By Victor Metsch
There’s a leak in the window, and the water trickles down to the next floor. The office building triples in value and the landlord-tenant relationship sours with the lost profits.
The fire inspector needs a $100,000 fire suppression system installed, and the landlord insists the commercial tenant has to install it.
So the landlord sends the tenant notice that if he doesn’t cure a problem, the lease will end. But sometimes the “problem” isn’t actually a violation of the lease, and the tenant doesn’t feel he has anything to cure.
Or perhaps he wants to arrange with the landlord to fix it within a few weeks, or to mutually ignore the problem, or he wants to fight in court about whether it is the landlord’s responsibility or his.
A few days pass, and the cure period expires. The lease formally expires, and—to the tenant’s dismay—an eviction proceeding follows. He spends thousands of dollars trying to keep his commercial space, but all the lawyers can do is metaphorically knock on the courthouse door in the rain.
The courts are powerless to reinstate the lease.
So a smart tenant who wants to keep his office space or his retail space will, before the cure period ends, go to court for a Yellowstone injunction. The lesson here? Be swift.
BE SWIFT, LEST DUFFY LOSE HIS WINGS
Duffy’s Wing House in Wantagh, N.Y., was recently the victim of a lost Yellowstone injunction motion. Sedgwick Ave. Assoc., LLC v. H&B Homerun, Inc., 2010 NY Slip Op 31165(U) (Sup. Ct., Nassau Co., April 28, 2010).
Duffy’s Wing House’s lease had already been cancelled pursuant to an order by the Supreme Court, Nassau County, a cancellation which had transformed the lease into a monthly tenancy.
The landlord sent a 30-day notice of termination to the tenant, H&B Homerun, the owner and operator of Duffy’s Wing House, on Nov. 24, 2009. The notice terminated the tenancy on Dec. 31, 2009, and H&B Homerun brought a motion for a Yellowstone injunction on Feb. 2, 2010.
But plaintiffs seeking a Yellowstone injunction must show they requested injunctive relief prior to termination of the lease. The court cannot reinstate the lease, so it could not issue an injunction to save Duffy’s Wings.
BE SWIFT, LEST YOU LOSE YOUR SUPERMARKET
The Court of Appeals introduced the Yellowstone injunction 43 years ago. In First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630, 290 N.Y.S.2d 721 (1968), the New York City Fire Department ordered that sprinklers be installed in the basement of a supermarket in a shopping center, but the tenant supermarket and landlord shopping center disagreed over who had the duty, under the lease, to install the sprinklers.
An appellate court found for the landlord, but granted the tenant 20 days to install the sprinklers, even though the lease had technically expired.
The Court of Appeals overruled that court and said no: once a lease is legitimately terminated, the courts of New York cannot reinstate it, no matter that the tenant is operating out of a good-faith belief that it has no obligation to install the sprinklers or perform some other duty.
The lesson of Yellowstone is still hurting businesses and helping landlords nearly 43 years later: Be swift. Unless you move quickly and correctly for a Yellowstone injunction, there is no way to save your business’s office or retail space in court.
BE SWIFT, BUT BE SURE YOU HOLD A LEASE
In addition to other requirements1, plaintiffs seeking a Yellowstone injunction need to show that they hold a commercial lease.
In C C Vending, Inc. v Berkeley Educ. Servs. of N.Y., Inc., 2010 Slip Op. 05267 (1st Dept., June 15, 2010), CC Vending operated vending machines under an exclusive agreement with the defendant.
But even an exclusive license is not a lease—it does not convey the same ownership interest in a property which centuries of law recognize as inherent to a lease.
“Since plaintiff has no control over defendant’s premises where the vending machines are located, it has no tangible interest in the property, and thus no right to a Yellowstone Injunction.” C C Vending. A mere licensee or concessionaire does not, by virtue of these relationships, become a leaseholder.
BE SWIFT, BUT BE SURE YOU CAN CURE
A plaintiff seeking a Yellowstone injunction must show that, in the event the plaintiff loses the underlying lawsuit, it can cure the alleged breach of its obligations under the lease.
In Kim v. Idylwood, N.Y. LLC, 66 A.D.3d 528 (1st Dept., Oct. 20, 2009), the First Department refused to issue an injunction where the motion court had found, after a hearing, that the plaintiffs had allowed a lapse of insurance coverage required by the lease.
Because new insurance purchased would not protect against any unknown claims arising from the period during which the coverage lapsed, the alleged default was incurable and the plaintiff could not obtain aYellowstone injunction.
Contrariwise in 1286 RR Operating, Inc. v. Herald Towers, LLC, 26 Misc.3d 1209(A) (Sup Ct NY Co. 2009), the Supreme Court, New York County, granted a Yellowstone injunction where, inter alia, the landlord neglected to claim that the tenant would be unable to cure any of the numerous alleged violations of its lease.
The defendant-landlord, Herald Towers, issued notices to cure to the plaintiff-tenant, 1286 RR, which managed a ground floor food court at 50 West 34th Street.
Herald was upset with the smell of food issuing from the food court. Its relationship with its tenant soured, and, in addition to threatening to shut down the tenant for several days while cleaning ductwork, (a measure aimed at remediating the smell), it issued notices to cure on issues ranging from denial of access to the premises to a failure to obtain approval before putting up a Tim Horton’s sign. The tenant timely applied for two Yellowstone injunctions.
The law of Yellowstone injunctions is reasonably well-settled. It is a law of procedure, not of merit—the court is not there to rule on the legitimacy of a claim. So when Herald Towers failed to claim that 1286 RR did not meet any of the requirements for a Yellowstone injunction, but only claimed “that it would be ‘inequitable’ to allow such a ‘cavalier’ leaseholder to cure any defaults at this time,” the Supreme Court, New York County, explained patiently that they were “miss[ing] the import of a Yellowstone injunction” and granted the plaintiff-tenant its two Yellowstone injunctions.
BE SWIFT, LEST YOU LOSE YOUR CLOCKWORK BAR
The Korova Milk Bar in White Plains is by some accounts a bar and by some more of a club, with its New York DJs and its Clockwork Orange theme. But beneath its milky surface lies the curdled slice of old legal cheese that stems from a lease gone awry.
After two years of a landlord-tenant relationship, the landlord served the bar with a notice to cure default, alleging that the bar allowed its patrons to engage in illegal conduct.
Perhaps the landlord had seen the Kubrick film, A Clockwork Orange, in which the bar’s namesake served milk instead of alcohol so that it could serve its drugs to minors.
In reality, of course, the Korova Milk Bar in White Plains is a business, and alleged illegal conduct is only that—alleged. The bar owners wrote back to the landlord, asking about the notice of default, but the landlord ignored the letter and terminated the lease. Only then did Korova move for an injunction.
As in H&B Homerun, because the motion came after termination of the lease, no injunction issued. Korova Milk Bar v. PRE Properties, LLC, 894 N.Y.S.2d 499, 70 A.D.3d 646 (2nd Dep’t Feb. 2, 2010).
BE SWIFT, LEST YOU LOSE YOUR BUSINESS
Such cases whisper warnings to astute commercial tenants: “Tick-tock, go swiftly to court,” says Korova Milk Barand its clockwork theme. “If tenants come late, the court cannot help!” warn H&B Homerun and Yellowstone. “But if they come swiftly,” Herald Towers reassures, “the court can help after all.”
Victor M. Metsch is a Senior Litigation Partner at Hartman & Craven LLP. Tom White, Georgetown Law student and a Summer Associate at the firm, also contributed to this article.
1 Plaintiffs must show that they hold a commercial lease, that they requested injunctive relief prior to termination of the lease, that they have received a notice of default or threat of termination of the lease, and (in case they lose the larger court battle) that they have the ability to cure the alleged default without vacating the premises.