Yellowstone injunctions — an injunction to stay the available cure period provided in a commercial lease and in the landlord’s notice to cure while the merits of the alleged default are litigated — have been commonplace since the Court of Appeals’ decision in First Nat. Stores v. Yellowstone Shopping Center, 21N.Y.2d 630, 290 N.Y.S.2d 721 (1968).
Two recent Appellate Division cases from the First and Second Departments remind us of the consequences of failing to promptly seek and obtain a Yellowstone injunction.
In Goldcrest Realty Company v. 61 Bronx River Owners, Inc., 2011 WL 1206171 (2d Dep’t 2011) the plaintiff sponsor of the subject cooperative and holder of unsold shares allocated to 15 apartments, moved by order to show cause for both a Yellowstone injunction and a preliminary injunction. The motion was made after receipt of 15 separate default/cure notices, after the expiration of the cure period and after receipt of termination notices but before the date set in the termination notices for the termination of the respective leases. The Court held in these circumstances that neither a Yellowstone nor preliminary injunction was available.
In an attempt to avoid the requirement that an application for a Yellowstone injunction be made before the termination of the lease and before the expiration of the cure period set forth in the lease and cure notice, the sponsor unsuccessfully argued that the rule did not apply to owners of unsold shares of a cooperative. While this creative argument may be the subject of a future blog, what is important here is the Court’s discussion of the need for prompt action after receipt of default/cure notices.
In reaffirming its prior holdings (see e.g. Korava Milk Bar of White Plains, Inc. v. PRE Props., LLC, 70 A.D.3d 646) the Court explained that once the cure period expired, the Court was powerless to revive a lease. The Court once again explained that the request for a Yellowstone injunction must be made both before the termination of the lease and before the expiration of the cure period set forth in the lease and cure notice. In so doing, the Court restated its express rejection (as previously stated in Korava Milk Bar of White Plains) of any prior decision “fixing a different or longer period of time in which an application for Yellowstone relief must be made.” The Appellate Division held that the Court below improperly granted the Yellowstone injunction “since the plaintiff did not seek Yellowstone relief within the cure period . . .” In addition, the Appellate Division also held, in agreement with the First and Third Departments, that a motion for a preliminary injunction “must also be made prior to the expiration of the cure period.”
In 166 Enterprises Corp. v. I G Second Generation Partners, L.P., 81 A.D.3d 154, 917 N.Y.S.2d 143 (1st Dep’t 2011) the plaintiff commercial tenant sought a Yellowstone injunction one day before the cure period was to expire. A temporary restraining order (TRO) was issued but the Court ultimately denied the motion holding that the tenant failed to demonstrate it was ready and able to cure the defaults alleged (failure to pay rent and late fees and procure the required amount of liability insurance). As there was one day left in the cure period when the motion was decided, the lease terminated the next day.
After expiration of the lease, tenant moved to renew and reargue, conceding its initial motion failed to address its ability to cure the claimed insurance default. The Court below granted the motion to renew/reargue and granted the Yellowstone injunction. The case eventually went to trial and tenant was found to have breached the insurance provision but the trial judge determined that the Yellowstone injunction had been granted nunc pro tunc as of the date of the original Yellowstone application and that therefore tenant still had one day to cure the default.
The Appellate Division, First Department, held that the trial Court “improperly concluded that Tenant still had the right to cure its breach.” The Court reasoned that after the initial motion for a Yellowstone injunction was denied, because the motion to renew/reargue was brought after the cure period expired, the Court did not have the power to grant Yellowstone relief. The Appellate Division also held that, while in certain extremely limited circumstances retroactive relief was possible, those circumstances did not exist in this case and that giving retroactive effect to the Yellowstone injunction upon the motion to renew/reargue was improper.
The simple lesson to be taken from these two cases is that tenants must move quickly upon receipt of a default/cure notice and must obtain Yellowstone or other injunctive relief before the expiration of the applicable cure period and before the expiration of the lease. The Court cannot reinstate the lease if it terminates upon the failure to timely obtain a Yellowstone injunction.