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By Patrick McCormick

There have been numerous recent decisions by appellate and trial courts involving landlord/tenant disputes covering a wide variety of issues. A few of those decisions are discussed in this article.

In a decision dated October 5, 2012, the Appellate Term, First Department in C&A 483 Broadway, LLC v. KLMNI, Inc.,1 discussed Yellowstone injunctions. In a short decision that did not discuss many facts, the Appellate Term reversed the lower court’s order granting summary judgment to the tenant dismissing the petition, and held a “May 2008 Yellowstone injunction issued by Supreme Court, which restrained landlord from terminating the governing commercial lease agreement based on tenant’s conduct in ‘affixing a flag or banner’ to a flagpole attached to the building’s facade, did not bar landlord from terminating the tenancy and maintaining this August 2010 holdover proceeding based on the conditional limitation provision in the lease triggered by the tenant’s late payment of rent.” This brief decision reminds us that a Yellowstone injunction serves to toll a cure period related to a specific alleged default claimed by a landlord. Where a landlord serves successive default notices each alleging a new default, tenant will need to seek and obtain a new Yellowstone injunction to toll the cure period related to each claimed default.

In 455 Second Avenue LLC v. NY School of Dog Grooming, Inc.,2 the commercial tenant, relying on Multiple Dwelling Law §302, moved to dismiss the nonpayment petition claiming no rent was due because a proper Certificate of Occupancy had not been obtained for the premises. The tenant, operating a dog grooming business, and landlord entered into a commercial lease with a termination date of August 31, 2018. In 2008, the tenant sought to renew its dog grooming educational license which could not be renewed without a proper C of O for the premises. The existing C of O was for a multiple dwelling, with a basement (the premises at issue) used as a restaurant. The tenant stopped paying rent, the landlord commenced the nonpayment proceeding and tenant moved to dismiss alleging that MDL §302(1) relieved tenant of the obligation to pay rent because a proper C of O did not exist for the premises. The New York City Civil Court denied the motion, citing to well settled appellate precedent, holding that MDL §302, by its terms, which the Court held were required to be strictly construed, did not apply to commercial premises/tenancies. In reaching its determination, the Court referenced a recent Court of Appeals decision in Chazon, LLC v. Maugenest, 19 N.Y.3d 410 (2012).

In Chazon, the plaintiff/landlord owned a loft building in Brooklyn. The defendant/tenant occupied an apartment in the building but had not paid rent for 9 years. Landlord commenced an ejectment action based on the nonpayment of rent. Supreme Court granted summary judgment in favor of landlord awarding landlord possession of the apartment. The Appellate Division affirmed and permission to appeal was granted by the Court of Appeals. The Court of Appeals reversed based on MDL §302 and MDL art. 7-C (the Loft Law). Briefly, the Loft Law permitted residential occupancy of lofts (apartments in buildings formerly used for commercial purposes) but set deadlines for owners of the buildings to alter the building to conform to certain safety and fire protection standards. The Loft Law allowed for extensions of the deadlines in certain circumstances. Until the standards are met and a proper certificate of occupancy is obtained, tenants are protected by the MDL from eviction. In rejecting opinions from various appellate courts, the Court of Appeals strictly construed what it termed “the law’s command” that “No rent shall be recovered by the owner of such premises . . . and no action or special proceeding shall be maintained therefore, or for possession of said premises for nonpayment of such rent.” The Court, in reversing the Appellate Division, recognized that “the statutes leave these parties in their present stalemate until compliance has been achieved.”

In Disunno v. WRH Properties, LLC3 the Appellate Division addressed a well settled principle involving the covenant of quiet enjoyment in commercial leases. Because the issue is raised from time to time, a review of this recent decision is helpful. The tenant commenced an action seeking damages from the landlord for an alleged breach of the commercial lease at issue. The landlord moved under CPLR 3211(a)(7) to dismiss the third cause of action which alleged landlord breached an implied warranty of fitness for a commercial purpose. The lower court denied the motion. In reversing that portion of the lower court’s determination, the Appellate Division reaffirmed that “[i]n the absence of fraud or of a covenant, a lessor does not represent that the premises are tenantable and may be used for the purpose for which they are apparently intended [citations omitted]. The implied warranty of habitability applies only to residential lease space [citations omitted].” This case reminds counsel of the importance of careful lease drafting and the need, from the tenant’s perspective, to obtain from the landlord proper representations in the lease that the premises can in fact be used for the purpose intended by the tenant.

By Patrick McCormick

Public policy in New York seeks to avoid forfeiture of leases.1 What is commonly referred to as a Yellowstone injunction is a procedural mechanism used by tenants in furtherance of that policy.2 As succinctly stated by the Court of Appeals:

A Yellowstone injunction maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.3

To obtain a Yellowstone injunction, and thus toll the running of a lease cure period, the party requesting the 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 prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.4

As is evident from this well accepted standard, to obtain Yellowstone relief, the tenant need not meet the more stringent requirements for a preliminary injunction.5 However, despite this relaxed standard, obtaining Yellowstone relief is not always a simple matter and there are numerous cases denying relief, most of which focus on the timeliness of the application or the tenant’s ability to cure the alleged default.

Timeliness of Application
As set forth above, the Court of Appeals has confirmed that an application for a Yellowstone injunction must be made prior to the termination of the lease.6 What appears to be a simple standard is not, however, so simple.

Where a tenant fails to make a timely request to toll a cure period, “a court is divested of its power to grant a Yellowstone injunction.”7 The Appellate Division, Second Department, has interpreted the timeliness element as requiring the tenant to make an application for Yellowstone relief “not only before the termination of the subject lease — whether that termination occurs as a result of the expiration of the term of the lease, or is effectuated by virtue of the landlord’s proper and valid service of a notice of termination upon the tenant after the expiration of the cure period — but must also be made prior to the expiration of the cure period set forth in the lease and the landlord’s notice to cure.”8

In Goldcrest Realty Company v. 61 Bronx River Owners, Inc.,9 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 reaffirming prior holdings 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 of any prior decision “fixing a different or longer period of time in which an application for Yellowstone relief must be made.”10 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.”

Disagreeing with the Second Department, the Appellate Division, First Department, takes a more forgiving view.11 In a case involving a commercial lease where the lease provided for a specific time period within which to cure any alleged default, but also provided for an unspecified longer cure period for those defaults that could not be cured within the specified time period, where the tenant took significant steps to cure the alleged default, but could not cure the default within the specified time period, the Court reversed an order denying an application for a Yellowstone injunction even though the application was made after the expiration of the initial cure period and after service of a notice of termination. Emphasizing that the specific lease in question simply required the tenant to commence diligent efforts to cure the defaults within the initial cure period, the Court explained that because the lease at issue provided for a scenario where the tenant might not be able to cure an alleged default within the specific cure period, the landlord should be bound to the specific terms of its lease agreement which provided for an additional unspecified cure period.12

Delay in making the application can also prove harmful even if made within the applicable cure period. In a recent case13 the plaintiff commercial tenant sought a Yellowstone injunction one day before the cure period was to expire. A temporary restraining order was issued by 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 tuncas 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.”14 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 Yellowstonerelief. 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.

Finally, where a lease provides for a specific time period within which to cure alleged defaults, but the landlord’s default notice grants a longer period to cure the default, an application for Yellowstone relief will be deemed timely if made before the expiration of the longer period provided in the notice.15

Willingness to Cure
Unlike the dispute regarding timeliness of an application for Yellowstone relief, the First and Second Departments agree that a tenant need not actually prove it as the ability to cure an alleged default in order to obtain relief. A tenant need only “convince the Court of his desire and ability to cure the defects by any means short of vacating the premises.”16 The Second Department has stated that the willingness to cure requirement will be demonstrated where a tenant in its motion papers indicates that it is willing to repair any defective condition found by the Court and by providing proof of the substantial efforts it already made in addressing the majority of conditions listed in the notice to cure.17

Residential Leases
While the majority of Courts addressing Yellowstone injunctions involve commercial leases,Yellowstone injunctions are available in certain instances involving residential leases. RPAPL 753(4), which is applicable only in New York City, grants a residential tenant who has been found in default of his lease a ten day period to cure lease violations before being subject to eviction. Because this statutory protection is available only in New York City, courts have permitted Yellowstone Injunctions in matters involving residential leases outside New York City.18

1 See, Village Center for Care v. Sligo Realty and Service Corp., 95 A.D.3d 219, 943 N.Y.S.2d 11 (1st Dep’t 2012); Sharp v. Norwood, 223 A.D.2d 6, 643 N.Y.S.2d 39 (1st Dep’t 1996), aff’d 89 N.Y.2d 1068 (1997)

2 First Nat’l Stores v. Yellowstone Shopping Center, 21 N.Y.2d 630, 290 N.Y.S.2d 721 (1968)

3 Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Avenue Associates, 93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 94 (1999)

4 Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Avenue Associates, 93 N.Y.2d 508,514, 693 N.Y.S.2d 91, 94 (1999); Trump on the Ocean, LLC v. Ash, 81 A.D.3d 713, 916 N.Y.S.2d 177 (2d Dep’t 2011)

5 Village Center for Care v. Sligo Realty and Service Corp., 95 A.D.3d 219, 222, 943 N.Y.S.2d 11, 13 (1st Dep’t 2012); Trump on the Ocean, LLC v. Ash, 81 A.D.3d 713, 716, 916 N.Y.S.2d 177, 181 (2d Dep’t 2011)

6 Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Avenue Associates, 93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 94 (1999)

7 Korova Milk Bar of White Plains, Inc. v. PRE Properties, LLC, 70 A.D.3d 646,648, 894 N.Y.S.2d 499, 501 (2d Dep’t 2010)

8 Korova Milk Bar of White Plains, Inc. v. PRE Properties, LLC, 70 A.D.3d 646,647, 894 N.Y.S.2d 499, 501 (2d Dep’t 2010)

9 Goldcrest Realty Company v. 61 Bronx River Owners, Inc., 2011 WL 1206171 (2d Dep’t 2011)

10 See, Korova Milk Bar of White Plains, Inc. v. PRE Properties, LLC, 70 A.D.3d 646,648, 894 N.Y.S.2d 499, 501 (2d Dep’t 2010)

11 Village Center for Care v. Sligo Realty and Service Corp., 95 A.D.3d 219, 943 N.Y.S.2d 11 (1st Dep’t 2012)

12 Id. 95 A.D.3d at 224, 943 N.Y.S.2d at 14

13 166 Enterpises Corp. v. IG Second Generation Partner, L.P., 81 A.D.3d 154, 917 N.Y.S.2d 143 (1st Dep’t 2011)

14 Id., 81 A.D.3d at 158, 917 N.Y.S.2d at 146

15 Barsyl Supermarkets Inc. v. Avenue P. Associates, LLC, 86 A.D.3d 545, 928 N.Y.S.2d 45 (2d Dep’t 2001)

16 Jemaltown of 125th Street Inc.v. Leon Betesh /Park Seen Realty Associates, 115 A.D.2d 381, 496 N.Y.S.2d 16, 18 (1st Dep’t 1985)

17 Terosal Properties, Inc. v. Bellino, 257 A.D.2d 568, 683 N.Y.S.2d 581 (2d Dep’t 1999)

18 Hopp v. Raimondi, 51 A.D.3d 726, 858 N.Y.S.2d 300 (2d Dep’t 2008)