For more than 50 years, a commercial tenant threatened with eviction could count on obtaining a Yellowstone injunction tolling the tenant’s time to cure alleged lease defaults while challenging the legitimacy of those defaults. The result was that a commercial tenant could bring such a challenge without risking its lease should it be found in default. That all changed in May 2019, when the New York Court of Appeals ruled that commercial leases waiving the right to seek Yellowstone injunctions did not violate public policy. Seven months after that decision, the status quo ante has been restored, with the New York State Legislature enacting a law stating that such waivers are “null and void as against public policy.” RPL § 235-h.
A Yellowstone injunction — named after the Court of Appeals decision First Nat. Stores, Inc. v. Yellowstone Shopping Ctr., Inc., 21 N.Y.2d 630 (1968) — is available to a commercial tenant that has been issued a notice of default and disputes that it is in default during the cure period, but is willing and able to cure if the default is found to exist. A Yellowstone injunction stops the running of the cure period during the litigation. Without an injunction, a commercial tenant must choose between challenging the default and trying to cure it. There is rarely time to do both. With the injunction, a tenant can challenge the default while preserving the opportunity to cure if the court ultimately finds in favor of the landlord. Moreover, a tenant seeking a Yellowstone injunction does not need to satisfy the typical elements required for a preliminary injunction, such as likelihood of success on the merits and irreparable harm. See Ameurasia Int’l Co. v. Finch Realty Co., 90 A.D.2d 760 (1st Dep’t 1982).
A Yellowstone injunction is typically sought in support of a declaratory judgment action, brought in New York State Supreme Court, which asks the court to declare that the tenant is not in default. New York courts have been issuing Yellowstone injunctions with regularity for decades, and they have become a generally accepted part of New York’s commercial real estate practice. That all changed last May, when the New York Court of Appeals, in 159 MP Corp. v. Redbridge Bedford, LLC, 33 N.Y.3d 353 (2019), enforced a lease provision waiving a tenant’s right to bring a declaratory judgment action, which necessarily prevented the tenant from obtaining a Yellowstone injunction. The Court justified its decision by noting that “the Legislature has made certain rights nonwaivable in the context of landlord-tenant law ... but has not precluded a commercial tenant’s waiver of interim Yellowstone relief.”
The Court’s decision in Redbridge turned Yellowstone injunctions into a hotly contested point of lease negotiations. Commercial tenants attempted to retain their ability to obtain Yellowstone injunctions, giving them an important tool to dispute the merits of alleged defaults while mitigating the risk of eviction. Landlords, for obvious reasons, negotiated to have their leases contain Yellowstone waivers. As a practical matter, inclusion of Yellowstone waivers in commercial leases became a matter of negotiating leverage.
However, just seven months after the Redbridge decision, Yellowstone waivers have been rendered null and void. On Dec. 20, 2019, the New York State Legislature enacted New York Real Property Law § 235-h, dictating that “[n]o 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 Legislature enacted the new law as a direct response to Redbridge. In explaining its justification for Section 235-h, the Legislature cited the Appellate Division, Second Department’s decision in Redbridge, which the Court of Appeals later affirmed, and noted that the Second Department “found that the legislature ‘has not enacted any specific or blanket statutory provision prohibiting as void or unenforceable a tenant’s waiver of declaratory judgment remedies.’” The Legislature explained that “[t]his legislation seeks to enact such a provision as a matter of public policy and restore the right of commercial tenants to cure under a declaratory judgment action as has been the practice since 1968.”