Tenant Leasing Illustrated – Apr 2018 – Pace of Game and Yellowstone Injunctions

New York State has over the years developed a handy equitable safety net for commercial tenants, allowing the filing of an action for a declaratory judgment and a “Yellowstone” injunction that stays the time to effect a cure of a lease default. A recent case, however, has upheld a landlord’s right to effectively require a tenant to waive its right to obtain such an injunction and this raises the possibility that future commercial leases in New York State will include such waivers.

In today’s issue, we provide three suggestions when presented with a lease which requires that a tenant waive its right to file a Yellowstone injunction.

Pace of Game and Yellowstone Injunctions

Notwithstanding the drone of my generator as we dig out from winter’s last blasts of nor’easters and “bomb cyclones”, baseball spring training heralds that warmer weather cannot be too far behind.

And not to digress, but if “nor’easter was not already a dumb enough name for winter storms with northeasterly winds, now the meteorological lords have given us the bomb cyclone, destined to make us watch more cable news in terror; back in the day we just said it was getting kinda windy!

This year, major league baseball is making “pace of game” changes in an effort to reduce the average time of a professional game, which now stands at eleven hours and twenty-three minutes.

Most commercial leases can be negotiated and signed between the National Anthem and the seventh inning stretch (yes, wise guy, even if I am representing the tenant), so MLB may be on to something.

The new rules limit visits to the pitcher’s mound to six per team per nine innings, provide specific count downs between innings with the final warm up pitch at the 20 second mark, use a timing clock for pitching changes, speed up instant replay challenges and place time limits on televised spitting and scratching.

Batters will still be allowed to write in their diaries and send Instagram photos between pitches, although now in order to even things up when my NY Mets are batting opposing players will be required to count to three Mississippi before throwing to first base.

Maybe all that is not completely accurate. I cannot vouch for the part about the pitching changes.

In commercial leasing under New York State law, we have a mechanism that tenants use to stop the clock, not speed things up. This is known as a Yellowstone injunction.

A 1968 case, First National Stores, Inc. v. Yellowstone Shopping Center, Inc., resulted in a new type of injunction allowing a tenant facing a notice from its landlord to cure a lease default the ability to preserve its cure period while it adjudicated the underlying lease dispute.

A tenant can start an action in Supreme Court seeking declaratory judgment on the merits, a temporary restraining order and eventually a Yellowstone injunction.

This tolls the tenant’s cure period and allows the dispute to be determined in NYS Supreme Court, which has equitable powers and greater discovery than would apply in a summary proceeding in landlord-tenant court.

If the tenant loses on the merits, it still has time to cure the default and not forfeit its lease.

Without such a Yellowstone injunction, the tenant risks losing its leasehold because the cure period will not be tolled and it may be too late to remedy the default by the time a determination on the merits is made, forcing the tenant to choose between curing the alleged default (potentially expensive or difficult) or not curing and hoping to win on the merits with perhaps fatal results.

Another advantage of the Yellowstone injunction is that it is easier to obtain than a typical preliminary injunction, not requiring a likelihood of success on the merits, but rather that there is a requirement under the lease and remaining time under the lease, to cure.

But a recent decision by the NYS Appellate Division, Second Department, 159 MP Corp. v Redbridge Bedford, LLC, could lead to tenants losing their right to a Yellowstone injunction since it held enforceable and not a violation of public policy a tenant’s waiver of its right to bring a declaratory action.

This decision, if not overruled on appeal, will allow landlords to include such waivers in commercial leases, removing a valuable right for tenants and adding to the list of traps for the unwary commercial tenant.

Consider the following three approaches if coming to bat in a New York lease in which the landlord attempts to require a waiver of the right to declarative relief:

  • Resist any attempt at waiver. Your initial approach should be to strongly resist any such waiver in your lease. Deleting this requirement would be the best outcome. You can argue that the 159 MP Corp. decision is erroneous and should be overturned and that, whether or not it is allowed by the courts, you are not prepared to waive this valuable right. Of course, as with all commercial lease issues, much will depend on your leverage, and larger tenants will likely have more success than smaller tenants.
    • One argument you can make is that this issue has not been finally adjudicated and no waiver is appropriate until the NY Court of Appeals has weighed in. The lower courts have split on the enforceability of these waivers and there are conflicting legal precedents in other appellate departments.
    • There is some history to the “just say no” approach. Some leases prior to the 159 MP Corp. decision have attempted to turn the equities in favor of the landlord by, among other things, requiring that tenant’s submissions to the courts (a) condition their requests for a Yellowstone injunction on being (and continuing) current in payments and (b) indicate that the landlord requires payments from the tenant in order to pay its mortgage. We have had great success insisting that these types of provisions be removed and the same may prove true with a waiver.
  • Seek cure rights. Even if forced to agree to this waiver, try to create a de facto Yellowstone cure period in your lease, i.e., provide yourself with a short time period (5, 10 or 15 business days) to cure the default after the landlord-tenant court has determined that a default exists. This compromise allows your landlord to avoid going to NYS Supreme Court but provides you with, if not the same, at least a similar cure right as you would have had with a Yellowstone injunction.
  • Allow conditional cure rights or declaratory actions / stays. Another option is to provide for a waiver but with either a de facto Yellowstone cure period or other ability to bring a declaratory action and tolling of your cure period conditioned upon your posting security with a neutral third party sufficient to either cure any monetary defaults or be used by your landlord to cure non-monetary defaults. This would put you in a similar position as if you had not waived your rights (i.e., you would not be in danger of forfeiting your lease), but would provide your landlord with comfort that it would not otherwise have under the Yellowstone case law.

As that great legal and commercial leasing scholar Yogi Berra once said about the shadows in another ballpark “It gets late early out there.” Follow the suggestions above and you can avoid it getting late early when it comes to the cure periods under your lease.