A Yellowstone Proceeding Cannot Extend the Time to Cure an Incurable Default

This was originally published on the SGR Blog.

Yellowstone proceeding (so-called after a Court of Appeals decision establishing the legal protocol) 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—and, if an adverse determination on the merits ensues, the tenant may cure the default and avoid a forfeiture.

The proceeding is New York–specific. Our Civil Courts in New York City and District Courts in the rest of the State (where landlord-tenant cases are litigated) do not have jurisdiction to grant equitable relief. So a tenant charged with default (who either controverts the default or needs more time to cure or both), must file a Yellowstone proceeding in Supreme Court (which has equitable jurisdiction) before the cure period ends to avoid termination of the lease.  Supreme Court has the ability to toll the cure period and grant an extention of the time to cure (if the default is sustained).

To obtain a Yellowstone injunction a tenant must demonstrate that it: (1) holds a commercial lease; (2) received a notice of default, a notice to cure, or a threat of termination of the lease; (3) requested injunctive relief prior to the termination of the lease; and (4) is prepared to and maintains the ability to cure the alleged default by any means short of vacating the premises.

A recent case arose out of  a Standard Form of Store Lease, dated October 10, 2000 for a commercial space at 35 West 57th Street and to a Notice to Cure, dated July 10, 2019, issued by 35 West Realty Co., LLC to Booston LLC. The Notice asserted that that Booston was in violation of Article 9 of the Rider to the Lease, captioned “Insurance,” which provided in pertinent part:

Tenant shall furnish Landlord with and continue to keep in effect the following insurance coverage on the Demised Premises and any future improvements by recognized insurance carriers licensed to do business in New York and in all cases naming Landlord: (a) Public liability coverage against claims for bodily injury or death in amount of $2,000,000.00 in a single limit or under an original policy with an umbrella….

According to the Notice,

Tenant has violated and continues to violate substantial obligations of Tenant’s tenancy at the Premises in that in violation of Article 9 of the Rider to the Lease, Tenant has failed to furnish Landlord with and continue to keep in effect sufficient insurance coverage on the Premises in accordance with the requirements of that section. Specifically, in violation of Article 9 of the Rider to the Lease, Tenant has failed to (1) furnish Landlord with and keep in effect public liability coverage against claims for bodily injury or death in the amount of $2,000,000 in a single limit or under an original policy with an umbrella, but has instead furnished Landlord with an insurance certificate showing such coverage only in the amount of $1,000,000 in a single limit, and (2) name Landlord as a named insured in Tenant’s insurance coverage on the Premises.

The Notice further provided that Booston must cure this breach by:

providing Landlord with sufficient proof that Tenant has consistently maintained the insurance coverage required under Article 9 of the Rider to the Lease, and that Tenant has properly named Landlord as a named insured on the respective policies that were in place and maintained, by furnishing Landlord with certificates of insurance and copies of the actual policies of insurance for the years since Landlord acquired title to the Building; to wit, the years 2006 through 2019, which certificates and/or other documentation should evidence Tenant’s full compliance with the coverage requirements of Article 9 of the Rider to the Lease.

Booston argued that,  to the extent that it was ever in breach of the “Insurance” provision in the Lease, Realty Co.’s claims with respect to this breach were waived because Booston had delivered to Realty Co. copies of its insurance certificates for more than five years without there being any objection from Realty Co. as to the insurance coverage. And Realty Co. accepted rent payments from Booston throughout.

The Lease provided:

The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or any of the Rules or Regulations set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt of owner of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver is signed by Owner…

Booston’s waiver argument was  barred by the terms of the Lease.

In addition, a necessary lynchpin of a Yellowstone injunction is that the claimed default was capable of cure. If the claimed default was not capable of cure, there was no basis for a Yellowstone injunction.

Failure to procure insurance cannot be cured where the proposed cure does not involve “any retroactive change in coverage”. The alleged defaults raised by Realty Co. we’re not susceptible to cure. Thus, there was no basis for a Yellowstone injunction. The rationale was simple: a deficiency in past insurance coverage would not protect Realty Co. against the unknown universe of any claims arising during the period of no insurance coverage. That rationale squarely applied because there was no means for Booston LLC to obtain retroactive insurance coverage.

Booston argued that Realty Co. ‘s concerns were addressed by Booston’s posting of a $1 million indemnity bond and that such bond cured any alleged insurance coverage shortfall. The Lease did not provide for alternatives to providing the required insurance coverage set forth in the Lease. The Lease did not provide that, in lieu of the for insurance, Booston could substitute a bond.

And even if it did post a bond, Realty Co. maintained that $2,000,000 of coverage in a “single limit” meant $2,000,000 “per occurrence.” A $1,000,000 bond (on top of Booston’s $1,000,000 coverage for each occurrence) would not provide the coverage that Realty Co.’s claims were required, i.e., “in the amount of $2,000,000 in a single limit.”

The Court denied Yellowstone relief which required a default capable of a cure.

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