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Perspectives

Commercial Lease Can Waive Tenant’s Right To Seek “Yellowstone” Relief

When the tenant under a commercial lease violates a provision of the lease, the landlord may serve a notice to cure the violation, stating that the lease will be terminated unless the violation is cured within a specified period of time.  What if the tenant disputes that it has violated the lease?  If it does nothing and allows the cure period to expire without action, it risks losing the benefits of what could be a favorable lease.  On the other hand, the tenant may not wish to expend money and effort to cure what it asserts is a non-existent breach.  To resolve this dilemma, in 1968 New York’s highest court authorized commercial tenants who have received a notice to cure or notice of default to bring a lawsuit asking the court to suspend the running of the cure period until the court determines whether a violation of the lease has occurred.  This type of relief is referred to as a Yellowstone injunction, after the case in which it was first recognized.  (Residential tenants in New York City, including both cooperative owners and renters, do not need this protection because the Legislature has provided by statute that they will be given an opportunity to cure any breach before their lease is terminated.)

In 159 MP Corp. v. Redbridge Bedford Corp., 2019 N.Y. LEXIS 1310, 2019 N.Y. Slip Op. 3526 (May 7, 2019), the Court of Appeals upheld a commercial lease provision in which the tenant waived the right to seek a Yellowstone injunction in the event of a future dispute with the landlord.  Instead, the parties agreed that any disputes arising from a notice given under the lease would be resolved in summary proceedings in landlord-tenant court.  In a 4-3 decision, the court rejected the tenant’s argument that the waiver was contrary to public policy, because the tenant still retained some recourse in court to resolve disputes.  In light of this decision, one can expect commercial landlords to seek to include similar provisions in future leases.