Three recent decisions, two from the Supreme Court, Appellate Term, First Department and the third from Supreme Court, Queens County (Ritholtz, J.) are instructive to landlord/tenant practitioners. The first involves an application by a tenant for a Yellowstone injunction; the second involves a tenant’s renewal option contained in a commercial lease; and, the third involves enforcement of a settlement agreement.
A Yellowstone injunction is a procedural mechanism used by tenants to maintain the status quo and to toll the running of a cure period so that a commercial tenant confronted by threat of termination of its lease may protect its investment in the leasehold.[1] The party requesting Yellowstone relief needs to demonstrate: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and, (4) it is ready, willing and able to cure the alleged default by any means short of vacating the premises.[2]
In NY Great Stone, Inc. v. Two Fulton Square LLC, [3] the tenant received a ten (10) day notice to cure dated November 21, 2014. The cure notice alleged the tenant defaulted under the terms of the lease by failing to conduct a hydrostatic pressure test on a sprinkler system in the premises and failed to obtain comprehensive general liability insurance required by the lease. The lease at issue obligated the tenant to obtain and maintain general liability insurance for the term of the lease naming the landlord as an additional insured. This type of insurance clause is common in commercial leases. The tenant, in its application for a Yellowstone injunction, provided the Court with a certificate of liability insurance dated December 2, 2014 evidencing coverage effective April 7, 2014 to April 7, 2015, and indicating the landlord as an additional insured. Based on the documentation provided to the Court, the Court denied the application for a Yellowstone injunction. The Court, correctly in my view, noted that the tenant’s failure to maintain proper insurance is a material default under the terms of the lease and that such a default is not curable because a prospective insurance policy does not necessarily protect a landlord against unknown claims that might arise during the period in which no coverage exists. Thus, existence of current coverage did not cure the default for failing to maintain (or perhaps not prove) the existence of coverage from the inception of the lease. The tenant argued that the default notice directed it to obtain general public liability insurance, but the Court was not persuaded that the default was cured by tenant’s claim that it obtained a current policy of general liability insurance as demanded by the cure notice. Accordingly, Yellowstone relief was denied as the tenant could not establish that it was ready, willing and able to cure the default.
The next case, 315 West 48th Street Realty Corp. v. Maria’s Mont Blanc Restaurant Corp,[4] involved a commercial lease in which the tenant operated a restaurant under two separate lease agreements that expired, at the expiration of a five (5) year renewal term, on August 31, 2010. The landlord commenced a holdover proceeding and tenant defended alleging that its predecessor validly exercised a second renewal option for both leases to extend the term through August 31, 2015. The Court noted that the tenant’s claim was not properly raised at trial but, nevertheless, should have been rejected because the tenant did not establish that the second renewal option was properly exercised. The tenant apparently claimed, but no evidence was produced at the trial, that the prior tenant gave notice to the landlord of its intent to exercise the renewal option. The Court also rejected the tenant’s claim that the second renewal option was exercised when its predecessor exercised the first renewal option. The Court noted that the leases did not authorize the tenant simultaneously to exercise the renewal options for both renewal terms and, based upon the renewal language in the leases, the court concluded that the parties intended that the second renewal option could be exercised only during the first renewal term. The Court therefore found that notice of the exercise of the second renewal term claimed by tenant was not timely given and therefore was ineffective. While Courts may, in an exercise of equity, relieve a tenant from its failure to timely exercise a renewal option if no prejudice is demonstrated, it appears in this instance that the tenant did not provide the Court with any evidence or basis to grant such relief.
Finally, 567 West 125th Street Realty, LLC v. VJRJ Restaurants, LLC[5] involved enforcement of a settlement agreement entered into between landlord and tenant. The facts of this matter are straight forward. In a commercial non-payment summary proceeding the landlord and tenant settled the matter by entering into a settlement agreement awarding a judgment of possession and judgment for rent arrears. The stipulation itself recited that it was “the product of ‘extensive negotiations’ between the parties, provided for the warrant of eviction to issue ‘forthwith,’ with execution of the warrant stayed on the condition that the corporate tenant complied with the specific ‘time of the essence’ payment schedule.” Upon a default by tenant under the stipulation, landlord was obligated to serve a three day cure notice. The tenant failed to make several payments due under the stipulation and the landlord served the requisite three day cure notice. The lower court granted tenant’s application to stay the execution of the warrant, entered on condition that the tenant pay the arrears. The Appellate Term reversed. The Court, in reversing, instructed that “strict enforcement of the parties’ stipulation…is warranted based upon the principle that parties to a civil dispute are free to chart their own litigation course” (citation omitted). The Court noted that the tenant did not provide a valid excuse for its failure to comply with the time of the essence payment requirements of the stipulation, the tenant entered into the stipulation upon the advice of counsel and the tenant’s excuse that it was in the process of selling certain business equipment was not good cause under RPAPL 749(3) to justify staying the execution on the warrant of the eviction. It appears that the specific language of this particular settlement agreement that recited that it was the product of extensive negotiations; that payments were required “time of the essence” and that it was entered into on the advice of counsel are all significant factors in the Court’s determination. From a landlord’s prospective, these provisions should be included, where appropriate, in all settlement stipulations.