We last wrote in May 2019 (updating an earlier post written in February 2018) that the New York State Court of Appeals, the state’s highest court, issued a landmark decision affirming the Appellate Division, Second Department’s decision in 159 MP Corp. v. Redbridge Bedford, LLC to uphold a commercial tenant’s waiver of its right to seek a “Yellowstone” injunction. 160 A.D.3d 176 (2d Dep’t 2018). The decision was viewed at the time as likely sounding the ultimate death knell for the remedy, which for decades had been utilized by commercial tenants facing claims of default to toll their time to cure while challenging the veracity of the landlord’s claims. The New York State Legislature, however, appears to have given the Yellowstone injunction new life in the form of New York Real Property Law § 235-h, passed on December 20, 2019 in direct response to the Court of Appeals decision in 159 MP Corp.
The basis of the 159 MP Corp. decision was the apparent lack of public policy interest in providing for, nor any legislative protections of, the Yellowstone injunction. The Court reiterated that “[f]reedom of contract prevails in an arm’s length transaction between sophisticated parties…, and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain.” [pg. 6, quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 695 (1995)]. The Court noted that while the Legislature already “recognized the utility of Yellowstone-type relief for some residential tenants,” the fact that such a benefit has been provided “only to a class of residential tenants indicates that the Legislature did not view this type of relief as fundamental for commercial tenants.” [pgs. 16-17]. Absent any legislative protections for the Yellowstone injunction, and given that commercial tenants could still pursue other remedies, the Court ruled that contractual waivers of the remedy were enforceable and not against public policy.
In the months following the 159 MP Corp. decision, waivers of the declaratory relief associated with Yellowstone injunctions became heavily contested in commercial lease negotiations. Tenants wanted the right to dispute claims of default without risking eviction, and landlords naturally desired more leverage against their tenants. With the Legislature’s passing of NYRPL § 235-h, the right to Yellowstone injunctions should no longer be such a hotly-contested lease item. The law states that “[n]o commercial lease shall contain any provision waiving or prohibiting the right of any tenant to bring a declaratory judgment action with respect to any provision, term or condition of such commercial lease.” Though the law does not explicitly mention the Yellowstone injunction, the Legislature made sure to cite the 159 MP Corp. decision in its explanation of the law, saying that in light of the Second Department’s reasoning that the legislature had not provided any protections for the remedy, “[t]his legislation seeks to enact such a provision as a matter of public policy and restore the right of commercial tenants to cure under a declaratory judgment action as has been the practice since 1968.” 2019 New York Assembly Bill No. 2554, New York Two Hundred Forty-Second Legislative Session.
The law puts to rest the several conflicts that arose in light of 159 MP Corp. The Second Department’s decision created an apparent conflict with existing caselaw in the First Department, where waivers of declaratory relief in contracts were deemed void as against public policy. Even when the Court of Appeals affirmed the Second Department’s decision, seemingly resolving the conflict with the First Department, Judge Rowan D. Wilson, in a dissenting opinion, argued that “freedom of contract is not a limitless right,” and that the Yellowstone injunction was a necessary protection for commercial tenants to avoid eviction while trying to determine their rights and responsibilities under their lease agreements. [33 N.Y.3d 353 (2019), Dissent, pg. 2].
Future leases should be negotiated with consideration given to the fact that waivers of declaratory relief are now void as against public policy in New York. Commercial tenants should utilize the Legislature’s intercession in the Yellowstone affair to ward off landlords seeking to limit their rights to declaratory relief knowing full well that public policy supports them. Commercial landlords, on the other hand, should consider including provisions limiting a tenant’s right to declaratory relief in their commercial leases while ensuring such limitations cannot be construed as absolute waivers of such rights.
You can view the original February 2018 blog post here and the May 2019 update here.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.