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New Legislation Prohibits Lease Waivers of Declaratory Judgment Actions Seeking “Yellowstone” Injunctions for Commercial Tenants

When a landlord-tenant dispute arises under a commercial lease, the landlord may take the position that if the tenant does not cure the alleged violation of the lease, the landlord will terminate the lease and bring a court proceeding seeking to evict the tenant. Often, the tenant’s position will be that it did not commit any violation and is not in default – but that if it were to be held in default, it should be allowed to cure the default rather than have the lease terminated. The tenant often finds itself on the horns of a dilemma: should it spend time and effort curing a default that it claims doesn’t exist, or deny that it is in default, risking termination and eviction if the court disagrees?

To address this situation, the New York courts developed the concept of what is called a “Yellowstone” injunction, under which the court will grant the tenant an injunction suspending the running of a cure period allowed under a commercial lease until the merits of the dispute are resolved. First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630 (1968). (The doctrine affects primarily commercial leases because for most residential leases, similar protections are contained in the Real Property Actions and Proceedings Law.)

The availability of this important protection for commercial tenants was weakened by the decision of the Court of Appeals, New York’s highest court, in 159 MP Corp. v. Redbridge Bedford, LLC, 33 N.Y.3d 353 (2019). In that case, discussed in the June 2019 issue of this Client Advisory, the Court upheld the validity of a commercial lease provision that allowed the tenant to dispute the landlord’s claims of default only in opposition to a lawsuit brought by the landlord – thereby waiving the tenant’s right to bring a declaratory judgment action seeking Yellowstone relief. Following this decision, landlords sought to negotiate similar provisions into their leases, thereby shifting the balance of power in the event of future disputes.

The New York State Legislature has sought to put a halt to this trend by enacting Real Property Law § 235-h, effective December 20, 2019. This statute provides: “No commercial lease shall contain any provision waiving or prohibiting the right of any tenant to bring a declaratory judgment action with respect to any provision, term or condition of such commercial lease. The inclusion of any such waiver provision in a commercial lease shall be null and void as against public policy.” The Legislature’s intention in adopting this statute was clearly to preserve Yellowstone injunctions and to overrule the Court of Appeals’ decision in 159 MP Corp. However, because the statute does not contain the actual words “Yellowstone injunction,” it remains to be seen whether landlords may seek to craft lease language seeking to work around the purpose of the statute.