By Robert A. Rosenberg, Esq.
Every commercial landlord and tenant should be intimately familiar with a Yellowstone injunction.  Not a playful reference to the National Park, a Yellowstone injunction is a New York Supreme Court proceeding initiated by a tenant after receiving notice to cure an alleged lease default.  Named after the landmark decision in First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630 (1968), this type of injunction serves to maintain the status quo while the tenant can challenge and/or cure the alleged default without forfeiting its valuable property interest in the lease.
The fundamental purpose of a Yellowstone injunction is to give a tenant who either is or will be in compliance with the terms of a commercial lease sufficient time to prove compliance in court and avoid forfeiture of their lease.  In other words, it seeks to protect a compliant or soon to be compliant tenant from the unjustified forfeiture and loss of their valuable leasehold simply because the standard cure period set forth in the lease is far shorter (typically in the range of 15 to 30 days) than the time it takes to adjudicate even the simplest lawsuit.
The requirements for granting a Yellowstone injunction include the tenant establishing that: (1) there is a valid commercial lease; (2) the tenant received a notice of default, a notice to cure, or a threat of termination of the lease from the landlord; (3) the cure period has not expired; and (4) the tenant desires and has the ability to cure the alleged default, short of vacating the premises.

The Clock Has Started To Run

Once notice alleging default is received the tenant must act quickly so that they can preserve as much of their time to cure as possible.  Typically, the notice will state with specificity what the alleged default is, the relevant sections of the lease and the date by which tenant must cure.  If any of this information is missing the notice may not be sufficient as a predicate to terminate the lease.  This does not mean that the tenant can or should ignore the notice and after reviewing the facts it is best to consult with an attorney.  Some notices, like the notice to pay rent pursuant to New York Real Property Law § 711(2), is a precursor to a non-payment proceeding, which will not warrant Yellowstone relief since the tenant can avoid termination by paying what is owed.

If the notice is believed to be a precursor to termination, responding quickly will benefit tenant by preserving time to cure should their Yellowstone motion be denied.  Some courts will also take into consideration how quickly a tenant responds when determining the sincerity of tenant’s desire and ability to cure the default.  In all cases, it is best to respond as quickly as possible.

The Court Can Only Stay Your Time To Cure

Yellowstone injunctions are only available when the application is made prior to the running of the noticed cure period. In Long Island Gynecological Services, P.C., v. 1103 Stewart Avenue Associates L.P., 224 A.D.2d 591 638 N.Y.S.2d 959 (2d Dep’t 1996), the Court refused to extend the cure period, stating that by “failing to seek a restraining order before the cure period has expired and before the landlord acted to terminate the lease – even though such an order was obtained between the time the notice of termination was served and its expiration date – a tenant divests the court of its power to grant a Yellowstone injunction.”

Tenants must also be conscious that each notice functions independently and relief granted will only toll the cure period of default for which it is granted.  Where the landlord had served multiple notices, or where a subsequent notice is served regarding an unrelated default, a separate Yellowstone injunction will be required to toll the cure period related to each subsequent default.

Do You Really Have The Desire And Ability To Cure

For a tenant who wants to cure the default, a Yellowstone motion, which does not require the tenant to establish a likelihood of success on the merits (compared to a general preliminary injunction), will routinely be granted.  However, the tenant must ultimately convince the court of its desire and ability to cure the alleged defects by any means short of vacating the premises.  The court maintains ultimate discretion and Yellowstone relief will not be given if the court believes that injunctive relief is appropriate.  This is especially true where prior history raises doubts as to the tenant’s desire and ability to honor its obligations.

Some defaults have been deemed incurable; in such cases Yellowstone relief will not be available.  One of the most common examples is where a tenant fails to satisfy its insurance requirements.  This bright line rule focuses on the stated obligation in the lease that tenants must obtain and maintain sufficient insurance.  Courts have refused to defer this obligation to subtenants, even where the subtenant’s policy satisfies the insurance requirements, or allow tenants to satisfy the requirements after the notice was issued.

Where the default is based on non-payment of rent alone, Yellowstone relief will typically not be afforded, since such a breach can typically be cured without judicial intervention.  The exception to this rule is typically found where the lease contains a conditional order or where there is evidence of chronic non-payment by tenant.

After the Yellowstone Injunction

Since the purpose of the Yellowstone injunction is to maintain the status quo and not to provide tenants with any more relief than needed for them to cure the alleged default, Courts will typically preserve the Landlord’s right to use and occupancy when granting Yellowstone relief.  Courts can and often will make the injunction conditioned upon the tenant posting a bond securing any rent arrears in dispute and the payment of all prospective rent going forward.

If the Yellowstone application is denied, the first question facing the tenant is whether there is any time remaining to cure the default.  The tenant will still have its day in court on the complaint but by that time the lease may be terminated.  For the landlord, once the cure period has expired and termination notice has been sent, the Landlord can proceed with a holdover proceeding in Civil Court to regain possession of the premises.  However, the burden of proof in such a holdover proceeding will switch to the landlord to show, among other things, that the tenant defaulted as asserting in the notice of default.   In the Supreme Court action, by contrast, the proof is on the tenant to prove in the action (as distinct from the Yellowstone motion) that it is not in breach of the lease as claimed in the notice of default.

Conclusion

The Yellowstone injunction is in many ways a valuable tool for both landlord and tenant.  For the commercial tenant, the Yellowstone injunction will afford them enough time to address the allegations or resolve the default without risking its business.  Because relief will not be available after the cure period has expired it is important that the tenant seek legal guidance shortly after notice is received.  As for the commercial landlord, the Yellowstone injunction will force the non-compliant tenant to address the default identified in the notice.  The court will also likely restore rent payments and possibly provide additional protection in the form of an undertaking.

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