Yellowstone Meets Executive Order 202.28 at Bedford Ave.

This was originally posted on the SGR Blog.

The legal issues and challenges arising from Governor Cuomo’s Executive  Order 202.28, staying proceedings based on non-payment of rent, are now in the courts. A decision last week in Supreme Court, New York County, is among the first of what will undoubtedly be many.

Prestige Deli & Grill Co. sought a Yellowstone injunction. PLG Bedford Holdings opposed the motion.

On February 1, 2017 Prestige signed a lease with PLG for space at 2034 Bedford Avenue in Brooklyn.  A notice to cure was served on May 15, 2020 alleging two defaults: the failure to install grease traps; and the failure to provide insurance. Additionally, the notice alleged that Prestige owed $13,278.16 in back rent and other fees.

Prestige failed to respond to the notice and, on June 2, 2020, PLG served a notice of termination of the lease. Prestige asserted that, due to various executive and administrative orders promulgated during the COVID-19 pandemic, the notice to cure and notice to termination were invalid; or the notice to cure did not yet expire; and the Yellowstone request was proper even though the time to cure had since expired. PLG opposed that request.

A Yellowstone injunction is a remedy whereby a tenant may obtain a stay tolling the cure period so that, upon an adverse determination on the merits, the tenant may cure the default and avoid a forfeiture. For a Yellowstone injunction to be granted the tenant,  among other things, must demonstrate that it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.

A tenant seeking Yellowstone relief must demonstrate that:  (1) it holds a commercial lease; (2) has received from the landlord a notice of default; (3) the application for a temporary restraining order was made prior to expiration of the cure period and termination of the lease;  and (4) it has the desire and ability to cure the alleged default by any means short of vacating the premises.

Executive Order 202.28 states that “there shall be no…enforcement…for nonpayment of rent or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic for a period of sixty days beginning on June 20, 2020”.

Thus, the Executive Order arguable prohibited the enforcement of a termination of a commercial lease for sixty days commencing June 20, 2020. Further, Administrative Order 131/20 states that pursuant to that Executive Order foreclosure matters “shall continue to be suspended until further order”. While this action was not a foreclosure matter, the Court found that it concerned an action regarding the non-payment of rent.

The Administrative Order does not describe the posture of the matter that is sought to be stayed, how long it has been the subject of litigation or any prejudice to any party, but rather broadly stays all foreclosure and non-payment matters.

PLG argued that the Executive Order could not apply to the enforcement of private parties rights under a private agreement. But the Court held that, by staying all foreclosures, the Order did exactly that. To the extent PLG was challenging the authority to restrain private contracts, the pending motion was not the proper place for such arguments. And the Court found that, while it was true that Executive Order 202.28 was issued after the  dates relevant  to this case, that Order was built upon and supplemented other orders and governed the specific facts of this case.

Concerning the actual defaults: Prestige did not assert that it unequivocally was unwilling to cure any defaults.  And the Court found that, to the extent such defaults were found to exist, Prestige would cure them.

The Yellowstone injunction was granted.

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