United States: Yellowstone Proceedings Update

I periodically review and update appellate and trial court cases relating to so-called "Yellowstone" proceedings – where the tenant under a commercial lease brings an action in Supreme Court to toll the time to remedy a default asserted by a landlord in a notice to cure and to enjoin the filing of a summary proceeding for eviction in Civil Court (see posts on July 11, 2011, June 21, 2012 and September 1, 2014).  In recent months, our Courts have issued numerous decisions relating to "Yellowstone" proceedings.

NY Kids Club 125 5th Ave., LLC v. Three Kings, LLC, 2015 NY Slip Op 07958(decided on November 4, 2015) [Mastro, J.]

The First Department summarily affirmed Supreme Court's denial of plaintiff's motion for summary judgment:

The plaintiff failed to establish, prima facie, that the defendant's notice to cure is invalid, since the notice to cure, on its face, was sufficient to advise the plaintiff of its purported violations of the subject lease, the conduct required for compliance, the time allowed for compliance, and the consequences of failing to comply with the notice to cure[.]

Artcorp Inc. v. Citirich Realty Corp., 2015 NY Slip Op 00650 (decided on January 27, 2015)

The First Department summarily reversed the order of Supreme Court denying plaintiff's motion for a "Yellowstone" injunction:

To obtain Yellowstone relief a tenant need not show a likelihood of success on the merits...[Tenant] can simply deny the alleged breach of its lease...Contrary to defendant landlord's contention, plaintiff tenant clearly asserted its willingness to cure the allegedly improper assignment of its shares, and had the ability to do so either by transferring its shares back to the deceased owner's estate...or by seeking consent from the landlord...Further, consent may be obtained after the assignment and even in the absence of a lease provision authorizing this post-assignment cure[.]

Confidence Beauty Salon Corp. v. 299 Third SI, LLC, 2015 NY Slip Op 32284(U) (decided on December 3, 2015) [Sup. Ct. N.Y.Co., Kenney, J.]

Plaintiff moved for a "Yellowstone" injunction seeking to toll the period to cure plaintiff's alleged violation of a commercial lease for a beauty salon.  Supreme Court summarized the facts:

On or about April 21, 2015, defendants (collectively the landlord) purchased three buildings adjacent to and including the premises at issue.  In or about 2009, plaintiff alleges that it subleased the rear portion of the first floor, of 297 Third Avenue, New York, NY from the landlord's predecessor-in-interest.  Plaintiff states further that the prior owner/landlord permitted the salon to expand its business, by consent to an oral subletting arrangement for additional space below and to the rear of the premises (the additional space).  Plaintiff claims that the sublessor was DJ Visual Aid Services Inc. (DJ).  An entity wholly owned by the landlord's predecessor-in-interest.

Plaintiff does not dispute that it erected an internal staircase from the premises to the additional space.  The purpose of the staircase was to have an access to additional treatment rooms that were constructed.  The landlord denies that the prior owner consented to any subletting arrangement between plaintiff and DJ.

Landlord's contentions:

[T]he landlord proffers an affidavit from the attorney who represented the current owner in connection with the purchase of the buildings.  As part of the process to obtain financing for the transaction, plaintiff provided the landlord with estoppel certificates for the premises at issue as well as for the 23rd Street location, which [is] not the subject of this instant application.

The estoppel certificates are attached to the landlord's opposition papers and include, inter alia, the following representations made by plaintiff:

  • ratification of the existence of the lease;
  • the lease was not modified in any way and represents the entire understanding of the parties;
  • there has not been subletting of the leased premises or assignment of the lease.

The notice to cure:

The landlord's 30 day notice to cure, dated June 22, 2015, sets forth a litany of alleged lease violations, that include:

  • unlawful occupation of the additional space;
  • illegal construction of the additional space without obtaining building permits;
  • failure to obtain sufficient insurance;
  • occupying the additional space in violation of the building's certificate of occupancy;
  • illegal alteration of the electrical and plumbing systems without obtaining proper permits.

Rejected plaintiff's contention:

Plaintiff's contention that [there was] an oral sublet agreement with the former owner of the premises is not credible.  The evidence establishes that plaintiff made representations in the estoppel certificate contrary to those it asserts here.  Plaintiff also had knowledge that its representations would be acted upon, and it appears that landlord detrimentally relied upon those representations.  Plaintiff had actual knowledge of the true state of affairs of the premises[.].

Moreover, an estoppel certificate will be enforced unless the certifying party can show a defense to the making of the document, such as fraud or duress, or that the assignee (the landlord), accepted the certificate with knowledge of the contrary, and true, state of facts.  No such defense has been asserted here, and no evidence was submitted to establish that the landlord knew the representations in the certificates were false[.]

Summarized the test for "Yellowstone" relief:

First Nat. Stores, Inc. v. Yellowstone Shopping, Inc., 21 NY2d 630 (1968), and its progeny established a four prong test for determining whether a "Yellowstone" injunction should be granted.  The requirements for obtaining Yellowstone relief are as follows:  (1) plaintiff holds a commercial lease, (23) the landlord has served a notice to cure, (3) the referenced cure period has not expired, and (4) plaintiff has to demonstrate an ability and willingness to "cure"[.]

And denied the relief sought:

A Yellowstone injunction 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 so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture of the lease...Additionally, the very nature of this kind of injunction is designed to "forestall the cancellation of a lease to afford the tenant an opportunity to obtain a judicial determination of its breach, the measures necessary to cure it, and those required to bring the tenant in future compliance with the terms of the lease[.]

[P]laintiff has not shown that it is prepared and nor that it has the ability to cure the alleged defaults[.]

Queensboro Parking Corp. v. Phipps Houses, 2015 NY Slip Op 32138(U) (decided on October 15, 2015) [Sup. Ct. Queens Co., Raffaele, J.]

Plaintiff sought to stay a "30 Day Notice to Terminate", to vacate the notice, to maintain the status quo, and to enjoin plaintiffs from terminating its lease.

Supreme Court summarized the facts:

Plaintiff seeks in its verified complaint, dated July 21, 2015, inter alia, a declaratory judgment and injunctive relief concerning the terms of a lease among the parties, originally executed on December 15, 1978 wherein plaintiff, Queensboro Parking Corp (QPC) was tenant and defendant Phipps House (PH) was landlord.  This was a written commercial lease and rider for a commercial property located at 50-25 Barnett Avenue, Long Island City, New York (the premises) and was utilized by plaintiff QPC, as a parking garage...The original lease was for five-year term, from December 15, 1978 to November 30, 1983...Thereafter there was a first lease extension for a ten-year period from December 1, 1988 to November 30, 1998...Thereafter, the parties extended the lease for an additional ten years from December 1, 1998 to November 30, 2008[.].

It is undisputed that the parties never executed a lease renewal or extension after the Second Lease Extension expired on November 30, 2008...Incidentally, Phipps House Services, Inc. is the managing agent for and a wholly-owned subsidiary of PH.  Co-defendant, Sunnyside-Barnett Associates LLC is the present owner of the premises and is also wholly-owned by its sole member, PH.  On June 24, 2014, title to the premises was transferred from PH to Sunnyside-Barnett Associates, LLC.  It is further undisputed that plaintiff, QPC has remained in occupancy of the premises since November 30, 2008, the expiration of the Second Lease Extension, currently at the rate of $20,000.00 per month.

The dispute before the Court:

The dispute herein arises from the interpretation of a clause in the Original Lease...which reads in relevant part:

It is further specifically understood and agreed that if Landlord decides in good faith to develop the property demised to the Tenant under said Lease, said Lease as extended, can be cancelled by landlord upon to twelve (12) month's prior written notice to Tenant which shall state the date upon which this Lease, as extended, shall terminate, and upon giving of written notice as aforesaid, the Lease, as extended, and term hereof shall terminate and expire as of the last day of the twelfth month after the notice of lease cancellation.

The tenant's arguments:

Plaintiff, tenant, QPC argues that this clause is in effect and the Thirty-Day Notice of Termination, dated July 24, 2015 served in Landlord and Tenant Court should be enjoined and stayed because the QPC should really have a twelve-month notice as outlined in the preceding paragraph.  To bolster its argument QPC relies on a "Yellowstone-styled injunction" to immediately enjoin and stay the Thirty-Day Notice of Termination, served by the landlord on July 24, 2015 which purportedly terminated QPC's tenancy effective, August 31, 2015.  In the case at bar, there was no Notice of Cure ever served.  It is well settled that aYellowstone injunction serves the limited purpose of tolling an applicable cure period to permit a commercial tenant additional time to cure a default and avoid the termination of the leasehold[.].

The absence for grounds of "Yellowstone" relief:

This court finds that a Yellowstone injunction is not applicable in the case at bar, however, in the interest of justice and judicial economy, the court shall entertain QPC's application as one for an injunction, pursuant to CPLR Article 63.  It is axiomatic that a preliminary injunction is a drastic remedy and should be issued cautiously...CPLR Section 6301 sets forth the requirements for a preliminary injunction as (1) a likelihood of success on the merits and (2) irreparable injury in the absence of an injunction and (3) a balancing of equities in plaintiffs' favor.  It is well settled that irreparable harm is defined as any injury where monetary damages are not sufficient..."Damages compensable in money and capable of calculation, albeit with some difficulty, are not irreparable"[.].

And the Court also denied a preliminary injunction because:

Based on the foregoing, and the arguments on the record, this court finds that plaintiff is not entitled to a preliminary injunction.  Initially, plaintiff has failed to establish a likelihood of success on the merits.  This court finds that the clause in the Original Lease relative to a twelve-month notice to tenant is not applicable to the case at bar; since this court finds that QPC has been a month to month tenant since the expiration of the Second Lease Renewal on November 30, 2008...RPL 232-c reads in relevant part, that when a tenant holds over after the expiration of a lease then "[I]f the landlord shall accept rent for any period subsequent to the expiration of such term, then, unless an agreement either express or implied is made providing otherwise, the tenancy created by the acceptance of such rent shall be a tenancy from month to month commencing on the first day after the expiration of such term."  Accordingly, QPC is only required to receive a Thirty-Day Notice which was duly served by the landlord on July 24, 2015.

Notwithstanding the fact that this Court holds that the lease is no longer in effect, since it was not renewed on November 30, 2008, QPC had in fact more than one year notice of the sale of the premises during the year-long negotiations between the parties regarding when QPC would move out...Moreover, the court further notes that the twelve-month notice requirement specifically states that it shall remain in effect if the lease is "extended."  The lease was not extended after its expiration on November 30, 2008, so that requirement no longer existed.  Finally the lease did not need to be cancelled because it ended on November 30, 2008, when QPC became a month to month tenant[.]

Further, this court further finds that the landlord properly categorizes the aforestated clause as a "demolition clause" which gives the landlord the option of cancelling the lease under the relevant contract law of this state.  Reading the four corners of the lease agreement, this court finds that this is a proper interpretation of the clause.

Similarly, plaintiff has failed to establish irreparable harm or the balancing of the equities in its favor.  The landlord has properly elected to terminate the month to month tenancy by the requisite Thirty-Day Notice.

Wisoff v. 170-176 West 89th St. Apt., Corp., 2014 NY Slip Op 32773(U) (decided on October 21, 2014) [Sup. Ct. N.Y. Bannon, J.]

Supreme Court outlined the pending motion:

In this action for, inter alia, a judgment declaring the parties' rights and obligations under a proprietary lease, the plaintiffs move, pursuant to [Yellowstone], to toll the amount of time allowed for the plaintiffs to cure the allegations set forth in the defendant's January 29, 2014 notice of default. In the alternative, the plaintiffs move for a preliminary injunction restraining the defendant from, inter alia, seeking to terminate the plaintiffs' proprietary lease or shares of stock and preserving the status quo[.]

Summarized the facts:

The defendant is the owner of a residential cooperative building located at 170 West 89th Street, New York, NY. The plaintiffs entered into a contract of sale for the purchase of the subject cooperative unit in the building on November 1, 1989. Shortly thereafter, the plaintiffs installed a second bathroom within the unit. The parties dispute whether approval from the Cooperative Board was sought and granted. On or about May 22, 2013, the defendant notified the plaintiffs, inter alia, that the second bathroom was improperly installed without Board approval and that the plaintiffs had improperly installed a second kitchen. The Board subsequently hired an architect and conducted a physical inspection of the unit to determine whether the plaintiffs had created an illegal second apartment. On November 14, 2013, the defendant issued a notice of default to the plaintiffs alleging that the plaintiffs illegally expanded their apartment by annexing a portion of the common area and incorporating it into the subject unit and that the plaintiffs created an illegal second apartment occupied by a tenant. The plaintiffs were given 30 days to remove the tenant and restore the apartment to its original size and configuration.

The prior proceedings:

The plaintiffs commenced this action on January 28, 2014, by summons and verified complaint. The next day, on January 29, 2014, the defendant issued a "Thirty (30) Day Notice to Cure Default," alleging that the plaintiffs violated provisions of both the proprietary lease and the defendant's house rules. The defendant alleged that the plaintiffs made unauthorized alterations and created an additional and illegal apartment adjacent to their own, which they rent out to a tenant in violation of law and the terms of the proprietary lease. Additionally, the defendant alleged that the plaintiffs constructed a bathroom without the proper Department of Buildings filings, stored their property in common areas thereby obstructing certain hallways, and allowed their dogs to roam and defecate in common areas and the rear yard of the building. The plaintiffs were afforded until March 6, 2014 to cure their alleged default.

Plaintiffs' application for "Yellowstone" relief:

The plaintiffs applied, by order to show cause dated March 5, 2014, for an injunction pursuant to [Yellowstone], to toll the time allowed to cure the default as set forth in the Board's January 29, 2014 notice. Alternatively, the plaintiffs seek a preliminary injunction, enjoining the defendant from taking any action to terminate the plaintiffs' proprietary lease or shares of stock and from interfering with their rights to the premises.  The plaintiffs argue that a Yellowstone injunction should issue because the cure period had not expired and the plaintiffs "provided a meritorious claim with the express statement that if a cure is required it will cure the alleged defaults." The plaintiffs argue that they are entitled to a preliminary injunction because they have shown a likelihood of success on the merits in that they submitted documentary evidence and several affidavits from individuals with first hand knowledge of the addition of the second bathroom and the configuration of the unit over time, they will otherwise suffer the irreparable harm of being evicted, and the equities balance in their favor so as to maintain the status quo.

Defendant's response:

[T]he defendant argues that neither a Yellowstone injunction or a preliminary injunction is necessary because a ten day cure period is already available to the plaintiffs under RPAPL § 753(4). The defendant further argues that the plaintiffs are unable to establish irreparable harm or a likelihood of success on the merits such as would warrant a preliminary injunction.

The applicable law:

The purpose of a Yellowstone injunction is to stop the running of the cure period of a tenant's alleged default, thereby protecting the tenant's investment in the leasehold and preserving the status quo until the parties' rights can be adjudicated.  The applicant for a Yellowstone injunction must establish that, "(1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises."...Yellowstone relief has been granted to residential tenants only in certain narrow circumstances, for instance when the ten-day cure period provided by RPAPL § 753(4) is either unavailable or insufficient...Due to a clearly identifiable equity interest, courts have also issued Yellowstone injunctions where the tenant owns shares in a cooperative apartment in order to avoid "forfeiture of [the tenant's] valuable leasehold interest while it challenges the propriety of the landlord's default notice."[.]

Addressed RPAPL § 753(4):

Although RPAPL § 753(4) displaces injunctions pursuant to Yellowstone for residential tenants within the City of New York after adjudication of the merits in proceedings to recover possession of premises, RPAPL § 753(4) does not limit Yellowstone where, as here, an action seeking a judgment declaring the parties' rights and obligations under a proprietary lease remains pending...RPAPL § 753(4) applies only to proceedings to recover possession of residential premises in New York City based upon a tenant's alleged breach of a provision of the lease...Once the court adjudicates the merits of the case, RPAPL § 753(4) provides for a ten-day stay of issuance of a warrant of eviction to allow the tenant to cure the breach and provides for a cure period after the court has determined that the subject lease has terminated due to the tenant's breach...In contrast,Yellowstone "prevents expiration of the lease by tolling the running of the cure period, a necessary precondition to terminating the lease."...Here, the defendant landlord has not commenced a proceeding to recover possession of the premises, the merits have not been adjudicated, and the subject lease has not terminated due to the plaintiff tenant's breach. Accordingly, RPAPL § 753(4) is inapplicable to the circumstances of this case.

And granted plaintiffs' application for "Yellowstone" relief:

The plaintiffs are owners of shares in the subject cooperative unit in the building owned by the defendant. The January 29, 2014 notice of default afforded the plaintiffs until March 6, 2014 to cure their alleged default. The plaintiffs applied for injunctive relief pursuant to Yellowstone on March 5, 2014, one day before the cure period expired and maintain their willingness and ability to cure any default. Due to the clear threat of termination of their proprietary lease and forfeiture of their cooperative shares, the timeliness of the plaintiffs' application. and their desire to cure any breach, the plaintiff's application for an injunction pursuant to Yellowstone is granted on the condition that the plaintiffs continue to tender monthly maintenance in the amount reserved in the proprietary lease throughout the pendency of these proceedings.

Equinox Hudson St., Inc. v. Hudson Leroy LLC, 2015 NY Slip Op 31917(U) (decided on October 9, 2015) [Sup. Ct. N.Y. Co. Kern, J.]

The Court summarized the prior and pending proceedings:

Plaintiff Equinox Hudson Street, Inc. ("Equinox") previously brought a motion for a Yellowstone injunction staying the cure period that expired on January 29, 2013 and tolling plaintiff's time to cure the alleged default. It also sought leave to amend the complaint to assert causes of action for the injunctive relief sought in the motion. The court granted plaintiffs motion in its entirety. Defendants now move to vacate that Yellowstone injunction and for summary judgment dismissing the sixth, seventh and eighth causes of action relating to the Yellowstone injunction[.]

The relevant facts:

[S]ince on or about September 2010, Equinox has been operating a health club and fitness center at the Printing House Building located at 421 Hudson Street pursuant to a sublease with defendant Hudson Leroy LLC ("Hudson"). Hudson had served a written default notice upon Equinox which alleged that the noise from Equinox's spin cycling studio was too loud and unreasonably annoyed and inconvenienced other occupants of the building in violation of section 4.04 of the sublease. The notice gave Equinox until January 29, 2013 to cure the alleged default. In response to the notice, Equinox brought a motion for a Yellowstone injunction. It alleged in support of the motion that no default existed under the sublease as Equinox had complied with all of the requirements and conditions of section 4.04 of the sublease and has already taken all necessary steps to minimize any alleged noise or vibrations. It further alleged that if the court found that a default has occurred, Equinox was ready, willing and able to cure any defective performance under the sublease. The court granted the motion for a Yellowstone injunction, finding that Equinox had met all of the requirements for a Yellowstone [injunction], including sufficiently establishing that it was prepared and maintained the ability to cure any alleged default if it was established that such default existed.

And denied the application:

This court finds that defendants have failed to establish any basis for vacating the Yellowstone injunction previously issued by this court. Equinox continues to maintain, as it did in the original motion, that it is not in default of any provision of the sublease and that it has complied with all of the requirements and conditions of section 4.04 of the sublease and has already taken all necessary steps to minimize any alleged noise or vibrations. Since the issuance of the Yellowstone injunction in 2013, Equinox alleges it has spent over $50,000: (a) conducting extensive expert acoustic tests and inspections in cooperation with AGBH Printing House Holdings, LLC ("AGBH"), which owns 81 units in the premises and has been performing construction work in the building to prepare their units for sale, and the Condominium's management; (b) installing approximately 1,000 square feet of acoustic rubber tile in its strength training area; (c) installing dead lift platforms and cushions; (d) changing the use of fitness equipment in its group fitness classes; and (e) installing signs and enforced its "no weight drop" policy with staff and members. It also alleges that despite the foregoing efforts, minor noise and vibration may at times still be audible or felt outside of its premises because the demolished demising west wall of Equinox's cycling studio has not yet been re-built by AGBH. It further alleges that in order to reduce the noise once the construction by AGBH is completed, Equinox and its experts are developing and carefully coordinating plans for the renovation of its cycling studio with AGBH, including the reconstruction of Equinox's side of the demolished west demising wall. Equinox alleges it will be ready and able to finish resolving any previously alleged noise or vibration complaints once the relevant AGBH construction is substantially completed and field conditions at the site substantially improve. Equinox also continues to maintain that it has a continuing desire and ability to cure any default if a determination is made that a default actually exists despite the foregoing efforts. Based on the current allegations by Equinox that it has taken all steps that it can take at the present time to reduce the noise and will take further steps once the AGBH construction is completed and its continuing allegation that it is prepared to cure any default if a judicial determination is made that it is in default, the court finds that there is no basis for vacating the Yellowstone injunction previously issued by the Court.

Moreover, defendants have failed to establish that they are entitled to summary judgment dismissing the sixth, seventh or eighth cause of action relating to the Yellowstone injunction as there are material issues of fact in dispute as to whether Equinox is in violation of any provision of the sublease by permitting unreasonable noise or vibrations to be transmitted from its premises.

Islip Theaters, LLC v. Landmark Plaza Props., Corp., 2015 NY Slip Op 31948(U) (decided on September 23, 2015) [Sup. Ct. Suff. Co., Rouse, J.]

Plaintiffs applied to the Court for a "Yellowstone" injunction to prevent the termination of its commercial lease based upon a 10-day notice of default and cure from defendant.  The

Court summarized the question presented:

The only question of fact to be resolved upon this motion is what deficiencies in the premises must be repaired under the terms of the lease, whether the tenant is prepared and has the ability to cure under the terms of the lease; and if so, setting a reasonable time schedule for such cure to be effected.

The Court notes that the lease submitted to the court indicates that the tenant paid a security deposit of $75,000.00...The schedule of maintenance the Defendant claims is required under the lease, in the estimation of the Defendant, will cost $40,370.00.  Whether all of these items are obligations under the lease remains in dispute, as well as the cost of such repairs.

Tenant's contentions:

The Plaintiff-Tenant alleges that it learned that the Defendant-Landlord had secured a reduction in property taxes, that the Defendant-Landlord did not disclose this reduction to Plaintiff-Landlord.  Plaintiff-Tenant then commenced an action under Suffolk County Index Number 005631/2015 and thereafter, the Landlord-Defendant served its ten day notice to cure.  The Defendant-Landlord does not dispute this fact, but rather argues that under the terms of the lease such amounts due to the Tenant would be credited against future rent due.  To the extent counsel can not effectively resolve this dispute between the litigants, a hearing is required.

Landlord's response:

The Defendant-Landlord has filed with this court a motion made by Order to Show Cause wherein Defendant-Landlord seeks injunctive relief to prevent the Plaintiff-Tenant from removing any fixtures from the premises, and further requiring the Plaintiff-Tenant to maintain insurance on the premises.  The movant has given this court no reason to believe the tenant intends to remove any fixtures that belong to it.  On the contrary, the Plaintiff-Tenant has undertaken substantial efforts to retain its tenancy in this movie theater which it has operated at least since 2006 when this twenty year lease began.  Under the terms of the written lease, it is the obligation of Landlord-Defendant to maintain insurance on the premises which is then charged to the Plaintiff under the terms of this triple net lease.

Based upon the foregoing, the Court denied the landlord's motion for a preliminary injunction.

45th Street BLT Rest. LLC v. Waterscape Resort II, LLC, 2015 NY Slip Op 31694(U) (decided on September 4, 2015) [Sup Ct. N.Y. Co., Jaffe, J.]

The Court described the pending proceeding:

By order to show cause, plaintiff-tenant moves for a temporary restraining order and preliminary injunction tolling and enjoining the running of the cure period set forth in a notice to cure dated June 25, 2015, and enjoining defendant-landlord from terminating the lease based on the notice and/or otherwise commencing eviction proceedings pending the determination of the action, and permitting tenant to amend the complaint[.]

The background:

By lease dated January 1, 2011, tenant leased from landlord commercial unit 3 in the building located at 70 West 45th Street in Manhattan, to be operated as a restaurant; the building also contains a hotel and condominium residences. The lease commenced on March 1, 2011 for a 15-year term with tenant having the option of two additional five-year extensions[.]

Pursuant to Article 53A of the lease, tenant agreed that neither the lease nor the premises would be assigned, transferred, or permitted to be used or occupied by anyone other than tenant, or be sublet, without the landlord's prior written consent. However, landlord's consent to an assignment or sublet is not required if the premises are sublet to an "affiliate controlled by, under common control with or controlling tenant[.]"

Article 43.A of the lease requires tenant to use a portion of the premises solely for the operation of a restaurant with a bar. Articles 6 and 54 require tenant to comply with all laws, orders, and regulations, and to give landlord notice of any notices tenant receives of the violation of any law or requirement of any public authority with respect to the premises[.]

By notice dated June 25, 2015, landlord notified tenant that it had violated and continues to violate the lease as follows:

(1)        by entering into a sublease on April 25, 2013 with an entity called "Restaurant at Cassa NY LLC" (Restaurant at Cassa) without landlord's consent as required by Article 53A of the lease; and

(2)        by causing or permitting the operation of a bar at the premises by an entity whose liquor license has apparently expired in violation of Articles 6, 43.A, and 54 of the lease.

Landlord gave tenant 15 days to cure its defaults[.]

Tenant's position:

By affidavit dated July 7, 2015, Salim Chakalo, a member of tenant, denies that tenant has violated the lease, and asserts that "Cassa NY Restaurant LLC" (Cassa) is an affiliate owned by tenant which, among other things, handles insurance, payroll, and other business aspects of tenant's restaurant, Butter, and that in any event, tenant can and is able to transfer anything in Cassa's name into tenant's name. He submits a copy of an Amended and Restated Operating Agreement for Cassa dated April 26, 2013, in which Cassa's purpose is defined as being organized to "acquire, invest in, develop, own, operate, rent, lease, assign, transfer, dispose of, develop or purchase, construct or renovate, maintain and operate a food restaurant and bar" at the premises to be operated under a trade name as set forth in a forthcoming license agreement.  Cassa was to be jointly managed by Carlton Hospitality Management LLC and Butter Management LLC (BM), and its members were Restaurant Service America LLC (RSA) with a 77.68 percent interest and BM with a 22.32 percent interest[.]

Chakalo also submits an Amended and Restated Operating Agreement for RSA, which states that RSA was organized pursuant to Articles of Organization filed with the New York Department of State on April 17, 2013, and that its purpose is to acquire, report on, invest in, develop, construct, own, operate, rent, lease, assign, transfer and sell restaurants and various entities and interests in restaurants, including the restaurant to be located at the premises.  Chakalo was appointed manager of RSA, and tenant was listed as the sole member of RSA with a 100 percent interest[.]

Chakalo also asserts that landlord has prevented tenant from renewing its liquor license by failing to obtain a new certificate of occupancy for the building after June 9, 2015 when the prior certificate expired. Nonetheless, tenant submitted an application for a new liquor license and was issued a new license in July 2015[.]

In response to a subpoena issued by landlord to BM in August 2015, by affidavit dated August 14, 2015, Jaqueline Akiva states that she is a member of BM, that BM is a trade name licensed to Cassa and Restaurant at Cassa and used in connection with the operation of a restaurant in landlord's premises. She attests to the authenticity of the following:

(1)        A sublease dated April 25, 2013 between plaintiff as sublandlord and Restaurant at Cassa as subtenant, in which the leased premises is defined as all of the premises demised by the overlease between tenant and landlord, and provides that the sublease is subject to overlandlord's consent and that sublandlord shall request the same;

(2)        The same Amended and Restated Operating Agreement for Cassa, dated April 16, 2013, as submitted by tenant,...which contains the list of members, shows RSA and BM as each being 50 percent members;

(3)        A 2014 tax Partnership Form 1065, Schedule K-1, from Cassa to Butter, showing that Cassa and BM are 50 percent partners in Cassa;

(4)        An unsigned and undated Option Agreement with Warranties, between BM, RSA, and Cassa, which provides that BM owns a membership, capital and profits interest in Cassa, and that BM is assigning all right, title and interest it has in its entire member interest to the other member, RSA,

(3)        A Restaurant Managing Agreement dated February 2013 between BM and Carlton collectively as manager and Cassa as owner/operator/manager, whereby Cassa transferred its right to manage the restaurant on the premises to Butter and Carlton;

(4)        An unsigned letter dated December 12, 2013, from China Grill Management, Inc. and Butter, confirming that China Grill agrees that it has consulted and will continue to consult on the operation of the restaurant on behalf of Butter; and

(5)        An undated Trademark License Agreement granting Cassa a license to use the name "Butter" in connection with the operation of the restaurant.

Landlord's response:

According to Jennifer Villanueva, an employee of Viceroy Hotel Group, an independent managing agent for the Hotel, who has the been the hotel's General Manager since August 2014, tenant has never asked landlord to consent to its sublease, but if asked to do so, landlord would not consent, given the difficult relationship between the parties related to the operation of Butter.  She also submits copies of records received from the State Liquor Authority, including:

(1)        An application for a liquor license, from October 2013, by Cassa, which provides [who] the LLC members of Cassa are, with 50 percent membership each, Carlton  (with Solly Assa as its 100 percent member) and BM (with Scott Sartiano and Richard Akiva each as 50 percent members); and

(2)        An Asset Purchase Agreement, dated September 10, 2013, by which Restaurant at Cassa sold to Cassa for $25,000 all right, title and interest to its cooking supplies and inventory at the premises and good will of the business.

Tenant's contentions:

Based on Chakalo's affidavit, tenant contends that it has either cured, is in the process of curing, or is ready, willing, and able to cure the purported violations set forth in landlord's notice to cure[.]

Landlord's contentions:

Landlord observes that tenant admits in the sublease that landlord's consent to the subletting is required, and that the Option Agreement and related documents given to BM by RSA are not signed by BM, and that Chakalo's Exhibit A to the Cassa Operating Agreement is a forged or fake document as the Exhibit A submitted by BM reflects that BM and RSA are each 50 percent members in Cassa. Landlord thus argues that Cassa is not a permitted transferee under the lease because tenant does not control or is not under common control with or by Cassa.  Landlord also denies that tenant obtained a new liquor license and asserts that it is the sponsor of the building, not landlord, that has a duty to obtain a valid certificate of occupancy for the building. For these reasons, landlord maintains that tenant is not entitled to a Yellowstone injunction for failing to demonstrate a good faith willingness to cure the breach, and also lacks the ability to cure it as landlord will not consent to the sublease and there is no evidence that BM has agreed or will agree to tenant's proposed option agreement[.]

The Yellowstone analysis:

The purpose of a Yellowstone injunction is to maintain the status quo so that a commercial tenant, when threatened with the termination of its lease, may protect itself by obtaining a stay tolling the cure period so that upon determination of the merits of the alleged defaults, it may cure the default and avoid a forfeiture...A party seeking a Yellowstone injunction must demonstrate that:  (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat to terminate its lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises...The limited purpose of the injunction is to toll the running of the applicable cure period while a determination is made on the merits of the alleged default...It is undisputed that the first three elements are not in issue here.

*     *     *

Here, the documents show that at a minimum, tenant is a 50 percent member of subtenant through its 100 percent membership in RSA, and thus tenant may be able to establish that the subtenant is controlled by, under common control with, or controlling tenant, and thereby that landlord's consent to the sublease was or is not required. Moreover, tenant has already communicated with BM in an attempt to acquire BM's membership in Cassa, in which case it would then be the 100 percent member of subtenant[.]

And granted the relief sought:

Tenant has already also applied for a new liquor license. Tenant has thus established that it has both the desire and ability to cure the alleged defaults[.]

As the law does not favor the forfeiture of a valuable leasehold, especially here where many years remain on the lease[.] all of the circumstances, tenant has established its right to the issuance of a Yellowstone injunction.

Riesenburger Props., LLLP v. Pi Assoc., L.L.C., 2015 NY Slip Op 50839(U) (decided on June 1, 2015) [Sup. Ct. Queens Co., Ritholtz, J.]

The application before the Court was by defendant:

for a temporary restraining order and preliminary injunction tolling and enjoining the running of the alleged termination period set forth in plaintiff's notices of termination dated December 1, 2015; enjoining the plaintiff from terminating the defendant's lease; enjoining the plaintiff from removing defendant from its lawful possession of the subject premises; and enjoining the plaintiff from commencing eviction proceedings against the defendant pending the determination of this action and/or otherwise disturbing defendant's right to the use and quiet enjoyment of the premises.

Supreme Court detailed the facts:

On July 1, 1994, Alkus I. Riesenburger (Riesenburger), as owner, and The Wiz Distributors of Flushing Inc., (The Wiz), as tenant, entered into a commercial lease for the building consisting of two-stories, and a basement, known as 39-09 Main Street, Flushing, New York, commencing on January 1, 1995, and for the building consisting of two-stories, a partial third floor, and a basement known as 39-11 Main Street, Flushing, Queens County, New York, commencing August 1, 1996. At the time said lease was entered into, The Wiz was currently leasing 39-11 Main Street from Riesenburger, and that lease would remain in effect until July 31, 1996. The lease agreement provided that commencing August 1, 1996, both properties would be considered the leased and demised premises under the July 1, 1994 lease. The lease term ended on July 31, 2011. Some time in the 1990s, The Wiz filed for bankruptcy and went out of business by the early 2000s.

On April 25, 2003, Alkus I. Riesenburger, as lessor, and Pi Associates L.L.C. ("Pi Associates"), and James Pi, as tenant, entered into lease agreement for the real properties known 39-09 Main Street and 39-11 Main Street, Flushing, New York. Said agreement acknowledged that there was an existing lease for said premises in effect, dated July 1, 1994, and that Pi Associates and Mr. Pi wished to enter into a new lease agreement whereby Pi Associates will become the lessee of said commercial premises. Pursuant to the new lease agreement, Pi Associates would take possession of said properties effective August 1, 2011, for a period of 19 years and 10 months, ending on May 31, 2031. The 2003 lease incorporated the terms of the 1994 lease, except as otherwise modified thereunder. Mr. Pi agreed to personally guaranty the 2003 lease.

Pi Associates entered into an Assignment and Assumption of Lease, dated May 1, 2011, with 3909 Main Street, LLC, whereby it assigned all of its rights under the April 25, 2003 lease with Riesenburger to 3909 Main Street LLC and the assignee assumed all of the obligations imposed on the tenant under the April 25, 2003 agreement. Said assignment was executed by James Pi, as the manager of Pi Associates, and James Pi as the manager of 3909 Main Street LLC. Said assignment was entered into prior to the date Pi Associates took possession of the subject premises, and states that the assignment was for "tax purposes."

On June 17, 2011, 3909 Main Street LLC entered into a sublease agreement with Carat & Co, Inc. for the entire premises, for a period of ten years commencing August 1, 2011, with options to renew, so that the lease term could end on July 31, 2021. Said lease agreement identified 3909 Main Street LLC as the "landlord," and was executed by James Pi as manager of 3909 Main Street LLC, and Allan Mon as president of Carat & Co. Inc.

Prior to entering into the assignment agreement, Pi Associates did not seek the consent of the landlord, and the landlord has not given written consent to the assignment. The landlord contends that it first learned of said assignment when its counsel received a letter from counsel for Pi Associates, dated December 16, 2011, which made reference to the Assignment and Assumption of Lease Agreement between Pi Associates and 3909 Main Street LLC. A copy of the assignment agreement, as well as a letter from a bank pertaining to 3909 Main Street LLC, was enclosed in said letter. Neither Pi Associates nor 3909 Main Street LLC informed the landlord of the sublease agreement with Carat & Co., prior to the execution of the sublease agreement.

On October 7, 2014, plaintiff served eight separate default notices on Pi Associates 3909 Main Street Associates LLC and James Pi, and required Pi Associates and James Pi to cure each default within 15 days of receiving said notice. Said defaults pertain to the assignment of the lease to 3909 Main Street LLC; the sublease between 3909 Main Street LLC and Carat & Co. Inc.; the merger of the properties into a single tax lot; the failure to pay the landlord 70% of the sublet rent received by Pi Associates that was in excess of their payments to the landlord; and the failure to provide the landlord with certificates or policies of insurance and failing to provide the landlord with substantial financial and operating information required under the lease.

In a letter dated October 17, 2014, counsel for the tenant, identified as 3909 Main Street Associates, objected to each of the eight default notices, and asserted, in essence, that no default had occurred.

On December 1, 2014, four notices of termination of the lease requiring the surrender of the premises on or before December 6, 2014, were served on Pi Associates, James Pi, and 3909 Main Street LLC.

The prior proceedings:

Plaintiff Riesenburger Properties, LLLP, commenced the within action on December 2, 2014 and alleges causes of action for breach of contract, quantum merit, unjust enrichment, to recover possession of the premises, indemnification, and enforcement of the guaranty. Defendants have served an answer. Pi Associates and James Pi have each interposed counterclaims in their answer, and plaintiff has served a reply to the counterclaims.

A proposed unsigned order to show cause for a Yellowstone injunction and a Request for Judicial Intervention was efiled by defendant 3909 Main Street LLC on December 4, 2014. On December 5, 2014, the parties appeared in this Part and, pursuant to a so-ordered stipulation, the effective date of cancellation was extended to January 26, 2015, the order to show cause for the Yellowstoneinjunction was held in abeyance, and a settlement conference was scheduled for January 26, 2015. On January 29, 2015, pursuant to a so-ordered stipulation, the settlement conference was adjourned to February 25, 2015, and a schedule was set forth with respect to the service of papers relating to the order to show cause and extending Carat & Co. Inc.'s time to serve an answer to the complaint.

This Court signed the subject order to show cause on March 13, 2015. Defendant 3909 Main Street LLC seeks a temporary restraining order and a "Yellowstone"injunction...Although not designated as the movants in the order to show cause, counsel for defendants states in his emergency affirmation that the within motion is made on behalf of defendants Pi Associates, James Pi, and 3909 Main Street LLC.

The legal template

"A Yellowstone injunction 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 so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture" of the lease[.]

"To obtain a Yellowstone injunction, the tenant must demonstrate that (1) it holds a commercial lease, (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease, (3) it requested injunctive relief prior to both the termination of the lease and the expiration of the cure period set forth in the lease and the landlord's notice to cure, and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises"[.]

Essential to obtaining a Yellowstone injunction is a demonstration by the movant that the motion is timely. Defendants assert that the eight default notices and the four termination notices were procedurally defective, in that they were addressed and delivered to the former address of Pi Associates. Defendants assert that, in an email dated June 19, 2013, plaintiff received written notice that Pi Associates had relocated to 136-18 39th Avenue, 12th Floor, Flushing, New York.

Defendant's assertions:

It is asserted that all eight notices of default were erroneously addressed to Pi Associates at 57-06 39th Avenue, Woodside, New York. It is further maintained that Article 8 of the 2003 lease governing notices specifically provides, in pertinent part, that: "All notices . . . required or permitted hereunder shall be in writing and shall be deemed delivered . . . to the last known address of the parties thereto." Defendants, therefore, assert that the purported service on Pi Associates of the default notices was procedurally defective. It is also asserted that service of the default notices failed to comply with the provisions of RPAPL section 735(1).

Defendants make the identical arguments with respect to the December 1, 2014 notices of termination, and assert that the service of said notices was procedurally defective.

Plaintiff's response:

Plaintiff, in opposition, asserts that the notices of default were properly served, pursuant to the terms of the lease. It is undisputed that the notices of default were served on the moving defendants by FedEx at 57-08 39th Avenue, Woodside, New York, 11377. It is also undisputed that the FedEx delivery person appeared at the Woodside address, on October 8, 2014, and was informed by an employee of the Pi defendants that these defendants current address was 136-18 39th Avenue, 12th Floor, Flushing, New York. FedEx completed delivery of the default notices to the Pi defendants on October 9, 2014 at the Woodside address and, on October13, 2014, at the Flushing address. Plaintiff further asserts that the terminations notices were properly served on the defendants by FedEx, at their last known address and at their actual place of business. Plaintiff has submitted copies of FedEx's proof of delivery.

Defendant's reply:

Defendants' counsel, in reply, does not claim that Pi Associates, James Pi, and 3909 Main Street LLC did not receive the notices of default which were served by FedEx. Rather, it is asserted that it is irrelevant whether FedEx ultimately delivered said notices at the Flushing address, as the notices still listed erroneous addresses, and, therefore, they were procedurally invalid.

And the grounds for denial of the relief sought:

Contrary to defendants' assertions, the provisions of RPAPL section 735 are inapplicable here, as this is not a commercial summary holdover proceeding...Therefore, the issue to be determined is whether notice was properly given to the defendants pursuant to the terms of the April 25, 2003 lease. Paragraph 8 of said lease the provides that: "All notices and other communications required or permitted hereunder shall be in writing and shall be [deemed] to have been duly given if delivered by hand or overnight delivery service or mailed, postage prepaid, certified or registered mail, return receipt requested, to the last known address of the parties hereto. Notices by facsimile shall be sufficient if properly sent and confirmed as received. Notices or communications shall be deemed delivered on the date actually delivered if by hand delivery or delivery service or 72 hours after deposit in the U.S. Mail, if by registered or certified mail, or upon confirmation if by facsimile." Contrary to defendants' assertion, the notice provision contained in the lease does not require that notices be served by in hand delivery when served by overnight delivery.

It is undisputed that plaintiff used FedEx's overnight delivery service in order to serve the eight notices of default on defendants Pi Associates, James Pi, and 3909 Main Street LLC. Said notices were addressed to Pi Associates, attention James Pi, at the Woodside address, the last known address of the parties to the 2003 lease agreement.

Contrary to defendants' assertion, the email dated June 19, 2013, did not constitute written notice of a change of address by Pi Associates or James Pi. Rather, said email was sent by Pi Capital Partners LLC and only informed the plaintiff that said entity had moved to the Flushing address. The email does not identify Pi Capital Partners LLC as the agent for Pi Associates or James Pi and does not set forth a new address for Pi Associates, James Pi, or 3909 Main Street LLC.

The Court, therefore, finds that the notices of default requiring defendants to cure within 15 days of its receipt, as well as the notices of termination, were properly addressed under the terms of the lease, and were not procedurally defective.

As the notices of default were served no later than October 13, 2014, the 15-day period in which to cure or move for a Yellowstone injunction expired on October 28, 2014. It is undisputed that the defendants did not seek to cure the defaults, and did not file the motion for Yellowstone injunction, until December 4, 2014.

With respect to assignment of the 2003 lease by Pi Associates to 3909 Main Street LLC, it is undisputed that Pi Associates did not seek the landlord's consent to said assignment. Contrary to defendants' assertions the provisions of the 2003 lease do not permit Pi Associates or Mr. Pi to assign the lease without the landlord's consent. Paragraph 12 of said lease provides that: "Neither Company nor Mr. Pi shall assign its or his rights and obligations under this Agreement without the consent of Lessor, which consent shall not be unreasonably withheld. Nothing in this paragraph shall prevent Mr. Pi from transferring his interest in this Agreement and Lease by Will or inheritance or by gift to a spouse or other family member, subject to the terms and obligations of this Agreement and Lease."

Thus, although the landlord could not object to Mr. Pi's transferring his interest in the lease by either the stated means and could not object to transfers to restricted group of individuals, the lessee was still required to seek the landlord's consent prior to assigning the lease.

The failure to obtain the landlord's prior consent to the assignment is not capable of being cured by the defendants.

Fay's Rest. & Bar, Inc. v. 141 Chrystie St.Corp., 2015 NY Slip Op 31023(U) (decided on June 15, 2015) [Sup. Ct. N.Y. Co., Kern, J.]

The Court summarized the relevant facts:

On or about June 15, 2010, plaintiff entered into a commercial lease (the "Lease") with defendant for the premises located at 141 Chrystie Street, New York, New York (the "subject premises"). In or around October 2914, plaintiff submitted to defendant a request to assign the Lease to third-party Saigon Shack Corp. ("Saigon Shack") pursuant to Article 5(a) of the Lease, which states that the subject premises may be assigned to a third-party but only with the landlord's "written consent, which...will not be unreasonably withheld or delayed." Thereafter, defendant responded with requests for certain financial documents from Saigon Shack to determine the viability of the proposed, tenant, which plaintiff provided. As of the date of the instant motions, defendant had not given its written consent to the assignment of the Lease to Saigon Shack.

The prior proceedings:

On or about April 3, 2015, defendant served plaintiff with a thirty day Notice to Cure which alleges several defaults by plaintiff (the "Notice to Cure"), including,inter alia,  defaults relating to construction work plaintiff conducted based on its alleged assumption that defendant consented to the assignment of the Lease and that plaintiff has failed to provide and keep in full force and effect comprehensive general liability insurance naming defendant as an additional insured, in the amount required by the Lease. In response to the Notice to Cure, plaintiff commenced the instant action and brought the present motion by Order to Show Cause for an Order granting it a Yellowstone injunction and a preliminary injunction directing defendant to consent to the assignment of the Lease to Saigon Shack. Defendant cross-moves for an Order (1) dismissing plaintiff's complaint; or, in the alternative, (2) removing this action to civil court; and (3) enjoining plaintiff from conducting any further construction work at its premises.

The cross-motion to dismiss the "Yellowstone" claim:

As an initial matter, that portion of defendant's cross-motion to dismiss the· complaint's first cause of action for a Yellowstone injunction is granted. The purpose of a Yellowstone injunction is to extend the cure period, thereby preserving the lease until the merits of the dispute can be resolved..."The party requesting a Yellowstone injunction must demonstrate that: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises."...However, it is well settled that a tenant cannot obtain a Yellowstone injunction when the default alleged is that insurance coverage has not been continuously maintained pursuant to the lease as such a breach is incurable regardless of plaintiff's desire to do so...Indeed, "the failure to secure insurance coverage is incurable as a matter of law."[.]

In the instant action, defendant's cross-motion to dismiss the complaint's first cause of action for a Yellowstone injunction is granted on the ground that plaintiff's failure to maintain insurance coverage as required by the Lease is an incurable breach of the Lease. As an initial matter, it is undisputed that the plaintiff holds a commercial lease, that it received a Notice to Cure from the landlord and that it requested injunctive relief prior to the termination of the Lease. However, plaintiff has not and cannot establish that it maintains the ability to cure one of the alleged defaults by any means short of vacating the premises, specifically, the default alleging that plaintiff has not obtained proper insurance as required by the Lease.

NY Great Stone Inc. v. Two Fulton Sq. LLC, 2015 NY Slip Op 25090 (decided on March 24, 2015) [Sup. Ct. Queens Co., Ritholtz, J.]

The prologue by the Court:

Yellowstone injunctions are routinely granted to avoid forfeiture of a commercial tenant's interest prior to a determination of the merits...A tenant must demonstrate the existence of a commercial lease, receipt of a notice of default, a timely application for a temporary restraining order and the desire and ability to cure the alleged default[.].

A summary of the facts:

This action arises out of a 10-day notice to cure dated November 21, 2014.  The defaults in the notice pertain to the plaintiff's failure to conduct a hydrostatic pressure test on the sprinkler system as a violation of Article 6 of the lease and a separate violation of Article 8 of the lease and Article 6 of the rider for failure to obtain comprehensive general liability insurance.

The applicable law:

Essential to obtaining a Yellowstone injunction is a demonstration by movant that it desires and has the ability to cure the alleged default.  In the instant case, the subject lease and rider impose an obligation on the tenant to procure and maintain general liability insurance from the commencement of the lease throughout the term of the tenancy that names the landlord as an additional insured.  Plaintiff has annexed a Certificate of Liability Insurance dated December 2, 2014 which provides coverage effective April 7, 2014 to April 7, 2015 and indicates defendant is an additional insured.  Notwithstanding defendant's contention that the failure to deliver actual insurance policies rather than a certificate is also a violation of the lease, plaintiff's submission is clearly inadequate to evidence the maintenance of insurance coverage during the entire term of the lease which commenced on March 10, 2011.

And the application of the law to the facts:

A tenant's failure to maintain insurance constitutes a material default of the terms of the lease...A default of this type is incurable as a prospective insurance policy does not protect a landlord against unknown claims that might arise during the period in which no coverage existed...Although plaintiff points to that portion of the notice to cure which directs it to obtain general public liability insurance, it does not alter the specific terms of the lease which require insurance be maintained from the inception of its tenancy.

In light of the foregoing, Yellowstone relief is unavailable to avoid forfeiture.

Audthan LLC v. Nick & Duke, LLC, 2016 NY Slip Op 30260(U) (decided on February 10, 2016) [Sup. Ct. N.Y. Co., Reed, J.]

Supreme Court outlined the pending motion:

Audthan LLC (Audthan) moves, by order to show cause, for an order preliminarily and permanently: (a) granting a Yellowstone  injunction, or in the alternative, an injunction pursuant to CPLR 630 I, staying and tolling the termination of the lease, dated May 24, 2013 (Lease), between Audthan and Nick & Duke, LLC (Landlord) for the premises known as 182-188 Eleventh Avenue, New York, New York (Property), as set forth in the "Notice of Termination," dated July I 5, 2015 (Notice), served on Audthan; (b) staying and tolling the cure period set forth in Article I 5 of the Lease applicable to the purported violations enumerated in the Notice; ( c) temporarily and preliminarily enjoining Landlord from taking any legal action, or action pursuant to the Notice; and (d) temporarily and preliminarily enjoining Landlord from commencing any special proceedings concerning the Notice.

The prior proceedings:

This court issued a temporary restraining order on July 29, 2015, pending the hearing and determination of the motion, preventing Landlord from: (a) claiming that the Lease is terminated pursuant to the Notice; and (b) commencing any summary proceedings or any other legal action against Audthan concerning the Notice, or in any way disturbing Audthan's tenancy or possession of the Property on the grounds set forth in the Notice.

The background (based upon the allegations in the complaint):

Landlord, as fee owner, and Audthan, as lessee, entered into a long-term ground lease of the Property. The term is from May 24, 2013 to March 31, 2053, renewable at Audthan's sole discretion and election for another 48 years and 7 months...The Lease contemplates that Audthan will construct on the Property a residential and commercial building of 58,000 square feet (Building), plus gut and renovate an existing building on the Property, to create 15,000 square feet for low-income housing (Low Income Housing Unit)...Under limited circumstances, in addition to basic rent, Landlord is entitled to charge "additional rent"[.]

Since entering into the Lease, Audthan has devoted substantial resources to developing the Building and the Low Income Housing Unit, including designing the structures, obtaining necessary permits, regulatory approvals, and financing, and clearing pre-existing violations on the Property...Audthan has complied with the Lease provision that granted it a minimum of one year to cure the violations, and such additional time to cure the violations as is reasonably necessary under the circumstances...Of 70 violations existing at the commencement of the Lease, 64 have been cured, and 3 are in the process of being cured violations of record have been removed, and it is working diligently since the commencement of the Lease as to the regulatory impediments to the removal of record of the remaining violations...Audthan is almost ready to obtain a building permit, finalize financing, and commence construction[.]

Since execution of the Lease, Landlord has acted in a pattern of conduct to frustrate and hinder Audthan's ability to construct the Building and the Low Income Housing Unit, and prevent it from obtaining financing...By the Notice, delivered on July 18, 2015, Landlord has purported to terminate the Lease, effective August 3, 2015, the stated basis of  which is Audthan's failure to cure violations within one year of execution of the Lease[.]

Audthan has complied with the requirements of the Lease by timely commencing efforts to cure the violations, many of which were not capable of being cured within the one-year period. In accordance with the Lease requirements, Audthan has diligently endeavored to effectuate such cure[,]

Landlord has wrongfully purported to assess its attorneys' fees to Audthan as "additional rent," has stated its intention to continue to do so, and indicated that it will use any failure of Audthan to pay such improperly assessed additional rent as a basis for claiming a default and seeking to terminate the Lease[.]

The six causes of action:

The amended complaint contains six causes of action. The first seeks a judgment declaring that: (a) Audthan is not in breach of the Lease; (b) the Notice is invalid to terminate the Lease; (c) Landlord has unclean hands; and (d) Landlord's refusal to act upon Audthan's requests for the requisite applications for permits and approvals, authorized by the Lease, constitutes a breach of the Lease and Landlord's obligation of good faith and fair dealing.

The second cause of action alleges that, based on the foregoing, Landlord has breached the Lease. The third cause of action seeks an order compelling Landlord to specifically perform its obligations under the Lease, including reviewing, approving, and executing such documents as are reasonably necessary for Audthan to proceed with the Project. The fourth cause of action alleges a breach of the implied covenant of good faith and fair dealing. The fifth and sixth causes of action seek an injunction preliminarily and permanently enjoining Landlord from taking any steps in furtherance of the Notice, and enjoining Landlord to take such steps as are reasonably necessary to permit Audthan to carry out the Project.

Plaintiff's assertion:

In support of its motion by order to show cause, Audthan avers that it began the work necessary to cure and remove the violations prior to the execution of the Lease. Audthan states that it expects imminently to obtain certification of a cure to a claim of harassment.  In section 14.01 of the Lease, the parties acknowledge that a harassment finding was issued by the New York City Department of Housing and Preservation Development (HPD) on April 2, 2009 with respect to Lot 1 of the Property, and that the New York City Department of Buildings (DOB) will not issue a building permit for the new Building until a cure of such harassment (HPD Cure) is effectuated. In the Lease, Audthan agreed to:

"pursue with commercially reasonable diligence the cure thereof such that the harassment finding shall not prevent, impede, adversely affect or impair the construction of an approximately 58,000 square foot residential and commercial building on Lots 3 and 4 of the Demised Premises, which includes unimpaired development rights to be transferred from Lot I to and for the benefit of Lots 3 and 4 (the 'HPD Cure')"

Audthan claims that it has been working on overcoming the governmental and regulatory obstacles to the full cure and removal of record of the violations.

Audthan states that, unless the Notice is stayed, it will make more difficult the cure of the violations about which Landlord is complaining. It contends that, by serving the Notice when it did, Landlord is not engaged in a good faith effort to secure the cure of the violations, which have largely been resolved, and will shortly be in a position to be removed of record. Rather, Landlord is positioning itself to reap the benefits of Audthan's work.  If successful in terminating the Lease, Landlord can now find a new tenant willing to pay a higher rent or agree to more favorable terms, because it will be freed of the obligation to address the problems already remedied through Audthan's efforts and at Audthan's expense. Audthan contends further that it is entitled to a Yellowstone  injunction tolling the running of the cure period and maintaining the status quo, and a preliminary injunction, because Audthan has cured almost all of the violations and is both willing and able to cure the remaining violations, as demonstrated by its efforts to date.

Landlord's response:

[L]andlord argues that the request for a Yellowstone  injunction is untimely, because it was made after the Notice was sent, and the Lease terminated...due to Audthan's failure to cure and remove of record the 43 violations. It argues further that Audthan's failure to qualify for Yellowstone  relief necessitates denial of its request for injunctive relief. It claims that this action is an improper attempt to litigate this landlord-tenant dispute in a Supreme Court plenary action, rather than by way of a summary proceeding in the Civil Court, which is the preferred forum for resolving such disputes.

Landlord asserts that, more than two years after the May 24, 2013 Lease commencement date, the 43 violations have not been removed of record. In addition to these violations, numerous other violations have been recorded against the Property since May 24, 2013.  Landlord contends that Audthan has unilaterally decided to cease paying the additional rent that has come due, consisting of attorneys' fees and professional architect's fees, totaling $123, 110.39 for the months of June 2015 and July 2015, and an amount of $136,964.55 for August 2015 and September 2015, for a total arrears of $260,074.94[.]

According to Landlord, the Lease required the 43 violations to be cured and removed of record by May 24, 2014. Landlord contends that it is undisputed that the violations, by their nature, could have been cured and removed of record by May 24, 2014, both as to timing and irrespective of HPD's harassment finding, as Audthan's own recent actions have demonstrated.  The Lease gave Landlord the right to terminate the Lease, without any further time to cure, in the event that the 43 violations were not cured and removed of record by May 24, 2014.

The legal basis for the decision to grant Yellowstone relief:

The request for a Yellowstone  injunction is granted. "The Court of Appeals has acknowledged that courts routinely grant Yellowstone  relief to reflect this State's policy against forfeiture, and courts have done so by accepting 'far less than the normal showing required for preliminary injunctive relief'"[.]

"A Yellowstone injunction 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 so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture"[.]

The party requesting a Yellowstone  injunction must demonstrate that:

"(l) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and ( 4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises'"

The applicable provisions of the Lease:

Section 15.01 of the Lease ("Events of Default") provides in part:

"The occurrence at any time during the Term of any one or more of the following events shall be an 'Event of Default':

(c) if any violation of Legal Requirements existing on or about the Property as of the Commencement Date is not cured and removed of record within one (I) year after the Commencement Date; provided, however, in the case of any such violation which cannot be cured and removed of record within such one (1) year period, if Lessee shall commence efforts to cure the same within such one (I) year period, and thereafter diligently and continuously endeavor to effectuate such cure, and for so long as, in Lessor's reasonable judgment, the continuance of such violation does not result in the impairment of Lessor's title to the Demised Premises, or materially and adversely affect the value thereof, relative to their condition as of the date hereof, or jeopardize the life or safety of any Person, or subject Lessor to legal or financial liability to any Person, then the time for such cure shall be extended to such period as may be reasonable under the circumstances to allow for such and cure and removal of record of such violation(s)."

"Legal Requirements" is defined as "the requirements of all federal, state and local laws, statutes, codes, ordinances, rules and regulations, including judicial opinions and presidential authority, at any time applicable to the Property, whether now existing or hereafter enacted"[.]

Addressed landlord's arguments:

Landlord argues that the court cannot grant the requested relief because of the Notice, purporting to terminate the Lease. Where a notice of termination is served prior to the expiration of the operable cure period, however, it is ineffective...Although not conclusive, Audthan has demonstrated the likelihood that the Lease had not terminated prior to the request for injunctive relief. Moreover, because the "the law in this regard disfavors forfeiture...a demonstration of success on the merits is not a prerequisite to such relief" provided that, at this juncture, "a basis exists for believing that the tenant...has the ability [to] cure through any means short of vacating the premises"[.]

Although Section 15 ( c) prescribes a one-year period from May 24, 2013 to cure the violations, it contemplates that some violations may not be curable and removed of record within the one-year period, and excuses Audthan from an event of default, provided it commences to cure the violations within the one-year period, and thereafter works diligently and continuously to effectuate the cure[.]

Audthan submitted the affidavit of John Jacobson, the managing member of JJ/Skybox, LLC, a member of Audthan. Mr. Jacobson explains that, at the time that Audthan entered into the Lease, the Property consisted of three Lots – Lots 1, 3, and 4. On Lot 1 was a single room occupancy hotel (SRO) with respect to which the HPD had already made a finding of harassment against the former tenant which had not been cured. Lot 3 was an empty lot, and Lot 4 contained a two-story structure that had been used as an automobile body shop, but had been badly damaged in a fire and was unusable...Lots 3 and 4 were combined into a single Lot 3, the two-story structure on former Lot 4 was demolished, and Audthan has almost completed the process of having the HPD certify the Project as a HPD Cure[.]

Mr. Jacobson states that, over the past two years, Audthan has expended more than $16 million, $2 million dollars of which has been spent to cure violations on the Property and to effect the HPD Cure necessary to remove of record the already cured violations on the Property, including more than $400,000 in direct expenditures to cure violations on the Property...The showing of a "significant investment in a valuable leasehold" militates in favor of granting the injunction...According to Mr. Jacobson, as of the date of his affidavit, Audthan was one month or two away from obtaining certification of the Project as a HPD Cure, a necessary precondition for Audthan to obtain financing and commence the construction of the Project. Another approximately $1.5 million has been paid to Landlord in the form of rent[.]

The Notice contains a list of 43 DOB and New York City Environmental Control Board (ECB) violations that purportedly existed on the Lease commencement date that Landlord claims were not cured within the first year of the Lease term. Mr. Jacobson states that all but three of these have been cured, and the remaining three will be cured within the next several months. He avers that, because of the pre-existing HPD finding of harassment, removal of many of the violations of record cannot be completed until the HPD Cure is certified[.]

[George John Cooper, the manager for the Project] states that he is a registered architect, and has been involved in the Project as design architect since its inception, and has been Project Manager since June 2014. He states that since Audthan entered into the Lease in March 2013, he has been involved in Audthan's efforts to cure and has managed the removal of record the numerous pre-existing violations recorded against the Property. Since June 2014, he has been the principal person overseeing the efforts by Audthan to address those violations...Mr. Cooper states that Audthan has been working diligently since the onset of the Lease term to cure the Violations, notwithstanding the administrative and legal obstacles, some of which are acknowledged and provided for in the Lease.

For example, he states, in the Lease, the parties acknowledge that HPD issued a harassment finding on April 2, 2009, four years prior to the onset of the Lease term in 2013, with respect to Lot 1 of the Property and that DOB "will not issue a building permit for the New Building until a cure of such harassment finding is effectuated"...The parties also agreed that:

"the harassment finding shall not prevent, impede, adversely affect or impair the construction of an approximately 58,000 square foot residential and commercial building on Lots 3 and 4 of the Demised Premises, which includes unimpaired development rights to be transferred from Lot 1 to and for the benefit of Lots 3 and 4 (the 'HPD Cure')"[.]

In Lease section 14.02 ("Development Agreement"), Audthan represented that, to effectuate the HPD Cure, it has entered or shall enter into a "Development Agreement" with a not-for-profit corporation, and cause approximately 15,000 square feet of the "existing Improvements to be renovated for operation as low-income housing in conjunction with the construction of the New Building." In section 14.03 ("Declaration of Condominium"), to effectuate the HPD Cure, "upon the renovation of a portion of the existing Improvements to serve as low-income apartments and the construction of the New Building [and] the parties shall join in the preparation and filing, at Lessee's sole cost and expense, of a declaration of condominium," pursuant to which three condominium units are to be established. and one is to consist of low-income apartments constructed and operated in accordance with the Development Agreement.

Mr. Cooper states that, by October 2013, the plans and drawings were submitted to the HPD, after which there was a period of comment, revision, and negotiation, including the involvement of the local community board and other neighborhood organizations. By late 2014 and into 2015, the support of the local community board, Community Board 4, was obtained for Audthan's Project. Mr. Cooper represents that the process is virtually complete, and he expects that HPD will issue a certification of the HPD Cure within the next two months from the date of the affidavit. Afterwards, a regulatory agreement will be entered into and submitted to Landlord for its consent, and the DOB will be authorized to issue permits for the work on the Project[.]

Mr. Cooper claims that, as for lots 3 and 4, of the 43 violations cited in the Notice, 27 have been cured. These pertain to a fire-damaged structure on former Lot 4. Audthan demolished the structure during the period May 21-28, 2013 and thereby cured 27 violations. Thus, he claims, with respect to the Lot 3 and 4 violations, Audthan has presently done all it can do[.]

As for the 16 other violations cited in the Notice, all are in Lot 1, and are recorded against the SRO, and are also subject to the DOB ban on permits, demolition, or alteration pending certification of the HPD Cure...Mr. Cooper avers that the SRO will be gut-rehabilitated, and the most reasonable and practical way to carry out a cure of violations is to eliminate them during the course of demolition and construction, which cannot commence until the cure is certified...Nevertheless, he states, violations 1, 13 and 15 have been resolved, and the DOB has accepted Audthan's certificate of correction, and violation 16 has been dismissed[.]

Mr. Cooper continues that violations 3-4, 6-8, 10-12, and 14 have been cured, and have either been submitted to the DOB for dismissal or have a certificate of correction awaiting approval...Only violations 2, 5, and 9 involve any ongoing work for correction.  Violation 2 has four components, which arc resolved or being resolved: (a) the illuminated signs have been removed and a permit is being acquired for a single unilluminated sign; (b) the extensions complained of do not exist, which is being confirmed with DOB; (c) the complained of windows have been repaired; and (d) a permit has been obtained, and work to correct a drain pipe was to have begun in August 2015, and last approximately two months[.]

Violation 5 involves facade repairs. The bulk of the required work was performed but, upon inspection by a structural engineer, it was determined that further work was required on certain decorative elements on the building walls. They are in the process of expanding the scope of an existing permit to cover this work. Violation 9 was for water on floors in hallways and rooms of the basement. A permit has been issued for the renovation of the ground floor and basement, which will resolve this issue, and was to have begun in August 2015, and last approximately two months[.]

Mr. Cooper concludes that the effort to obtain certification of the HPD Cure commenced before the Lease was signed so that the demolition of the Lot 4 structure and a gut renovation of the SRO, the principal means for curing outstanding violations. could commence. The demolition of the Lot 4 structure, and the elimination of 27 violations, was carried out while the Lease was being signed in 2013. The process for approval of the renovation of the SRO became extended, the violations on Lot 1 were then worked on separately, and were cured or are in the process of being cured. In addition, Audthan has also remedied some 27 other violations that it inherited when it entered into the Lease that Landlord docs not acknowledge[.]

And the grounds for rejecting the landlord's position:

[L]andlord insists that the violations could have been easily cured soon after the onset of the Lease term, or certainly during the one-year period set forth in the Lease. In support of this assertion, however, Landlord provided no evidence by someone with actual knowledge, relying instead on the assertions of counsel, and the affidavits submitted on Audthan's behalf. For example, counsel for Landlord states that, once Audthan received the Notice in July 2015, it "began curing as many of the 43 Violations as quickly as possible"...In support of this assertion, Landlord cites the Cooper affidavit,...and the Jacobson affidavit...However, according to the cited paragraphs in the Cooper affidavit, and as described above, Audthan demolished the structure during the period May 21-28, 2013, and thereby cured 27 violations for Lots 3 and 4. As for the 16 Lot 1 violations recorded against the SRO, Audthan intends to gut-rehabilitate it, and it deems the most reasonable way to carry out a cure of violations is to eliminate them during the course of demolition and construction, which cannot commence until the HPD cure is certified.  Nevertheless, according to Audthan, it has been carrying out substantial repair work; violations 6-7, 10-12 were cured by the work carried out in 2011, and only violations 2, 5 and 9 involve any ongoing work for correction. Hence, Landlord's assertion that it began curing the violations after receiving the Notice is belied by the record. Landlord has not persuasively controverted the assertion that a Yellowstone  injunction is warranted, because Audthan has taken "substantial steps" to cure the violations and "is actively working toward that end"[.]

Thus, Audthan has adequately established on this record that "(l) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises"[.]

The Court also granted a preliminary injunction:

The request for a preliminary injunction is granted. "The party seeking a preliminary injunction must demonstrate a probability of success on the merits, danger of irreparable injury in the absence of an injunction and a balance of equities in its favor"...Audthan has satisfied all three requirements.

As discussed above, Audthan has demonstrated a likelihood of success on the merits. Audthan has also demonstrated irreparable harm. The harm to Audthan from losing the Lease "could well be irreparable," because damages are not likely to compensate it for the value of the Lease, the term of which ends on March 31, 2053, with renewal rights[.]

The balance of equities favors Audthan. Landlord did not explain why it waited until it did to serve the Notice. In the meantime, according to Audthan, it continued investing in the project. Mr. Jacobson avers that the Notice had been served far too late to have any impact on the actual cure of the violations, which is nearly complete. The Notice was served on the eve of Audthan obtaining certification of the HPD Cure, which would free Audthan to arrange for financing and begin the principal work on the Project...According to Mr. Jacobson, Landlord's claim that the Lease has been terminated will render it difficult, if not impossible, for Audthan to obtain financing on the Project, and this obstacle to financing will endanger the Project...Unless the Notice is stayed, Audthan contends, it will actually delay and make more difficult the cure of the very violations about which Landlord complains. Neither the HPD nor the DOB and ECB, much less financing institutions, will be encouraged to negotiate and finalize arrangements with Audthan if its title to the Property is in question...Landlord has not persuasively controverted these assertions.

Landlord argues that this action is an improper attempt to litigate this landlord-tenant dispute in a Supreme Court plenary action, rather than by way of a summary proceeding in the Civil Court, which is the preferred forum for resolving such disputes. However, that Court does not have jurisdiction to grant Audthan the affirmative relief of mandating Landlord's cooperation...The third cause of action seeks an order compelling Landlord specifically to perform its obligations under the Lease, including reviewing, approving, and executing such documents as are reasonably necessary for Audthan to proceed with the Project in obtaining the amendments to the certificate of occupancy that plaintiff needs.

Accordingly, Audthan's motion for a Yellowstone  injunction and preliminary injunction was granted to the extent of providing for the same injunctive relief provided in the temporary restraining order contained within the order to show cause dated July 29, 2015, and the temporary restraining order was continued pending further order of the court.

Lucky Dollar, Inc. v. Mount Calvary Pentecostal Church, 2016 NY Slip Op 30259(U) (decided on February 8, 2016) [Sup. Ct. N.Y. Co. Ramos, J.}

Supreme Court outlined the facts:

Plaintiff Lucky Dollar, Inc. ("Lucky Dollar") moves...for a Yellowstone  injunction against defendant Mount Calvary Pentecostal Church (the "Church") staying and tolling the expiration date of the cure period set forth in the Church's notice to cure, dated October 6, 2015 (the "Notice to Cure"), which seeks to evict Lucky Dollar from the building located at 2061, 2063 and 2065 Amsterdam Avenue, New York, NY 10032 (the "Premises").

The background (based upon the parties' submissions):

The Church is the owner of the Premises...Lucky Dollar is a tenant of the Premises pursuant to a lease dated November 23, 1998 (the "Lease")...Section 7 of the rider to the Lease dated November 23, 1998 (the "Rider") requires that the landlord serve the tenant with a notice to cure with a 10-day cure period prior to terminating the Lease.

On or about June 10, 2014, the Church served Lucky Dollar a notice to cure alleging that Lucky Dollar violated the Lease provisions by installing an illegal heating, ventilation, and air conditioning (HVAC) system in the Premises without the Church's approval...This Court granted Lucky Dollar a Yellowstoneinjunction on July 18, 2014[.]

On October 6, 2015, the Church served Lucky Dollar with a second notice to cure alleging that Lucky Dollar violated Section 2(a) of the Rider by not maintaining a minimum insurance policy of "$1,500,000 in general liability"...The Notice to Cure states that, in order to cure the default, Lucky Dollar must:

Procure an insurance policy that complies with the terms of the lease agreement, which includes the aforementioned requirement of $1,500,000.00 in general liability insurance[.]

Section 2 of the Rider states, in relevant parts:

Tenant covenants to provide and deliver to the Landlord duly issued Certificates of Insurance regarding the following policies on or before the earlier of the commence[ment] date of the term hereof or Tenant's entering the premisee for any purposes whatsoever, and to keep in force during the term hereof, for the benefit of the Landlord and Tenant:

(a) A comprehensive policy of general liability insurance relating to the premises and appurtenances...Such policy is to be written by good and solvent insurance companies satisfactory to the Landlord for the full term of this lease and renewals thereof in the amount of ONE MILLION FIVE HUNDRED THOUSAND ($1,500,000.00) DOLLARS minimum single risk with respect of any one person and/or incident producing personal or bodily injury and FIVE HUNDRED THOUSAND ($500,000.00) DOLLARS regarding property damage, single risk...[emphasis added]).

From the period of April 1, 2014 to April 1, 2015, Lucky Dollar's general liability insurance policy covered an aggregate sum of $2,000,000, but only up to $1,000,000 per single risk[.]

Lucky Dollar brought this order to show cause within the 10-day cure period seeking a Yellowstone  injunction against the Church. Pending the hearing and determination of [the] motion...this Court temporarily restrained the Church from terminating Lucky Dollar's lease and tolled the cure period.

The legal template:

The purpose of a notice to cure is to "apprise the tenant of claimed defaults in its obligations under the lease and of the forfeiture and termination of the lease if those defaults are not cured within a set period"...The notice to cure must be "unequivocal and unambiguous"... Insomuch as service of a proper notice to cure is a condition precedent to eviction under the lease, a deficient notice deprives the landlord of a predicate for reclaiming possession of the premises[.]

The deficiencies in the notice to cure:

The Notice to Cure stated that Lucky Dollar did not maintain a minimum insurance policy of "$1,500,000 in general liability"...The term "general liability" is ambiguous – it could refer to either coverage in aggregate or coverage per single risk. Lucky Dollar maintained a general liability insurance policy of $2,000,000 in aggregate from the period of April 1, 2014 to April 1, 2015. What Lucky Dollar failed to do was to maintain a minimum general liability insurance policy of $1,500,000 per single risk and $500,000 property damage, single risk pursuant to Section 2(a) of the Rider.

However, even if Lucky Dollar failed to maintain adequate minimum single risk insurance coverage, the Church did not unequivocally and unambiguously allege said failure in the Notice of Cure. Thus, the Notice to Cure cannot be used as a predicate for repossessing the Premises pursuant to the terms of the Lease[.]

And stated with respect to insurance coverage:

A tenant's failure to maintain adequate general liability insurance coverage exposes the landlord to an "unknown universe" of claims arising during the period of inadequate insurance coverage...A tenant may cure an alleged default arising from inadequate occurrence-based insurance coverage by retroactively amending the terms of coverage so that it is consistent with the lease[.]

Had the Notice to Cure adequately alleged Lucky Dollar's violation of Section 2(a) of the Rider, it still does not unequivocally and unambiguously inform Lucky Dollar of the conduct required to prevent eviction. The Notice to Cure states that Lucky Dollar may prevent eviction by procuring an insurance policy that "complies with the terms of the lease agreement, which includes the aforementioned requirement of $1,500,000.00 in general liability insurance." Such conduct would be insufficient to prevent eviction pursuant to the terms of Section 2(a). In order to prevent eviction pursuant to an effective notice to cure, Lucky Dollar would not only have to procure a general liability insurance policy that covers $1,500,000 per single risk and $500,000 property damage, single risk, but would also have to retroactively amend the terms of its inadequate past insurance coverage, so that the coverage is consistent with the Lease and does not expose the Church to an unknown universe of claims.

By failing to unequivocally and unambiguously state the conduct required to prevent eviction, the Church prejudiced Lucky Dollar's right to cure.

Accordingly, the Court found that:

[T]he Notice to Cure is deficient, and the Church is enjoined from using the Notice to Cure as a predicate for reclaiming possession of the Premises.

Lessons learned:

A "notice to cure" must meticulously and precisely set forth both the alleged default, on the one hand, and the manner in which the default may be cured, on the other, together with a date certain by which the cure must be accomplished.

And an application for Yellowstone relief must be filed with the Court before the cure period ends, in general, and must assert that the tenant is "ready, willing and able" to cure the default, in particular – especially noting that the purported default is somehow curable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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