In May 2019, in a 4-3 decision, the Court of Appeals dealt a death blow to the Yellowstone doctrine. 159 MP Corp. v Redbridge Bedford, 2019 N.Y. Slip Op. 03526 (2019).
In that seminal case, decided in 1968, the Court of Appeals held that a commercial tenant who was served with a notice to cure by the owner, may commence a declaratory judgment action on the default issue, obtain a tolling of the cure period, and enjoin the owner from terminating the lease or commencing a summary eviction proceeding. First National Stores v. Yellowstone Shopping Center, 21 N.Y. 2d 630 (1968).
As Chief Judge DiFiore described the doctrine in her majority opinion in 159 MP:
We have described the Yellowstone injunction as a “creative remedy” crafted by the lower courts to extend the notice and cure period for commercial tenants faced with lease termination (Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc., 93 NY2d 508, 514 ). In the wake of First Natl. Stores v Yellowstone Shopping Ctr. (21 NY2d 630 , tenants challenging notices of default in declaratory judgment actions “developed the practice of obtaining a stay of the cure period before it expired to preserve the lease until the merits of the dispute could be settled in court,” and courts have “accepted far less than the normal showing required” for injunctive relief under CPLR article 63 (post v 120 E. End Ave. Corp., 62 NY2d 19, 25 . Requests for a Yellowstone injunction are necessarily made in Supreme court rather than Civil Court, which lacks authority to issue injunctive relief and, as such, may not be obtained in a summary proceeding under RPAPL article 7. Yellowstone relief is not an end in itself but merely a means of maintaining the status quo by tolling a contractual cure period during a pending action, permitting a tenant who loses on the merits of the lease dispute to cure the defect and retain the tenancy.
159 MP at ___.
Judge Wilson’s dissent explained the difficult choices a tenant confronts once it receives a notice to cure from the owner:
MP has been operating a grocery store in a neighborhood that has undergone and continues to undergo, rapid gentrification, rendering the real estate substantially more valuable. Its lease is for 20 years, with a further 10-year renewal option. It would like to keep operating the grocery store under the lease terms. Redbridge Bedford would, undoubtedly, like to terminate the lease and make a greater profit from it. Let us assume that there is a legitimate dispute about whether the violations identified by Redbridge Bedford are MP’s obligation to cure. The declaration sought by MP, coupled with the Yellowstone injunction, would allow MP to learn which, if any, of the claimed violations it is obligated to cure, and could then decide whether to cure any for which it responsible or agree to the termination of the lease. Absent a Yellowstone injunction, MP would be required to take one of the following courses without the benefit of knowing its contractual liability: (1) cure-all the alleged defects, even though it might be responsible for none of them; (2) cure none or some of the alleged defects, guessing which, if any, it may be held responsible for, and defend an eviction proceeding hoping that it has guessed correctly; or (3) accept termination of the lease because the eviction proceeding’s result is too uncertain, and attempt to move its business elsewhere or shut it down.
Id. at ___. Against this backdrop, the 159 MP Court held that a lease provision waiving the commercial tenant’s (but not the owner’s) right to commence a declaratory judgment, and requiring all disputes to be resolved in a summary proceeding, was fully enforceable and not contrary to public policy. Thus, if a lease contains such a waiver, a tenant who receives a disputed notice to cure must either “cure” a default it denies, or wait until it issued in a summary eviction proceeding. And as the dissent noted, by the time that proceeding is completed, the cure period will have expired:
If Civil Court, therefore, determines during the summary eviction proceeding that MP is responsible for some or all of the alleged defaults, even if MP has all along been willing and able to cure those defaults, it will be too late: the leases will have terminated. That “all or nothing result” (Post v 120 E. End Ave. Corp., 62 NY2d 19, 25  destabilizes contract relationships and neighborhoods, and effectively allows landlords who own buildings in gentrifying areas to terminate commercial leases at any time based on technical or minor violations. In other words, if a waiver of declaratory and Yellowstone relief is enforceable, it will be used by landlords as a mechanism to vitiate a lawful contract. That does not preserve the parties’ benefit of their bargain, it destroys it.
Id. at ____. The tenant is further disadvantaged by the fact that discovery is limited in a summary proceeding, where it would not have recourse to the full disclosure available in a Supreme Court action.
There are several takeaways from 159 MP. First, except where the economic leverage tilts toward the tenant in a lease negotiation, it will become commonplace for commercial leases to contain waivers of declaratory relief by the tenant. Second, because a Yellowstone toll of a cure period will no longer be available, the playing field will tilt decidedly in favor of the landlord in these lease default litigations.
For these reasons, if the right to file a declaratory judgment is to be waived, tenant’s counsel would be well advised to insist instead upon a clause requiring fast track mediation if a notice to cure is served. Such a clause would allow for a short toll of the cure period pre-suit, while affording the tenant informal discovery in a mediation so that it can more thoroughly assess the strength of the landlord’s assertion that a default has occurred. Most importantly, mediation at that early stage might allow the parties to come to accommodation before positions harden, substantial legal fees are incurred, and emotions are further inflamed, all of which will assuredly occur once an eviction proceeding is commenced.
Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at www.JDBMediation.com