), however, the granting of the Yellowstone injunction tolling the cure period may be conditioned upon plaintiff posting a bond, and the payment of monthly rent, to protect defendant if it is ultimately determined that injunctive relief was not appropriate. 61 West 62nd Owners Corp. v. Harness Apartment Owners Corp., 173 A.D.2d 372, 570 N.Y.S.2d 8 (1st Dept 1991).
Expiration of the Cure Period
Korova Milk Bar of White Plains, Inc. v. PRE Properties, LLC, 70 A.D.3d 646; 894 N.Y.S.2d 499, (2nd Dept. 2010):
Defendant/landlord served plaintiff/tenant with a notice to cure alleging, among other things, that “on several occasions the plaintiff allowed its patrons to engage in illegal conduct at the premises”. Landlord served tenant with a notice to cure with a cure period ending July 15, 2009. Tenant wrote a letter “questioning the proprietary of the notice to cure”. Landlord did not respond to the letter. On July 22, 2009, landlord served a notice terminating the lease.
Tenant commenced a Yellowstone proceeding on July 27 2009 “nearly two weeks after the expiration of the cure period[.]”. Supreme Court (Scheinkman, J.) declined to grant a temporary restraining order prohibiting landlord from terminating the lease and tolling the tenant’s time to cure. Supreme Court subsequently denied the tenant’s motion for a Yellowstone injunction “concluding that the motion was untimely and that the Supreme Court was without authority to extend the previously expired cure period.” The Second Department affirmed stating:
Since courts cannot reinstate a lease after the lapse of time specified to cure a default…an application for Yellowstone relief must be made not only before the termination of the subject lease – whether that termination occurs as a result of the expiration of the term of the lease, or is effectuated by virtue of the landlord’s proper and valid service of a notice of termination upon the tenant after the expiration of the cure period – but must also be made prior to the expiration of the cure period set forth in the lease and the landlord’s notice to cure…To the extent that any of our prior decisions may be construed as fixing a different or longer period of time in which an application for Yellowstone relief must be made…we expressly reject any such construction.
When 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…Here, the Supreme Court properly denied the plaintiff’s motion for a Yellowstone injunction. Contrary to the plaintiff’s contention, its motion for Yellowstone relief was untimely since it commenced the action after the defendant properly served a notice to cure, the cure period expired, and the lease was terminated pursuant to a validly served notice of termination…
Goldcrest Realty Company v. 61 Bronx River Road. Owners, Inc., 83 A.D.3d 129, 920 N.Y.S.2d 206, (2nd Dept. 2011):
The Second Department was called upon to address the issue of whether Korova Milk Bar “should not apply to applications for Yellowstone relief made by owners of unsold shares in residential cooperatives”. Plaintiff/residential cooperative apartment unit owner sought Yellowstone relief against defendant/housing cooperative. Plaintiff applied for Yellowstone relief after the cure period ended but before the proprietary lease was terminated: “…the Supreme Court suggested that a motion for Yellowstone injunction is timely so long as it is made prior to the termination of the lease[.]”.
The Appellate Division found that RPAPL §735(1), which allows for a tenant to stay the issuance of a warrant in a summary nonpayment proceeding by paying the amount owed into court prior to the issuance of a warrant, did not invalidate a conditional limitation in a proprietary lease providing for forfeiture of the tenancy upon the non-payment of rent. The Second Department concluded that “[s]ince the plaintiff did not seek Yellowstone relief within the cure period, the Supreme Court improperly granted this relief.”
KB Gallery, LLC v. 875 W. 181 Owners Corp., 76 A.D.3d 909, 907 N.Y.S.2d 672 (1st Dept. 2010):
Supreme Court (Fried, J.) “denied plaintiff’s application for Yellowstone relief, and vacated an order temporarily restraining defendant from terminating plaintiff’s commercial lease[.]”. The First Department affirmed holding that:
The motion court properly found that plaintiff did not timely seek Yellowstone relief, since plaintiff did not make its application until after the applicable cure period had expired and the notice of termination had been served. We reject plaintiff’s contention that a Yellowstone application brought after the expiration of the applicable cure period will be deemed timely as long as it is made before the lease in question is actually terminated[.].
166 Enterprises Corp. v. I G Second Generation Partners, L.P., 81 A.D.3d 154, 917 N.Y.S.2d 143 (1st Dept. 2011):
In 2002, landlord served tenant with a 15-day notice to cure “alleging that Tenant had failed to pay rent and late fees and failed to procure the required amount of liability insurance[.]”. Supreme Court (Shafter, J.) “denied the Yellowstone motion on the ground that Tenant had. failed to show that it was ready and able to cure the default regarding the liability insurance[.]. The cure period expired the next day and landlord served tenant with a notice of termination effective January 20, 2003. On January 21, 2003, after the lease termination date, tenant moved to renew and reargue its application for a Yellowstone injunction at which time “a certificate of liability insurance [was attached] to its moving papers”. Supreme Court granted the motion “finding that Tenant’s submission of the insurance certificate was sufficient was show that Tenant was ready and able to cure the default”. In so doing, Supreme Court “did not address whether it was empowered to issue a Yellowstone injunction where the cure period had expired and the lease had been terminated. Nor did the court discuss whether the injunction could be made retroactive to the date of the original Yellowstone motion.”
After a trial in 2008, Supreme Court (Gische, J.) “found that tenant had breached the insurance provision, justifying termination of the lease”. At the same time, the Court concluded that the tenant still had one day to cure and declared that the notice of termination was a nullity “because, according to Justice Gische, the cure period had not yet expired at the time the notice was served”. Landlord served a second notice of termination effective as of December 31, 2008 “because no cure was effected by [tenant][.]” Landlord commenced an ejectment action and moved for summary judgment. Supreme Court (York, J.) awarded possession of the premises to landlord. Both landlord and tenant appealed.
The First Department found that:
Justice Gische improperly concluded that Tenant still had the right to cure its breach. It is well-settled that a tenant is not entitled to a Yellowstone injunction after the cure period has expired…Here, after the initial Yellowstone application was denied, the stay of the cure period was lifted and the cure period expired on January 9, 2003. Since Tenant’s motion to renew/reargue its Yellowstone application was brought after this date, the court could not grant Yellowstone relief in this case.
Nor, under the circumstances, here should Justice Gische have given retroactive effect to the Yellowstone injunction. This case does not fall within the limited exceptions for which such nunc pro tunc relief has been authorized. In each of the cases relied upon by Tenant…retroactive relief was allowed as a result of improper actions by the court or due to judicial inadvertence. Here, in contrast, no such court error was shown. Justice Shafer’s initial denial of the Yellowstone application was entirely proper since even Tenant concedes that it failed to establish in its original motion that it was ready and able to cure the default.
Moreover, the failure to ensure that the cure period did not lapse was entirely Tenant’s fault. After Justice Shafter denied the first Yellowstone application, Tenant waited almost two weeks before filing its motion to renew/reargue. By this time, the cure period had expired and the lease had already been terminated. Tellingly, after Justice Shafer initially denied Yellowstone relief, Tenant never sought any further stay of the running of the cure period either from the trial court or from this Court. Under these circumstances, the Yellowstone injunction should not have been afforded retroactive application. TRO was not a mere technicality where the plaintiff’s counsel failed to obtain an extension of the TRO and allowed the cure period to expire.
Finally, Justice Gische should not have found that Landlord’s 2003 notice of termination was a nullity. At the time Landlord served the notice, the cure period had expired and Tenant had not cured its breach. Since there was no temporary restraining order in place at that time, the notice was validly served and the lease was terminated. Once the lease was terminated in accordance with its terms, the court lacked the power to revive it…
Lombard v. Station Square Inn Apartments Corp., 2012 NY Slip Op 2467, 942 N.Y.S.2d 116 (2nd Dept. 2012):
Plaintiff was the tenant under 11 proprietary leases for 11 cooperative residential apartments in Queens that were sublet to others. As a result of plaintiff’s default in payment of maintenance and sublet fees, defendant cooperative served a notice of default dated November 30, 2009 and, upon plaintiff’s failure to cure during the cure period, a notice of termination dated December 8, 2009.
According to the Second Department:
The plaintiff does not dispute that he was in default on the payment of maintenance. The plaintiff did not attempt to cure the default until February 16, 2010, almost 3 months after the expiration of the 10-day cure period in the notice of default. The plaintiff did not move during the cure period for a temporary restraining order, or for a Yellowstone injunction…to obtain a stay tolling the running of the cure period…The plaintiff also did not move for a preliminary injunction to stay the sale of the shares prior to the expiration of the cure period[.]
The Appellate Division also held that:
RPAPL 743(4), which affords a losing residential tenant a 10-day period to cure lease violations before being subject to removal, is inapplicable here. RPAPL 753 applies to a proceeding to recover the possession of premises in New York City occupied for dwelling purposes, upon the ground that the occupant is holding over and continuing in possession of the premises after the expiration of the lease term and without the permission of the landlord. RPAPL 753(4) provides that in the event such a proceeding is based upon a claim that the tenant or lessee has breached a provision of the lease, the court shall grant a 10-day stay of issuance of a warrant, during which time the tenant may correct the breach. Here, the defendant has not commenced, and does not intend to commence, a proceeding to recover possession of the subject premises from the occupants, and does not contend that the occupants of any of the subject units are holding over. Therefore, the plaintiff was required to request injunctive relief before the expiration of the cure period.
Extension of the Cure Period
Village Ctr. for Care v. Sligo Realty & Serv. Corp., 2012 NY Slip Op 02594 (1st Dept. 2010):
Landlord served a 10-day notice to cure on March 28, 2011 based on the following provision of the lease:
If the Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or Additional rent…upon Owner serving a written ten (10) days’ notice upon Tenant specifying the nature of said default and upon the expiration of said ten (10) days, if Tenant shall have failed to comply with or remedy said default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said ten (10) day period and if Tenant shall not have diligently commenced curing such default within such ten (10) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written five (5) days’ notice of cancellation of this lease upon Tenant…” (emphasis added).
In response, tenant sent landlord permits, certificates and provisions relating to the Landmarks Commission, mechanical ventilation certificate and sprinkler hydrolic test referred to in the notice to cure.
Landlord did not respond and, instead, on May 4, 2011, served tenant with a notice of termination as of May 16, 2011.
The First Department took this appeal as an opportunity to:
[R]eaffirm this Department’s rule that where defaults are incapable of being cured within the time provided in the notice to cure, and all that the terms of the lease require from the tenant is commencement of diligent efforts to cure the defaults within the allotted time, service of a notice of termination does not necessarily bar subsequent Yellowstone injunctive relief.
Yellowstone Relief Granted
Another Slice, Inc. v. 3620 Broadway Investors LLC, 90 A.D.3d 559, 934 N.Y.S.2d 705 (1st Dept. 2011):
As a result of a commercial lease rent dispute, defendant/landlord sent a notice to cure to plaintiff/tenant. Supreme Court (Ling-Cohan, J.) granted plaintiff’s motion for a preliminary injunction to the extent that the termination date set forth in the notice to cure was tolled, and otherwise dismissed the action “without prejudice to the parties’ right to assert their claims/defenses in the Housing Part of the Civil Court of the City of New York[.]”. The Court also directed that the tenant continued to pay rent on a timely basis and post a bond in the amount that was in dispute ($137,233.85).
The First Department reversed, finding that the Yellowstone relief was properly granted; however, dismissal of the action was improper. The Court distinguished another case where “dismissal was appropriate because Supreme Court denied Yellowstone relief.” (underscoring added)
Yellowstone Relief Vacated
143-145 Madison Avenue LLC v. Tranel, Inc., 74 A.D.3d 473, 902 N.Y.S.2d 532 (1st Dept. 2010):
Supreme Court (Madden, J.) granted defendant/landlord’s motion to vacate a Yellowstone injunction issued in favor of plaintiffs-tenants. The dispute arose out of plaintiff’s failure to comply with a lease obligation with respect to certain mechanical conditions in the premises. Supreme Court found:
Under the circumstances presented, plaintiffs’ failure to comply with the lease obligations to separate the sprinkler system and provide for an independent heating system cannot be excused. The undisputed record establishes that any inability on the part the tenant to perform the sprinkler and heating system work could have been foreseen and guarded against when it specifically undertook those obligations in the Fourth Modification and therefore the obligations cannot be avoided on the basis of impossibility…
* * *
Now, three years have passed since the Court issued the Yellowstone injunction and five years have passed since the tenant originally agreed to separate the sprinkler system, yet it is undisputed that neither the tenant nor the Bank has complied with the obligations under the Fourth Modification to separate the sprinkler system and install an independent heating system. Rather, for the first time and only in response to the landlord’s motion for summary judgment, it is clear that neither the tenant nor the Bank has any intention of complying and instead are seeking to avoid the lease obligations altogether by requesting equitable relief in the nature of rescission. In view of the totality of the circumstances, plaintiffs are not entitled to such relief. Moreover, plaintiffs are no longer entitled to a Yellowstone injunction, since it is clear they are seeking to discharge their default by rescinding the Fourth Modification, and not to cure the default…As noted above, the tenant’s willingness to cure the default short of vacating the premises is an essential element of an application or a Yellowstone injunction…Based on the foregoing, the court is issuing a declaratory judgment in favor of the landlord as to plaintiffs’ default, and an order vacating the Yellowstone injunction and dismissing the second and third causes of action in the complaint.
The First Department affirmed holding that:
The motion court correctly rejected plaintiffs’ argument based on impossibility, since plaintiffs’ difficulties in obtaining sufficient water pressure to install a separate sprinkler system for the subject premises were foreseeable and could have been guarded against in the contract…As plaintiffs, who had been in possession of the premises for years, were on notice, or at least inquiry notice, of the condition of the building and its plumbing before entering into the contract promising to install the sprinklers, it is their own negligence for which they seek relief…Moreover, the only evidence they submitted to support their contention that a separate sprinkler system was impossible was an affidavit by their plumber, who failed to refute any of the material assertions supporting defendant’s expert engineer’s opinion that a separate system could be installed.
The motion court correctly rejected plaintiffs’ argument based on impossibility, since plaintiffs’ difficulties in obtaining sufficient water pressure to install.
Yellowstone Relief Denied or Modified
Washington Heights Optical, Inc. v. The Port Authority of New York and New Jersey, 70 A.D.3d 574, 893 N.Y.S.2d 872 (1st Dept 2010):
Supreme Court (Kapnick, J.) denied plaintiff’s application for a temporary restraining order vacating defendant’s notice of termination because the Port Authority acknowledged “that it may not endeavor to evict the plaintiff prior to the issuance of a decision and judgment in its favor in a special proceeding which it will commence in the Civil Court.”
The Appellate Division affirmed, on the finding that Supreme Court lacked subject matter jurisdiction over the action, because “[t]he consent of the states of New York and New Jersey to suits against the Authority (McKinney’s Cons. Laws of NY §710 [L 1950, ch 301, §1]) does not extend to suits seeking to suits seeking to restrain or enjoin the Authority unless brought by the attorney general of either state (Cons. Laws §7105 [L 1950, ch 301, §5][.]”.
Trump on the Ocean, LLC v. Ash, 81 A.D.3d 713, 916 N.Y.S.2d 177 (3rd Dept. 2011):
In a construction dispute, Supreme Court (Marano, J.) granted plaintiff-tenant’s motion for a Yellowstone injunction “enjoining the defendants from terminating the lease pending the determination of this action and tolling the deadline for the completion of construction”.
The Second Department modified the Order, inter alia, by “deleting the provision thereof granting that branch of the plaintiff’s motion which was for a Yellowstone injunction tolling the deadline for the completion of construction[.]” The Appellate Division stated:
Although the Supreme Court properly granted that branch of Trump’s motion which was for a Yellowstone injunction preventing OPRHP from terminating the subject lease pending a determination on the merits of this action, the Supreme Court improperly exceeded the purpose of a Yellowstone injunction by impermissibly rewriting the terms of the lease by extending the deadline for the completion of construction[.]
6810 and 2914 Third Sportswear Realty Corp. v. Acadia 2914 Third Avenue, LLC, 93 A.D.3d 573, 941 N.Y.S.2d 55 (1st Dept 2012):
Supreme Court, Bronx County (Rodriguez, J.) “grant[ed] plaintiff’s motion for a Yellowstone injunction [and] directed plaintiff tenant to provide access to allow defendant landlord to perform construction work[.]”. The notice to cure “claimed that tenant had breached the amended lease by refusing access to its premises to enable landlord to comply with a notice issued by the New York City Department of Buildings”. The First Department reversed because “it [was] unclear whether the proposed construction of a new elevator in tenant’s space is required to comply with the law’s provisions or merely to accommodate an incoming tenant’s proposed use of the adjoining space.”
The Appellate Division found that:
[T]he injunction directing tenant to allow access for the purpose of constructing the elevator shaft exceeded the scope of interlocutory injunctive relief. A Yellowstone injunction is a provisional remedy, and the purpose of interlocutory relief is not to determine the ultimate rights of the parties but to maintain the status quo until a full hearing on the merits can be held…Directing that the elevator construction proceed does not merely restrain, but rather directs action absent any hearing to determine whether such extraordinary relief is essential to maintain the status quo…Moreover, the order prematurely decide[d] the disputed factual issue of whether renovation is required to comply with the Department of Buildings’ notice so as to afford landlord a right of access under the lease[.]
Jay Goldman Master Limited Partnership v. 53rd Street and Madison Avenue Tower Development LLC, 70 A.D.3d 580, 896 N.Y.S.2d 45 (1st Dept. 2010):
Supreme Court (Ling-Cohan, J.) conditionally granted plaintiff/commercial tenant’s application for Yellowstone relief, based upon the claim that defendant owner had not substantially and timely completed the “Owner’s Initial Work” (“OIW”) required under the subject commercial lease.
The First Department modified, holding that:
Under the plain terms of the lease, owner’s delivery of the combined notice of substantial completion/floor designation, dated October 29, 2008, designating December 1, 2008 as the intended date of substantial completion, commenced a 15-day period at the end of which tenant’s initial rent would be due regardless of any disputes as to whether owner had substantially complete the OIW. Tenant’s lease obligations to countersign the floor designation notice and make payment of the initial rent were independent of owner’s obligation to substantially complete the OIW in a timely manner. The motion court therefore correctly found that tenant had defaulted on its obligation to countersign the floor designation notice and make payment of the initial month’s rent, and properly limited the issues of fact pertinent to the Yellowstone declaration sought, to whether owner had substantially completed the OIW. For purposes of the Yellowstone preliminary injunction, however, it was not necessary to resolve any such issues of fact…Nor should the motion have resolved any such issues of fact in connection with the owner’s cross motion to dismiss in the absence of documentary evidence demonstrating that certain contested items of OIW in fact had been timely completed by December 1, 2009. Accordingly, we modify to vacate the motion court’s findings of fact relating to owner’s compliance with its OIW obligations. We also reject owner’s argument that tenant’s substantial completion objections should be limited to those raised in its motion for a Yellowstone injunction, in view of tenant’s references, without limitation, to the OIW as detained in the complaint and lease, both of which were annexed to the motion.
CC Vending, Inc. v. Berkeley Educational Services of New York, Inc., 74 A.D.3d 559, 903 N.Y.S.2d 37 (1st Dept. 2010):
Supreme Court (Friedman, J.) denied plaintiff’s motion for a Yellowstone injunction and granted defendant’s motion to stay arbitration. The First Department affirmed. The dispute arose out of a license agreement granting plaintiff “a license agreement for license of the right to sell, through vending machines to be located at defendant’s premises, various types of snacks and beverages”. Supreme Court found that the license was the proper subject of a Yellowstone injunction. The First Department affirmed:
The contract at issue gives plaintiff an exclusive right to operate various concessions. Because “such exclusive right is not a lease,” plaintiff was not a commercial lessee but rather “a license or concessionaire without interest in the realty”…Since plaintiff has no control over defendant’s premises where the vending machines are located, it has no tangible interest in the property, and thus has no right to Yellowstone injunction.
Lessons Learned
When representing a commercial tenant in an application for Yellowstone relief:
- File the application before the end of the cure period, if the lease does not contain a provision extending the cure date, where cure cannot be accomplished during the period stated in the notice.
- Where the lease provision provides for extension of the cure period: document the tenant’s efforts to cure; give written notice thereof to the landlord’s attorney; and confirm, before the cure period ends, that the landlord acknowledges extension of the period to cure (failing unequivocal confirmation of which a Yellowstone application should be made before the cure period ends).
- When making a Yellowstone application, establish that the alleged default is, in fact, curable and that the tenant is ready, willing and able to implement the cure.
Victor M Metsch is a Senior Litigation/A.D.R Partner at Hartman & Craven LLP.
(www.legalvictor.net) [hartmancraven.com]
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