In New York, commercial and residential tenant rights can vary. One such area involves a commercial tenant’s ability to seek a temporary injunction preventing a landlord from terminating the lease. To obtain a Yellowstone injunction, as it is known, tenants must meet four criteria. While the criteria may seem straightforward, a recent decision of the New York Appellate Division, First Department, addressed a dispute over whether the lease met the law’s requirements.
Yellowstone Injunctions are routinely granted in situations where a landlord seeks to terminate a commercial lease. It allows tenants to ask the court to stay the termination while they challenge the landlord’s claim of breach of the lease. However, tenants must also assert that in the event a breach is established, they are willing to cure the breach.
The requirements for obtaining the injunction are as follows:
- The tenant has a commercial lease
- The tenant received a notice of default
- The tenant requested the injunctive relief before the lease terminated
- The tenant is ready and willing to cure any defaults by any means short of vacating the premises.
In Wharton Bickley v. IX LLC, the issue was whether the tenant had a commercial lease and was ready and willing to cure any defaults. The plaintiff rented a unit in an “interim multiple dwelling” building (“IMD”) and created an entity to sign a New York commercial lease agreement with respect to the space. IMDs were created in 1982 under the New York Loft Law. This law was established to address a housing shortage, allowing many commercial and manufacturing buildings to be converted to residential use without having to comply with certain legal requirements, including having a residential certificate of occupancy.
In April 2023, the landlord served a default notice, which alleged that the plaintiffs were in default of the lease terms and stated that if the defaults were not cured by May 19, 2023, the lease would be terminated as of May 31, 2023. On May 18, 2023 (one day before the cure period expired), the plaintiffs filed this action and sought a declaratory judgment and a temporary restraining order (Yellowstone injunction) staying the lease termination. In support of the request for the injunction, the plaintiffs submitted an affidavit which stated that they were not in breach, that the landlord’s notice was false but that in the event any breaches of the lease are established, the plaintiffs are willing to cure any breach that the court directs them to.
The lower court declined to grant the injunction and the lease thereafter expired. The judge determined that as residential tenants, the plaintiffs were not entitled to Yellowstone relief, and they had failed to manifest a commitment to curing the alleged breaches. The plaintiffs then appealed.
The plaintiffs asserted that the landlord insisted that a commercial lease was required because the building did not yet have a residential certificate of occupancy. Therefore, their tenancy was ambiguous enough that the remedy for residential tenants may not apply and a Yellowstone injunction should have been issued. Further, the record in the lower court established that they were ready, willing and able to cure the alleged defaults.
The First Department stated that the standard for obtaining a Yellowstone injunction is less stringent than a typical temporary restraining order. Indeed, the Court listed the four criteria and then analyzed each to determine whether the lower court correctly denied the relief.
As to the first criterion, the appeals court found that the lease was a commercial lease form, and at best, the plaintiffs’ status was ambiguous. The facts showed that the second and third criteria were also met. Finally, the Court found that the plaintiffs had satisfied the fourth criterion by submission of the affidavit.
Accordingly, the Court reversed the lower court’s denial of the injunction and deemed the motion to have been granted effective May 18, 2023, meaning that the lease was never terminated.
If you are a commercial tenant or landlord and involved in a similar situation, please contact one of our real estate litigators.