Yellowstone Expansion Post-Covid

Several months before the COVID-19 pandemic, the New York Court of Appeals in 159 MP Corp. v. Redbridge Bedford, LLC, 33 N.Y.3d 353 (2019), ruled that parties could waive injunctive relief, including a Yellowstone injunction—originally created in First Nat. Stores, Inc. v. Yellowstone Shopping Ctr., Inc., 21 N.Y.2d 630 (1968), and the most powerful weapon in a commercial tenant’s arsenal to combat leasehold forfeiture—where the parties’ lease expressly carved out such relief. When granted, the Yellowstone injunction tolls a commercial tenant’s time to cure an alleged lease default while the parties litigate their dispute in the New York State Supreme Court, a typically longer and more costly process than the New York Civil Court’s Landlord Tenant court and the legislatively preferred forum for summary eviction proceedings. Obtaining a Yellowstone is straightforward and easier to meet than the heightened irreparable harm and substantial likelihood of success standard needed for traditional injunctive relief under Civil Practice Law & Rules 6301, merely requiring a showing that a commercial tenant (1) holds a commercial lease, (2) has been served with a notice to cure, (3) the cure period has not expired, and (4) demonstrates the ability to cure short of vacating the premises. Graubard v. 600 Third Ave., 93 N.Y.2d 508 (1999).

Therefore, the portion of the 159 MP Corp. court’s decision permitting parties to contractually strip away Yellowstone in their leases presented a seismic shift—albeit a short-lived one—in how real estate attorneys handled commercial lease transactions and litigations involving lease defaults. However, in December 2019, a few months before the pandemic, the legislature enacted Real Property Law (RPL) § 235-h, specifically overturning that part of the 159 MP Corp. decision and rendering Yellowstone lease waivers void as against public policy. This legislation arrived right before courts faced a flood of Yellowstone applications after the health crisis and Governor Andrew Cuomo’s ensuing string of executive orders mandating closures for many businesses, shuttering the city’s nightlife, retail, and office spaces.

In the years prior to 159 MP Corp., the courts restricted the circumstances when Yellowstone relief was applicable. Many defaults that tenants claimed they were willing to cure were ruled incurable, and Yellowstone relief was not available for “incurable” defaults, such as purely monetary defaults and the failure to maintain the requisite levels of insurance required by the lease—or obtain virtually impossible retroactive coverage, see Julianna Collection Corp. v. VBG 990 AOA Member LLC, 2018 NY Slip Op 31898(U), Sup. Ct. N.Y. Co. (August 9, 2018)—or intentional violation of a use requirement, as in 1611 Bway LLC v. Times Sq. JV, LLC, 2018 NY Slip Op 31044(U), Sup. Ct. N.Y. Co. (May 30, 2018). Tenants were further required to demonstrate that, in addition to showing that they were “ready, willing, and able,” they had actually taken concrete steps to commence curative efforts. 

The enactment of RPL § 235-h, coupled with the subsequent COVID-19 pandemic, resulted in a shift further expanding Yellowstone protections. This shift is observable in several recent cases, where prior to the pandemic it was unlikely that Yellowstone relief would have been awarded to a tenant under similar circumstances.

For example, in Robert Marson Testamentary Tr. v. 4 W. 16 St. Corp., 79 Misc. 3d 1202(A), 188 N.Y.S.3d 916 (N.Y. Sup. Ct. 2023), a post-COVID case, notwithstanding the tenant’s admitted lapse in maintaining insurance coverage, the court still awarded a Yellowstone injunction to the tenant to determine whether there was a “waiver” of the insurance coverage requirement pursuant to the lease. In another case, Elite Wine & Spirit LLC v. Michelangelo Pres. LLC, 213 A.D.3d 143 (2023), the First Department upheld the trial court’s grant of a Yellowstone injunction for a tenant who had purportedly failed to timely commence curing a lease default and failed to finish curing the default by the dates set forth in the landlord’s cure notices. These findings would have been exceptionally rare in the pre-COVID world.

The latest post-COVID decisions, when viewed collectively with the most recent developments in statutory authority, reflect the degree to which the pendulum has swung back in favor of granting Yellowstone relief under the more traditional analytical lens originally embodied in cases such as Graubard v. 600 Third Ave., 93 N.Y.2d 508 (1999). This Yellowstone expansion has invariably increased the powers of this already powerful judicially created injunctive weapon. Currently, the leasing market remains turbulent, the office sector is stagnant with high vacancy rates, and there are concerns regarding an upcoming deeper recession on the horizon coupled with other indicia that the economy has not fully recovered from the COVID-19 pandemic, the largest economic and insurance disaster in human history. While it will be interesting to see how Yellowstone law continues to develop going forward, at least in the near-term, courts appear more receptive to protecting tenancies through Yellowstone expansion.