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Commercial Tenancy Contract Disputes: The New York Court of Appeals Curtails the Ability of Commercial Tenants to Seek a Yellowstone Injunction

May 13, 2019

For approximately 50 years, commercial tenants in New York facing potential action for breach of lease and possible eviction have enjoyed the use of a so-called "Yellowstone injunction," which, if granted by the court, froze the contractual cure period under a lease governed by New York law.

With the extended cure period allowed by injunctive relief, tenants could seek a declaratory judgment that there was no breach under the lease for which the tenant would be liable, without having to first cure the default or worry that the lease would terminate before a decision was rendered in the declaratory judgment action. The tenant would be able to obtain a Yellowstone injunction even if there was a provision in the lease waiving the right to commence a declaratory judgment action as to the terms of the lease, as such waivers were held to be void as against public policy.

In its May 7, 2019 decision in 159 MP Corp. v. Redbridge Bedford, LLC, the state's highest court, in a split decision, turned 50 years of precedent on its head by holding enforceable a tenant's waiver in the lease of the tenant's right to commence a declaratory judgment action and, accordingly, held that the tenant could not seek a Yellowstone injunction. The rationale for the holding is New York's longstanding policy to respect the right to freedom of contract and the courts' upholding of contracts as written, particularly where contracting parties are sophisticated business people.

The decision reviews legislative history in New York concerning which rights may and may not be subject to waiver and concludes that the ability to seek a declaratory judgment in a commercial lease contract is waivable. Since the tenant's lease in 159 MP Corp. included a waiver of declaratory relief, the Court of Appeals affirmed the lower court's holding that no Yellowstone injunction was available.

The Court of Appeals' ruling in 159 MP Corp. was 4-3, and the majority's 18-page decision was accompanied by a 30-page dissent. While freedom to contract is understood to be an important aspect of our jurisprudence, the dissent argued that such freedom is constrained by societal considerations. In the context of commercial leases, the dissent argued, among other things, that the Yellowstone injunction offers commercial tenants protection from arbitrary lease termination that might have been based on dubious alleged breaches.

It is likely that many if not most landlords will now include a waiver of the tenant's right to commence a declaratory judgment action and to seek a Yellowstone injunction in their commercial lease forms. If so, the rules of engagement in landlord-tenant commercial lease disputes governed by New York law will change to reflect the absence of meaningful possibility of Yellowstone injunctive relief. It remains to be seen whether the New York legislature may act to limit or overrule this significant real estate ruling.

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