In a Yellowstone proceeding, a commercial tenant applies to Supreme Court for an Order tolling the time to cure an alleged default asserted by its landlord and staying the termination of the lease and the prosecution of a summary (holdover) proceeding. In order to obtain relief, the tenant must show that it is "ready, willing and able" to cure the default (if one is found to exist); however, the legal predicate is that the alleged default is, in fact, curable.
The following cases summarize recent Yellowstone proceedings in our Courts. Especially noteworthy are the decisions finding that the failure to obtain and maintain insurance coverage required by the lease may not be curable; and, if not, Yellowstone relief will not be granted.
146 Broadway Assoc., LLC v. Bridgeview at Broadway, LLC, 2018 NY Slip Op 05990, App. Div. 2d Dept. (September 12, 2018)
Supreme Court granted plaintiff's motion for Yellowstone injunction.
The Appellate Division summarized the facts:
December 2011, the defendant landlord and plaintiff tenant entered into a lease for the commercial portion of a mixed-use property, which also houses a number of residential apartments. In October 2013, the plaintiff began operating a nightclub on the premises. On February 22, 2014, the defendant served a five-day "Notice to Cure Default of Lease" on the plaintiff, which, inter alia, alleged that plaintiff was in violation of the lease for permitting "unreasonable and obnoxious noise to emit from the [p]remises . . . [in violation of] local laws, restrictions and ordinances."
On February 27, 2014, the plaintiff commenced this action, inter alia, to enjoin the defendant from terminating the lease, and simultaneously moved by order to show cause for a Yellowstone injunction enjoining the defendant from terminating the lease pending resolution of the action...and a temporary restraining order. The Supreme Court signed the order to show cause, which was then adjourned numerous times over a period of almost two years. During that time, each party conducted its own sound testing. According to the plaintiff's reply papers...its sound expert measured sound levels emanating from its nightclub into one of the residential apartments on the premises in excess of levels permitted by Administrative Code of the City of New York § 24-231...on April 9, 2014, and October 13, 2014, despite the fact that between April 2014 and October 2014 it had built a new wall and installed what its expert described as "high quality sound-rated doors." In a report dated October 15, 2014, the plaintiff's expert recommended additional steps the plaintiff could take to reduce the sound emanating from the nightclub. The plaintiff did not obtain a proposal to complete the recommended work until January 27, 2016.
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'"...A plaintiff demonstrates that it has the desire and ability to cure its alleged default by indicating in its motion papers that it is willing to repair any defective condition found by the court and by providing proof of the substantial effort it has already made in addressing the default listed on the notice to cure[.]
In this case, the plaintiff failed to satisfy its burden of adducing evidence that it is willing and able to cure its default. While the plaintiff indicated in its motion papers that it is willing to install soundproofing to correct the violations of the noise regulations, it failed to demonstrate such willingness and its ability to do so since it did not make any effort to correct the problem between the last test conducted by its own expert on October 13, 2014, which found a violation of the noise regulations, and the submission of its reply papers to the Supreme Court on February 3, 2016. Accordingly, the Supreme Court improvidently exercised its discretion in granting the plaintiff's motion for a Yellowstone injunction.
Ernst Klein 6th Ave. Foods Inc. v. 50 Murray St. Acquisition LLC, 2018 NY Slip Op 32136(U), Sup. Ct. N.Y. Co. (August 30, 2018)
Supreme Court summarized the pending motions:
Plaintiff, a commercial tenant at 53 Park Place, in the city, state, and county of New York, moves...for a Yellowstone injunction to enjoin and restrain defendant landlord from terminating the parties' lease and to toll the cure period pending this litigation and for ten days thereafter for the three default notices issued on December 18 and 22, 2017. Plaintiff seeks the same tolling relief for the default notice dated May 17, 2018 and to set the matter down for a hearing on the propriety of the default notices[.]
Plaintiff operates a food market under the name "The Amish Market" on the ground floor and portions of the mezzanine and basement in a twelve-story building that houses 115 high-end luxury residential units at 53 Park Place. The previous tenant of the premises was Potato Farms, LLC, d/b/a Zeytuna, who had a twenty-year lease with former owner Lionshead 53 Development. When Potato Farms was adjudged bankrupt, the Chapter 11 Trustee assigned the lease to plaintiff effective February 1, 2013. Defendant landlord, 50 Murray Street Acquisition, LLC, is the successor-in-interest of previous owner, Lionshead 53 Development.
The three default notices:
- the November 29, 2017 default notice arose from a violation order issued by the New York City Fire Department (FDNY) for failure to maintain all Required Means of Egress and required immediate corrective action[;]
- the December 18, 2017 default notice is for plaintiff's operation of a hydraulic elevator without proper governmental approvals certifications, and registration with the Department of Buildings[;]
- another December 18, 2017 default notice relates to plaintiff's operation and maintenance of (i) two functioning cooling towers, and failure to remove a third defunct cooling tower resulting in a violation issued by the DOB; (ii) installation and/or maintenance, without defendant's consent or governmental approval, the following: grease traps in the cellar hallway; a water pump in the sub-cellar boiler room outside the demised premises; signage on the building façade; holiday decorations and lighting which impaired access to the building; a sidewalk café along West Broadway; and locks on doors restricting access to premises; and (iii) failure to deposit the original liability insurance policy with defendant[.]
Plaintiff claims that many of the defective conditions in the default notices were in place prior their lease effective date of February 1, 2013. Plaintiff claims that it has cured the defaults or has taken steps to show good faith efforts to do so. To wit, plaintiff replaced the locks with the approved-locks on the doors and has a clear means of egress as indicated in the photographs included in the motion...and it ceased operating the hydraulic elevator as indicated by a "do not use" sign posted thereon...To show that the cooling towers are operational, in good working conditions, and meets New York City regulations, plaintiff submits an affidavit by Leroi Yaffey, President of NuChem Corporation, whose technicians inspected the two functional cooling towers, and a Mechanical Contractor who will inspect the defunct cooling tower and take corrective action...On the insurance policy related defaults, plaintiff presents an affidavit by Angeline Thomas, an Assistant Vice President with HUB International Northeast Limited (HubNE) to show that the liability insurance policy, listing defendant as additional insured, was sent to defendant's representative on December 27, 2017...Plaintiff asserts that the remaining defaults are not defaults as the previous landlord had given consent to those installations...and noted that six out of the fifteen-day cure period were weekends and holidays.
Defendant, in contrast, asserts that the defaults have not been cured. On the November 29, 2017 default notice, access was still unavailable from the outside, and while the blockage was removed from the first floor, that blockage was transferred to the mezzanine to block the egress there. On the December 18, 2017 default notice regarding the elevator, defendant finds plaintiff's representation that it stopped using the elevator to be insufficient. On the December 18, 2017 default notice regarding the cooling towers, defendant is not satisfied because: (1) there is no evidence the prior owner permitted the installation; (2) the NuChem's certificate for one of the two operating towers does not cure the default; (3) testing showed evidence of Legionnaire's Disease, and although NuChem certifies that the water is safe, NuChem is not licensed or registered in New York city or state; (4) the problem of the running water spilling onto the roof causing damage was not addressed; (5) no maintenance program was provided; and (6) no plans were provided as to the removal of the remaining defunct cooling tower.
The sign violation:
As for the other violations such as signage, there is no evidence that the prior owner consented to the signage. Defendant, and not the prior owner, had applied to the DOB for a non-illuminated awning. And defendant finds no reason to believe that plaintiff would refrain from putting up holiday signage without authorization given that plaintiff had not removed its temporary signage — a poster offering a discount and a neon beer sign inside the window — despite plaintiff's assertion that it had been removed.
The grease trap and water pump:
Defendant asserts that plaintiff's evidence of a prior approval for installation of the grease trap and water pump outside the demised premises does not actually speak to that. The evidence does not show the traps and water pump to be outside the demised premises. Aside from the location and the number of traps, defendant complains that the traps are in poor condition.
The sidewalk café:
On the allegation that plaintiff operates a sidewalk café, defendant presents one photograph depicting three white rectangular tables on the sidewalk alongside the one side of the premises, and one photograph of a group of construction workers outside the premises, five of them stood on the sidewalk, two perched on the ledge of the exterior building wall and one sitting on a park bench in front of the premises[.]
The insurance policy coverage:
Defendant also finds fault with the insurance policy coverage upon examining the insurance certificates that plaintiff provided. Defendant states the coverage does not meet the requirements under paragraph 53 of the lease rider. Defendant also complained about spending months to get plaintiff to finally comply and laments the process to enforce compliance in subsequent years...Finally, defendant denies that it received all copies of the keys from plaintiff.
The additional rent:
[T]he default notice dated May 17, 2018, but delivered on May 23, 2018, alleging plaintiff's failure to pay Additional Rent under the lease in the amount of $45,199.13...The amount has increased to $51,301.06 as of June 1, 2018, with the addition of a boiler obstruction repair and late charges[.]
Plaintiff claims that the Additional Rent consists of expenses defendant allegedly incurred for which no prior notice of the charges was given to plaintiff. Defendant responds that the Additional Rent consists of summonses and charges for sampling for Legionella from plaintiff's cooling towers, penalties imposed by the FDNY, installation of a replacement sewage system and other work related to the cooling tower and the replacement of a pump, and charges for the review of plaintiff's lease and assignment. These charges were the result of plaintiff's failure to perform as required under the lease, and thus, constitutes Additional Rent are treated as Fixed Rent.
The legal template:
[P]laintiff meets the criteria to warrant granting its motion for a Yellowstone injunction. "A tenant is entitled to a Yellowstone injunction where it has demonstrated that (1) it holds a commercial lease, (2) it has received a notice of default, notice to cure or concrete threat of termination of the lease from the landlord, (3) the application for a temporary restraining order was made and granted prior to the termination of the lease, and (4) it has the desire and ability to cure the alleged default by any means short of vacating the premises"...There is no dispute that plaintiff satisfies the first three factors. Plaintiff has satisfied the fourth factor as it has cured most of the defects. Further, at oral argument on the motions, it was undisputed that plaintiff has made substantial steps to cure the remaining defects (the holiday signage, the location of the grease traps, and the dismantling of the inactive cooling tower), but these defects require more time to cure than given by landlord in the initial default notices. Plaintiff have shown the requisite willingness to address the remaining issues and therefore has satisfied all the requirements for a Yellowstone injunction.
And the additional rent claim:
[R]egarding the nonpayment of additional rent, plaintiff's motion is likewise granted. A Yellowstone injunction is available for alleged non-payment of rent or additional rent...As above, there is no dispute as to the first three [factors for relief]. Additionally, there is no dispute that plaintiff is able to pay the alleged additional rent, satisfying the fourth [factor for relief]. However, plaintiff disputes the propriety of the additional rent and the process by which landlord made its demand. This dispute can be resolved at a conference.
Audthan LLC v. Nick & Duke, LLC, 2018 NY Slip Op 51262(U), Sup. Ct. N.Y. Co. (August 28, 2018)
Supreme Court summarized the parties and the pending motion:
This action involves a dispute between plaintiff Audthan LLC...tenant under a long-term ground lease, dated May 24, 2013...for real property located at 182-188 Eleventh Avenue, in the County, City and State of New York...and the Property's fee owner and lessor, defendant Nick & Duke, LLC[.]
* * *
[A]udthan moves for a Yellowstone injunction or, in the alternative, a preliminary injunction pursuant to CPLR 6301, staying and tolling termination of the Lease, among other relief, to ensure that the parties' dispute may be decided on the merits.
The Lease, which runs from May 24, 2013 to March 31, 2053, is renewable in Audthan's sole discretion for an additional 48 years and seven months...Among other things, the Lease also provides that Audthan will construct on the Property a residential and commercial building of approximately 58,000 square feet, plus roughly 15,000 square feet of affordable housing[.]
Audthan alleges that Landlord breached the Lease by willfully obstructing its efforts to construct the Project, and by improperly attempting to terminate the Lease, by making unfounded violation and default claims against Audthan. Audthan further alleges that Landlord improperly charged it attorneys' fees and late charges, which it has paid under protest, to prevent Landlord from using nonpayment as a pretext to terminate the Lease...Audthan contends Landlord seeks to terminate the Lease without due cause, hoping to reap the benefits of the substantial work and expenditures Audthan has invested in the Property since commencement of the Lease, while denying Audthan the benefit of its bargain[.]
Audthan asserts six causes of action in its [amended complaint]. First, Audthan seeks a declaration setting forth the parties' rights and obligations, and prays that the court determine that (i) Audthan has not breached the Lease, (ii) Audthan's alleged failure to cure violations and defaults are not sufficient bases to terminate the Lease, (iii) Landlord has unclean hands, and (iv) Landlord's "refusal to review, sign and act upon" Audthan's "requests for consent, applications for permits and approvals necessary to carry out the Project" constitutes a breach of Landlord's express obligations under the Lease[.]
In its second cause of action, Audthan seeks damages for Landlord's several breaches of the Lease, which include improperly charging Audthan attorneys' fees and late charges as additional rent, serving an invalid notice of termination on Audthan, on or about July 18, 2015...and refusing to honor its obligation to review, sign and act upon Audthan's requests for consents, permits and approvals needed to carry out the Project[.]
In its third cause of action, also for breach of the Lease, Audthan alleges that, because of Landlord's breaches, it is entitled to an order, compelling Landlord's specific performance of its contractual obligations[.]
In its fourth cause of action, also for breach, Audthan alleges that, despite Audthan's performance, Landlord acted purposefully and in bad faith and breached its implied duty of good faith and fair dealing under the Lease by serving the July 2015 Notice without due cause[.]
In its fifth cause of action, Audthan seeks an order, preliminarily and permanently enjoining Landlord from commencing a special proceeding or taking any action under the July 2015 Notice[.]
In its sixth cause of action, also for a preliminary and permanent injunction, Audthan seeks an order enjoining Landlord "to take such affirmative steps as are reasonably necessary to permit [Audthan] to engage in and carry out the Project"[.]
The prior Yellowstone proceedings:
Audthan's motion...marks the third time it has sought a Yellowstone injunction, to prevent Landlord from terminating the Lease. The court issued a decision and order on February 10, 2016, on Audthan's first Yellowstone application...Audthan moved by order to show cause for a Yellowstone injunction or, in the alternative, a preliminary injunction, to stay and toll Landlord's July 2015 Notice, which was delivered to Audthan on July 18, 2015. This July 2015 Notice purported to terminate the Lease, effective August 3, 2015, because Audthan had allegedly failed to cure certain violations at the Property within one year of the Lease's Commencement Date [.]
The February 2016 Order granted Audthan both a Yellowstone injunction and a preliminary injunction "to the extent of providing the same injunctive relief provided in the temporary restraining order contained within the order to show cause dated July 29, 2015"...The court explained that Audthan had satisfied the standard for a Yellowstone injunction by showing 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"[.]
The February 2016 Order also granted Audthan a preliminary injunction. Noting that "'[t]he 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'"...the court found that Audthan showed a likelihood of success on the merits by showing that it had taken timely and "`substantial steps' to cure the violations" of which Landlord then complained, and was "actively working toward that end"[.]
The court further determined that the harm to Audthan from losing the Lease "could well be irreparable" because money damages were not likely to be adequate compensation for the loss of decades of tenancy remaining to Audthan under the Lease...The court also found that the equities favored Audthan because Landlord offered no explanation for its delay in serving the Notice on Audthan while, in the meantime, Audthan continued its work and investment in the Project and had almost completed its cure of the complained-of violations[.]
The February 2016 Order also rejected Landlord's argument that this action should be dismissed and that Audthan's claims should be relegated to Civil Court, to be heard in a summary proceeding there, because the Civil Court lacks jurisdiction to grant the mandatory relief Audthan seeks, to compel Landlord's specific performance under the Lease[.]
Audthan's second Yellowstone application was made by cross motion, following Landlord's July 2016 motion to dismiss. The Landlord's motion... brought by order to show cause, was premised on its May 16, 2016 notice of default and a June 23, 2016 notice of termination...Landlord claimed that Audthan allowed certain additional violations to issue against the Property and not only failed to cure those violations in a timely fashion but also failed to respond to its 30-day cure notice. Landlord argued that these failures caused the Lease to terminate according to its terms, which purportedly entitled it to dismissal of five of Audthan's six causes of action under CPLR 3211 (a)(7), among other relief.
Audthan opposed Landlord's motion and cross-moved for a Yellowstone injunction or, in the alternative, a preliminary injunction under CPLR 6301, to stay and toll the June 2016 Notice.
The court denied Landlord's motion, noting that conflicting affidavits prevented Landlord from demonstrating its entitlement to judgment as a matter of law...and granted Audthan both a Yellowstone injunction and a preliminary injunction, "for the reasons set forth in the decision on the Prior Motion," entered February 10, 2016[.]
The pending Yellowstone application:
Audthan moves by order to show cause for an order:
(a) granting a Yellowstone injunction or, in the alternative, a preliminary injunction, to stay and toll termination of the Lease, under Landlord's notice of termination, dated October 9, 2017[;]
(b) staying and tolling the Lease's cure period for the violations alleged in the October 2017 Notice;
(c) temporarily and preliminarily enjoining Landlord from taking legal action, or action pursuant to the October 2017 Notice;
(d) temporarily and preliminarily enjoining Landlord from commencing any special proceedings pursuant to the October 2017 Notice; and
(e) enjoining Landlord from issuing any further default or termination notices without prior court approval upon noticed motion.
Landlord opposes Audthan's motion, praying that Audthan's motion be denied in its entirety, and that the underlying temporary restraining order be vacated. In the alternative, if Audthan is awarded injunctive relief, Landlord asks that Audthan be required to provide an undertaking, in an amount not less than $500,000, to indemnify Landlord for the damages it may sustain if it is determined later that Audthan was granted injunctive relief in error.
The court entered an order to show cause with temporary restraints on October 19, 2017...preventing Landlord from claiming the Lease terminated pursuant to the October 2017 Notice and barring Landlord from commencing any summary proceeding or other action, pending the hearing of this motion.
The notice to cure:
In its October 2017 Notice, Landlord lists seven "Complaint/Information" tickets, issued against Landlord and its prior tenants between April 18, 2007 and February 1, 2012, by the Fire Department of the City of New York...for their violations of Title 15 of the New York City Administrative Code...at the Property...The "violations" Landlord lists in the October 2017 Notice include failing to have a fire safety director on duty at the Property, failing to submit an FDNY-approved revised fire safety plan for the Property, and failing to comply with the FDNY Commissioner's Violation Orders[.]
Landlord asserts that the violations it listed in its October 2017 Notice constitute "Legal Requirements" which Audthan was required to cure and remove of record within one year after the Lease's "Commencement Date"...but that, by leaving the resulting fines and judgments unpaid, Audthan failed to cure and remove them of record, thereby breaching the Lease.
Landlord also argues that, since the Lease's "Commencement Date" was May 24, 2013, the date the Lease was executed, the year to cure these violations elapsed on the "Cure Date," that is, on May 24, 2014, which gave rise to an "Event of Default"...Landlord also contends that, as Audthan cannot show that the subject violations could not be cured and removed of record within the one-year cure period, the Notice of Termination is effective and should not be stayed or tolled.
[A]udthan defends its conduct, arguing that Landlord never gave it notice of the alleged violations it listed in the October 2017 Notice, even though Landlord had ostensibly known about them for years. Audthan also asserts that it not only identified and cured all fire safety violations on the Property long before Landlord issued the October 2017 Notice, but it had begun curing the violations listed in the October 2017 Notice before the Lease commenced, and so was entitled to the benefit of the toll provided in Section 15.01[c] of the Lease.
Finally, Audthan argues that the violations at issue here did not arise from its alleged failure to comply with Legal Requirements under the Lease regarding unsafe conditions arising at the Property. Rather, it contends the matters noticed were fire safety violations — specifically, failure to provide a fire safety inspector at the Property and failure to obtain an FDNY-approved fire safety plan — which were caused by the neglect of Landlord and its prior tenants. Audthan asserts that, as the fire safety violations had been cured, and all that remains are the unsatisfied Criminal Court fines and judgments imposed on the Landlord and its prior tenants for their inaction, which do not encumber the Property, it has not failed to comply with Legal Requirements.
This argument is well-taken, but the court need not reach the merits on this issue, as Audthan has satisfied the standard for a Yellowstone injunction: it has shown that it holds a commercial lease and that it received the October 2017 Notice from Landlord on October 11, 2017, in which Landlord threatened to terminate the Lease on October 25, 2017. In response, Audthan cross moved for a Yellowstone injunction on October 19, 2017, prior to the termination date set forth in the October 2017 Notice, and has shown its ability "to cure the alleged default by any means short of vacating the premises"[.]
As to its ability to cure, Audthan showed that it made efforts to identify and cure fire safety problems and FDNY violations at the Property prior to the October 2017 Notice, and that it cured all violations identified at the Property before Landlord issued the October 2017 Notice...To the extent these fines and judgments which Landlord and its prior tenants left unsatisfied prove to be defaults of Legal Requirements on Audthan's part, they may still be cured by payment of a sum less than $18,000.
The purpose of a Yellowstone injunction is to maintain the status quo, so a commercial tenant like Audthan, threatened with the termination of its lease, "may protect its investment in the leasehold by obtaining a stay tolling the cure period . . . and [so] avoid a forfeiture"...The law does not favor forfeitures, and so Audthan need not demonstrate a likelihood of success on the merits to obtain the protection of a Yellowstone injunction...as it would otherwise be required to do under CPLR 6312.
Julianna Collection Corp. v. VBG 990 AOA Member LLC, 2018 NY Slip Op 31898(U), Sup. Ct. N.Y. Co. (August 9, 2018)
Tenant sought Yellowstone relief based upon a five-day notice to cure.
Supreme Court summarized the facts:
By assignment and assumption of lease dated November 19, 2010, plaintiff acquired a leasehold interest in the premises...which term expires on November 30, 2025. In paragraph eight of the lease, plaintiff agrees that
At [its] sole costs and expense, to maintain general public liability insurance in standard form in favor of Owner and Tenant against claims for bodily injury or death or property damage occurring in or upon the demised premises, effective from the date Tenant enters into possession and during the term of this lease. Such insurance shall be in an amount and with carriers acceptable to the Owner. Such policy or policies shall be delivered to the Owner[.].
By letter dated January 11, 2018, addressed to the tenant of the demised premises, defendant advised that the prior owner of the premises had conveyed all of its right, title, and interest in the premises to VBG 990 AOA LLC, and requested that the tenant amend the insurance policies required pursuant to the lease to include the new owner as an additional insured[.]
By letter dated February 6, 2018, addressed to the former lessee of the premises, defendant VBG 990 AOA LLC introduced itself and asked, among other things, that "you update[e] your Certificate of Insurance in accordance with Article 8 of the Lease[.]
By letter dated February 20, 2018, plaintiff's counsel furnished a copy of the certificate of insurance "naming the new landlord as Certificate Holder." The certificate does not reflect defendant's name as certificate holder or as an additional insured[.]
By letter addressed to plaintiff's counsel dated march 5, 2018 counsel for defendant advised that it had hired a risk management expert to review all insurance policies maintained by tenants. It thus requested that plaintiff, as required by paragraph eight of the lease, deliver to it copies of the insurance policies for the past six years no later than March 12, 2018. Although it acknowledged receipt of plaintiff's certificate of liability insurance, it observed that the prior owner is listed as the certificate holder instead of "VBG 990 AOA LLC c/o Vanbarton Group LLC" and asked that certain additional insureds be included. It also required that plaintiff deliver the updated policies to it by no later than March 31, 2018[.]
By letter dated March 23, 2018, addressed to plaintiff, defendant advised, among other things, that in accordance with its expert's recommendation, it was updating plaintiff's liability insurance requirements, thus requiring plaintiff to obtain appropriate policies and deliver them to defendant no later than March 31, 2018, with time being of the essence. It also observed that plaintiff had not delivered copies of its insurance policies for the past six year or an updated certificate of liability insurance reflecting the new owner as certificate holder along with its related entities as additional insureds[.]
On April 5, 2018, plaintiff received a five-day notice from defendant VBG 990 AOA Member, LLC, advising that had it failed to deliver copies of insurance policies for the period from 2012 to the present, in violation of paragraph eight of the lease, and that it failed to comply with the terms set forth in defendant's January 11 and March 23 letters[.]
By letter dated April 9, 2018, plaintiff's counsel sent to defendant a copy of a certificate of liability insurance reflecting that plaintiff is the insured, that defendant is the certificate holder, and that defendant and the other entities are the additional insureds. The umbrella policy and worker's compensation policy periods are, respectively, from March 30, 2018 to March 30, 2019, and from April 9, 2018 to April 9, 2019[.]
[A]n officer of plaintiff corporation states that he seeks to avoid forfeiture of the lease which has 14 years remaining on it and alleges that defendant "was pressuring [it] to accept a buyout of the remaining 7+ years on the Lease." Thus, he claims that the notice to cure constitutes a pretext to force plaintiff to sell. He otherwise relies on the aforementioned certificate which "materially" complies with defendant's demands, and that should it be insufficient, it is "prepared to correct it forthwith"[.]
The contentions of the parties at oral argument:
At oral argument on the motion, plaintiff distinguished this case from those where a failure to maintain insurance coverage is incurable due to a break in coverage and a lease provision requiring a particular type of insurance at a particular level, observing that pursuant to the lease in issue, all that is required is a general public liability policy in standard form in favor of owner and tenant with no particular amount mentioned. Defendant disagreed, nothing that the certificate of insurance that plaintiff ultimately sent on April 9 reflects a gap in general liability coverage in that defendant is not named as an additional insured until April 6, 2018[.]
The legal template:
A commercial tenant may obtain a stay of the period within which an alleged default must be cured until the merits of the dispute can be resolved in court and to avoid the forfeiture of a substantial leasehold interest...To obtain a stay, the movant
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[.]
That a plaintiff denies a default is not dispositive, as long as it evinces a good faith willingness to cure...In the insurance context, however, a default may be incurable[.]
And denied the application because:
Here, plaintiff neither asserts nor demonstrates that it provided defendant with a certificate of insurance reflecting coverage of defendant from January 11, when it advised that it had become owner of the premises. Consequently, the gap in coverage renders the default is insurable.
Schulman, Blitz & Williamson, LLP v. VBG 990 AOA LLC, 2018 NY Slip Op 31903(U), Sup. Ct. N.Y. Co. (August 7, 2018)
Tenant sought a Yellowstone injunction in respect of a notice to cure based upon failure to procure sufficient insurance.
Supreme Court summarized the facts:
By lease dated April 16, 2010, defendant landlord leased the demised premises to plaintiff for a five year and two-month term, ending on June 30, 2015. The lease was renewed for a 10-year term, ending on June 30, 2025. Plaintiff is required to maintain both an "all risk" property insurance coverage and comprehensive general liability coverage, with limits of not less than $3 million combined single limit bodily injury and property damage liability. The lease also contains clauses: 1) permitting plaintiff to sublet the premises under specific conditions and only upon defendant's prior written consent; 2) providing that defendant's receipt of rent with knowledge of a breach of any lease covenant shall not be deemed a waiver of such breach and that no provision shall be deemed waived unless it is waived in writing; and 3) prohibiting oral modifications[.]
The notice to cure:
By 30-day notice to cure dated May 25, 2018, defendant advised plaintiff that it had violated:
- Articles 11 and 45 of the lease by subletting the premises to at least five subtenants without requesting or obtaining defendant's prior written consent; and
- Article 54 of the lease by failing to maintain the types and amounts of required insurance and to furnish defendant with proof thereof[.]
The notice also provides that plaintiff is
Hereby required to cure the aforementioned defaults by either removing all subtenants, licensees and occupants other than Tenant from the Premises or by requesting and obtaining Landlord's written consent in accordance with the requirement of Article 45 of the Lease on or before June 26, 2018, that being more than thirty (30) days from the service of this Notice upon Tenant[.]
Additionally, plaintiff was put on notice that it is required to cure the insurance default
By providing Landlord with certificates of insurance and/or copies of the insurance policies (and all required endorsements) evidencing that Tenant procured and maintained the types and amounts of insurance required by Article 54 of the Lease for the period 2012 through 2018 on or before June 26, 2018, that being more than thirty (30) days after the service of this Notice upon Tenant...
The tenant's contentions:
[I]n order to obtain Yellowstone relief, it need only allege that it is ready, willing, and able to cure the violations, and that once the issue is litigated and a judicial determination is rendered that it violated the lease, it is then given an opportunity to cure the violation. At oral argument of the motion, counsel stated the rule as he understood it: "you get [a Yellowstone injunction] every single time unless you're able to cure. If it's impossible to cure, you don't get the Yellowstone."[.]
Plaintiff also alleges that defendant waived its right to claim a violation of the lease based on subletting as it knew of the sublet and never raised the issue, even after collection monthly rent. It denies having failed to maintain the requisite insurance, claiming that it had $3 million in coverage[.]
The landlord's response:
[D]espite plaintiff's claim of a willingness to cure the subletting violation, it has done nothing to evict the subtenant, nor has it asked defendant to consent to the sublet. It de4nies having waived its right to rely on the sublet as a violation of the lease based on the no-waiver clause. In any event, defendant denies any waiver.
According to defendant, if plaintiff has the requisite insurance, no injunction is needed, and if it does not, the violation is incurable. It observes that plaintiff's insurance policy does not comply with the lease as the business personal property insurance limit is too low and plaintiff failed to include the entire general liability policy with the motion.
As an alternative to denying the injunction, defendant seeks an order directing plaintiff to pay its share of the tenant's rent pursuant to the lease for the duration of the subtenant's occupancy of the premises in addition to paying ongoing use and occupancy and obtaining a bond in the amount of no less than $2,500,000, a "conservative estimate" of the damages incurred by defendant due to its inability to evict plaintiff during the pendency of the stay, as well as the legal fees, costs and lost rents[.]
The legal template:
A commercial tenant may obtain a stay of the period within which an alleged default must be cured until the merits of the dispute can be resolved in court and to avoid the forfeiture of a substantial leasehold interest[.] To obtain a stay, the movant 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 required 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 parties do not dispute that plaintiff never obtained defendant's consent before subletting and has not sought to remove the single remaining tenant. Plaintiff's reliance on defendant's alleged waiver implies that absent waiver, the violation is proven.
Given the lease prohibitions against waivers and oral modifications, defendant cannot be deemed to have waived its right to terminate the lease based on the violation of the clause prohibiting sublets without its written consent[.]
[I]n light of the provision in the notice to cure permitting a cure, plaintiff's default here is curable. Thus, the issue is whether plaintiff has sufficiently demonstrated that it is ready, able and willing to serve the subtenant with a 30-day notice of termination.
A plaintiff's allegation that it is ready, able and willing to cure must be made in good faith...That the plaintiff denies responsibility for the default is not dispositive, as long as it evinces a good faith willingness to cure[.]
Plaintiff offers no reason to believe that its allegation of willingness to cure is made in good faith. But for the provision in the notice to cure permitting the service of a notice of termination on the subtenant during the cure period, the default would have been incurable and injunctive relief unavailable. Moreover, plaintiff had only to serve its subtenant with a 30-day notice, a minimal effort given the potential loss of its leasehold. However, as the seven years remaining on the lease constitutes a significant interest, it is hereby
ORDERED, that plaintiff's motion for injunctive relief is granted on the following conditions:
- that plaintiff pay to defendant its share of the subtenant's rent going forward for the duration of the subtenant's occupancy of the premises; and
- that plaintiff pay to defendant ongoing use and occupancy[.]
Adjuva LLC v. Williamsburg 39 LLC, 2018 NY Slip Op 31913(U), Sup. Ct. K. Co. (August 1, 2018)
Tenants sought Yellowstone relief.
Supreme Court summarized the facts:
On May 1, 2012 the plaintiff tenant entered into a lease with defendant landlord concerning rental of property located in 29 South 5th Street, Brooklyn, New York in Kings County. The owner served a thirty-day notice to cure on March 19, 2018 and again on March 27, 2018 alleging various defaults. The first notice contained three alleged defaults, namely, the tenant failed to close out an ALT-1 application filed in 2012, failed to diligently pursue completion of construction job filed in 2012 and failed to provide proof of required general liability insurance. The second notice contained the same defaults as the first notice, adding another default, namely that plaintiff had assigned or sublet their interest without the owner's consent. The plaintiff has moved seeking a Yellowstone injunction arguing either the noted defaults are baseless of that in any event they can be readily cured.
The legal template:
A Yellowstone injunction is a remedy whereby a tenant may obtain a stay, tolling the cure period "so that upon an adverse determination on the merits the tenant may cure the default and avoid forfeiture"...For a Yellowstone injunction to be granted, the Plaintiff must, among other things, demonstrate that "it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises"[.]
Thus, a tenant seeking a Yellowstone must demonstrate that: (1) it holds a commercial lease, (2) it has received from the landlord a notice of default, (3) its application or a temporary restraining order was made prior to the expiration of the cure period and termination of the lease, and (4) it has the desire to and ability to cure the alleged default by any means short of vacating the premises[.]
The controverted defaults:
Many of the defaults are disputed by the plaintiff as constituting defaults. Thus, the plaintiff does not assert that it unequivocally is unwilling to cure any defaults...but rather no such defaults exist. Therefore, the court will examine the defaults and if such are found to exist, the plaintiff will undoubtedly cure them[.]
The first and second default alleges the plaintiff violated the lease by failing to close out their ALT-1 application and to diligently pursue the completion of said construction or the application. Plaintiff alleges that it is unable to complete its construction because its co-tenant Industria Superstudio Overseas, Inc., received a stop work order. Since Plaintiff-tenant cannot cure until the stop work order is removed the default cannot be a valid basis upon which to terminate a lease. Therefore, such defaults are dismissed.
Concerning the allegation of lack of proof of insurance, plaintiff contends that it has shown proof by annexing a copy of its Certificate of Insurance. It is well settled that the failure to maintain insurance and incurable and will result in the denial of a Yellowstone injunction...Thus, a certificate of insurance is merely evidence of a contract for insurance, not conclusive proof that the contract exists, and not, in and of itself, a contract to insure...Although on its own it is not insurance it is enough to raise an issue of fact. Therefore, the court will allow for a stay of time, thirty days, during which the plaintiff is ordered to provide adequate proof of insurance.
Regarding the final allegation that plaintiff has assigned or sublet the premises, defendant provides Federal Express mailing slips and bulk food wrappers for chicken cutlets and Martin & Finch catering food labels all addressed to Martin & Finch at the premises 29 South 5th Street as proof of an unauthorized sublet. Plaintiff contends that Martin & Finch is merely an invitee and is not in possession of the premises. Plaintiff further argues that even if Martin & Finch is considered an illegal sublet he is willing to cure by telling Martin & Finch to vacate the premises. Since defendant has not brought proof that there indeed was a sublet and that Martin & Finch is not an invitee such default is dismissed.
Estate of Klein v. 40 E. 85th St. Realty Corp., 2018 NY Slip Op 31605(U), Sup. Ct. N.Y. Co. (July 12, 2018)
Plaintiff sought Yellowstone and other injunctive relief enjoining defendant from terminating a lease at a residential cooperative.
Supreme Court summarized the facts:
This action arises from a dispute over whether Pollack and/or his family can reside in the unit, which was in a residential cooperative in Manhattan. The Estate is the proprietary lessee and sole shareholder of the unit. Klein, who purchased the shares in the unit in 1981, passed away in 2014. Defendant is the cooperative's board of directors.
From 1982 through 2011, Klein's two daughters alternated living in the unit. Klein never resided there. In 2011, Klein suggested that Pollack, his grandson, reside in the unit. Pollack spent approximately $100,000 renovating the unit in 2012 and moved in during May 2013. When Pollack moved in, he was advised by defendant that his occupancy was a sublet which required defendant's written consent pursuant to paragraph 14 of the proprietary lease. That paragraph provided that:
- [Klein] shall not, without the written consent of [defendant] on such conditions as [defendant] may prescribe, occupy or use the [unit] or permit the same or any part thereof to be occupied or used for any purpose other than as a private dwelling and for such professional use as is permitted by law for [Klein and his] spouse, their children, grandchildren, parents, grandparents, brothers and sisters and domestic employees, and in no event shall more than one couple occupy the [unit] without the written consent of [defendant]. In addition to the foregoing, the [unit] may be occupied from time to time by guests of [Klein].
Klein and Pollack agreed to defendant's demand for a one year written approval of Pollack's occupancy of the unit, which was to last through June of 2014. During the approval process, Pollack disclosed extensive financial information. In 2014, Klein and Pollack agreed to defendant's renewed demand for annual renewal of the sublet of the unit. After Klein's death in 2014, the Estate became the proprietary lessee of the unit. Pollack continued to live in the unit with the written consent of defendant, granted annually. In or about May 2017, Pollack married Cindy Tortora, who also occupied the unit with the consent of defendant. At the expiration of Pollack's most recent annual sublet, defendant advised Pollack and Tortora that it no longer wished to renew its consent to his residence in the unit.
The notice to cure:
On or about October 3, 2017, defendant served Pollack with a notice to cure claiming plaintiffs were in breach of the proprietary lease because the sublet of the unit expired on June 14, 2017 and they failed to obtain written consent to remain in the unit after that date. Defendant gave the Estate until November 15, 2017 to cure the default by removing Pollack and Tortora from the unit and warned that, if no such cure occurred, it would terminate the tenancy.
The relief sought:
[P]laintiffs commenced the instant action seeking, inter alia, a declaration [and injunctive relief], pursuant paragraph 14 of the proprietary lease, that Pollack's residency in the unit, as well as the residency by Tortora and Pollack's children, grandchildren, parents, grandparents, brothers and sisters did not require the written consent of defendant. Plaintiffs also sought [a Yellowstone] injunction...preventing defendant from terminating the proprietary lease or allowing plaintiffs to cure any violation thereof.
Finding as to a preliminary injunction that:
"A preliminary injunction will only be granted when the party seeking such relief demonstrates a likelihood of ultimate success on the merits, irreparable injury if the preliminary injunction is withheld, and a balance of equities tipping in favor of the moving party."...Whether to grant a preliminary injunction is a matter to be determined in the broad discretion of the court[.]
Plaintiffs assert that there is a substantial likelihood that they will prevail on the merits, since paragraph 14 of the proprietary lease permits Pollack, the grandson of the deceased lessee, Klein, to reside in the unit. However, language identical to that in paragraph 14 has been construed to permit occupancy by the listed persons other than the lessee, such as grandchildren, only if the lessee maintains a concurrent occupancy...Here, since Pollack and Tortora cannot maintain a concurrent occupancy with the lessee, Klein, who is deceased, plaintiffs have failed to establish a substantial likelihood of success on the merits.
Nor have plaintiffs established that the equities weigh in their favor. Pollack has lived in the unit since 2013 and, since that time, he obtained written approval for his occupancy therein on an annual basis. He thus cannot now assert that such written consent is not required.
Given the foregoing factors, plaintiffs are not entitled to a preliminary injunction. Thus, this Court need not address whether plaintiffs would suffer irreparable harm if they were not granted such relief. In any event, as discussed below, plaintiffs are entitled to a Yellowstone injunction.
And as to Yellowstone relief that:
Alternatively to seeking a preliminary injunction, plaintiffs move, pursuant to...[Yellowstone] to toll the time period in which plaintiffs may rectify the alleged violation of the proprietary lease set forth in defendant's notice to cure.
* * *
Here, plaintiffs clearly received a notice to cure from defendant. The notice to cure stated that, if plaintiffs failed to cure, defendant would elect to terminate the lease on November 15, 2017. Since plaintiffs filed the instant motion on the last allowable cure date, they requested injunctive relief prior to the termination the lease...Further, plaintiffs represent that, if it is determined that Pollack's occupancy of the unit violates the proprietary lease, then the Estate can cure the alleged breach by having Pollack and Tortora vacate the unit. Thus, the Estate, the lessee of the unit, can cure the alleged default without vacating the premises.
Given the possible termination of the Estate's proprietary lease and forfeiture of its shares in the cooperative, the timeliness of the plaintiffs' application, and plaintiffs' ability to cure the alleged breach, plaintiffs' application for a Yellowstone injunction is granted on the condition that, during the pendency of these proceedings, plaintiffs continue to tender monthly rental payments to defendant in the amount of $1,200[.]
And rejecting defendant's counter-arguments:
Defendant argues that plaintiffs are not entitled to injunctive relief because a ten-day cure period is available to them pursuant to RPAPL § 753(4). However, its contention is without merit [because RPAPL § 753(4) does not limit Yellowstone relief while an action for such relief is pending].
* * *
Defendant further demands that, if a Yellowstone injunction is granted, plaintiffs must post an undertaking. While a court, in its discretion, may require the posting of an undertaking in connection with the granting of a Yellowstone injunction...defendant has set forth no authority requiring that such an undertaking be posted. Nor has defendant submitted any reasons why the facts of this case warrant such an undertaking. Indeed, defendant is adequately protected by the value of the improvements made by Pollack before he moved into the unit...Finally, this court notes that all of the cases relied on by defendant in support of its argument involve commercial, and not residential, leases.
McBride v. Taranto, 2018 NY Slip Op 51077(U), Sup. Ct. Suff. Co. (July 9, 2018)
The Court summarized the prior proceedings:
This action was brought by plaintiffs Robert McBride and Janet Asmussen...by order to show [P]laintiffs sought a temporary restraining order pending a determination on their motion for issuance of a "Yellowstone injunction,"...to enjoin the termination of a residential lease concerning real property located at 25 Grand Avenue, Northport, Suffolk County, New York...The court entered an order enjoining and restraining defendants Renee Pecorelli Taranto and Gary Pecorelli...from acting on the "Thirty (30) Day Notice of Termination" dated September 25, 2017, from sending or serving any additional notices of termination, and prohibiting defendants from commencing proceedings to recover the premises from plaintiffs [.]
Plaintiffs have been tenants at the premises since on or about May 5, 1996. Plaintiffs argue they repeatedly signed year to year leases with the owner of the premises, the late Frank A. Pecorelli, father of defendants. The only proof of these leases is a copy of one for the term May 6, 1996 through May 5, 1997...and a lease for the term June 1, 2002 through June 1, 2003...On September 25, 2017 defendants, the now purported owners of the premises, had a "Thirty (30) Day Notice of Termination" served on plaintiffs. This notice stated:
PLEASE TAKE NOTICE, that you and all other persons occupying the subject premises are required to quit and vacate said premises on or before midnight October 31, 2017.
You are in possession of the premises as a Month to Month Tenant whose lease expired on May 31, 2005.
PLEASE TAKE NOTICE that if you and all other persons fail to quite, vacate and surrender possession of the subject premises by October 31, 2017, the undersigned will thereafter commence Summary Proceedings pursuant to NYRPAPL against you to regain Possession.
Rather than vacate the premises, plaintiffs brought their order to show cause[.]
The legal template:
Named after the Court of Appeals decision in First Natl. Stores v. Yellowstone Shopping Center, supra, a Yellowstone injunction's purpose is to maintain the status quo where a commercial tenant is confronted by a threat of termination of its lease. Its limited purpose is to allow a commercial tenant to 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...To obtain the injunction a tenant must establish four elements: (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[.]
Summarized tenant's contentions:
Plaintiffs' counsel has failed to offer a single citation to support his sweeping pronouncement in his reply affirmation that "Yellowstone injunctions have been granted in `Residential' tenancies in Suffolk County for over fifteen (15) years." Instead plaintiffs' counsel cites cases which are distinguishable from the facts of this case. Although each of those cases may refer to Yellowstone injunctions, none stands for the proposition that Yellowstone injunctions are routinely granted in actions involving residential leases.
Plaintiffs have failed to establish the first element for a Yellowstone injunction, that it held a commercial lease, nor have they set forth a single case involving a non-proprietary residential lease in an action outside of the City of New York, in which a Yellowstone injunction was granted...Plaintiffs' application for a Yellowstone injunction is denied.
* * *
Finally, there was no basis for injunctive relief in this case as there was nothing to cure. The notice allegedly served by defendants was a statutory prerequisite to a holdover proceeding, rather than a notice of default and a notice to cure the default in a specified period of time[.]
1611 Bway LLC v. Times Sq. JV, LLC, 2018 NY Slip Op 31044(U), Sup. Ct. N.Y. Co. (May 30, 2018)
Supreme Court described the pending motion:
[P]laintiff, 1161 Bway LLC...seeks a Yellowstone injunction and a preliminary injunction tolling termination of a 35 year lease of commercial space on the street level of a major hotel located in the Times Square Area of New York City...The Lease provides for the space to be used as an upscale first-class dining restaurant and/or coffee bar"[.]
On April 30, 2018, the court denied plaintiff's request for a Yellowstone injunction but stayed defendant from taking steps to regain possession of the space, pending oral argument on the branch of the motion seeking a preliminary injunction.
Summarized the facts:
The Lease was signed in 1995 and thereafter the premises was operated by the Tenant initially as a coffee shop and later as a "Charley O's" restaurant. In 2009, the Landlord and Tenant entered into a Joint Marketing Agreement in an unsuccessful attempt to market and lease the space. In 2011, the parties signed a "Ninth Lease Amendment" whereby the Landlord gave its consent to the Tenant subletting the space to "Caffebene, Inc"...to operate a coffee bar. The Sublease was signed at the same time.
In 2017, the Tenant commenced a rent nonpayment proceeding against Caffeebene and secured its eviction in October 2017. Since that time the space has been dark but the Tenant has continued to pay rent as it has become due.
On April 24, 2018, the Landlord served a Notice of Termination on the Tenant invoking the "Continuous Operation" provision of The Lease (¶ 8.4). That provision states in relevant part that:
Continuous Operation. Tenant acknowledges that its continuous operation at the Demised Premises for the regular conduct of its business therein is of utmost importance to Owner in the renewal of other leases in the Building, in the renting of vacant space in the Building and in the maintenance of the character and quality of the Building. Tenant therefore covenants and agrees that it will with due dispatch and diligence promptly open for business in the Demised Premises and thereafter continuously, actively and diligently operate such business in the whole of the Demised Premises . . . at least five (5) days per week, ten (10) hours per day. . . . Tenant further agrees that if it fails to so conduct continuously its business in the Demised Premises as hereinabove set forth . . . then such failure shall be deemed to render the Demised Premises vacant and deserted. . . . Notwithstanding, any provision of this Section 8.4 to the contrary, Tenant shall be permitted to close the Demised Premises for a period of up to six (6) months, solely for the purpose of making alterations, repairs, renovations and additions to the Demised Premises[.]
Tenant's request for Yellowstone relief:
The Tenant maintains that it is not in default of the Continuous Operation clause because that clause does not require it to open and operate a restaurant during the period that it is marketing, negotiating and subletting the space to permitted subtenants under Article 19 of the Lease or at any time. The Tenant arrives at this conclusion by noting first, that the Lease does not define the term "its business", a phrase found in ¶ 8.4". Tenant's then argues that "its business" consists of both operation of restaurants and subletting restaurant spaces to non-affiliated entities. Thus, its efforts to market and sublet the space in its role as a sub-landlord operates as a waiver of any objections to Tenant not personally occupying and operating the space during the marketing and subletting period.
The Tenant argues it is entitled to a Yellowstone injunction because it received a threat of termination of the Lease; the application for an injunction was made prior to expiration of any termination period set forth in the Lease; and it has the desire and ability to cure any defaults if it is determined a default exists.
Landlord's opposition to Yellowstone relief:
The Landlord replies, and the court agreed, that Tenant is not eligible for a Yellowstone remedy because ¶ 20.1 (d) of the Lease did not require service of any notice to cure or granting of any cure period to Tenant as a result of its "desertion" of the Premises[.]
As to a preliminary injunction:
[T]enant argues it has shown a likelihood of success on the merits because it has been continuously operating the space for years as a sub-landlord and by threatening to terminate the Lease, the Landlord is impeding its ability to sublet the space to prospective subtenants that would comply with the Permitted Use...clause of the Lease. The Tenant also argues that if the Lease is terminated, it will be irreparably harmed by loss of a valuable long term lease...Finally, Tenant asserts that the equities favor it because grant of the preliminary injunction will maintain the status quo...and termination of the Lease would result in loss to Tenant of a valuable long term leasehold without benefit of a judicial determination[.]
[T]enant has not shown a likelihood of success or the merits. First, in violation of ¶ 8.4 of the Lease, the space remained dark for more than six months after it was vacated by subtenant, Cafebenne. Second, contrary to Tenant's claim the "business" mandated by the Lease is the "Permitted Use of the Demised Premises" as "an upscale first-class dining restaurant and/or coffee bar" (Lease, ¶¶ 1.21 and 8.1). No other use is authorized...As to the claim of irreparable harm, the Landlord observes that Tenant has not occupied the space or done business there since 2011. Thus, Tenant cannot claim that it will suffer "irreparable harm" from the loss of "good will" if injunctive relief is denied and it is ultimately evicted...Accordingly, any loss the Tenant might suffer is purely financial and is fully compensable with money damages...Regarding balance of the equities, there is no cure period for the court to exercise its equitable powers to preserve and the Landlord is entitled to have the issues adjudicated through an expedited summary preceding process. Moreover, the New York City Civil Court is the preferred forum for resolving landlord-tenant issues, where the primary relief sought here is possession of the Premises[.]
And denied injunctive relief:
To obtain a preliminary injunction a moving party must prove: (a) a likelihood of success on the merits; (b) that it will suffer irreparable harm in the absence of injunction relief; and (c) that the equities favor the granting of the requested relief...Here, the Tenant satisfies none of these. Accordingly, the request for an [a] preliminary injunction must be denied. Paragraph 20.1 (d) of the Lease does not provide for a cure period upon a default under ¶ 8.4 of the Lease. Neither the Ninth Lease Amendment nor the Lease recognizes subletting by the Tenant as a permitted "business". Were ¶ 8.4 interpreted to permit the Tenant to keep the Premises dark for extended periods while it marketed the space in its role as a "sub-landlord", the very purpose of that paragraph as described in the first sentence would be defeated (The sentence roads: "Tenant acknowledges that its continuous operation at the Demised Premises for the regular conduct of its business therein is of the utmost importance to the Owner . . ." [emphasis added]). Further, the only "permitted use" of the space under the Lease is as "an upscale first-class dining restaurant and/or coffee bar"[.]
Even if one were to accept the Tenant's farfetched argument that its "business" is subletting of the space, Tenant's request for a preliminary injunction would still fail because any injury that might be suffered would be entirely financial and thus compensable with a money award...As such, Tenant cannot demonstrate irreparable harm.
Citing § 6 of the Ninth Lease Amendment...Tenant attempts to read the Permitted Use provision out of the Lease. The effort fails. Under § 5, the Tenant or Subtenant is permitted to make alterations, including alterations that are so extensive as to require amendment of the certificate of occupancy. Under § 6 which states:
At the end of the term of the Sublease, neither Landlord nor Tenant shall be required to restore the Premises, or any portion of the storefront, signs or other exterior portions of the Premises. Tenant shall deliver the Premises to landlord at the end of the Term [of the Lease in 2035] as, and in the manner required by the lease
Thus, § 6 merely relieves the Tenant and its lease of any obligation to restore the space to its prior condition at the end of the term of the Sublease. This reading of the Ninth Lease Amendment is confirmed by § 7 which provides that:
[e]xcept as herein amended, all of the other terms, provisions, conditions and agreements contained in the Lease, as amended, shall remain in full force and effect, it is being the intention of the parties to amend only the specific terms, provisions and conditions referred to herein.
The Ninth Lease Amendment does not alter the Permitted Use Clause and does not authorized the Tenant to conduct subletting of the space as "its business".
Stella, L.L.C. v. Equity Concepts LLC, 2018 NY Slip Op 30986(U), Sup. Ct. N.Y. Co. (May 18, 2018)
Supreme Court addressed a motion for Yellowstone relief.
The Court summarized the facts:
In 2011, plaintiff tenant and defendant landlord entered into a commercial lease for certain premises located at 184 Duane Street in Manhattan...It is undisputed that pursuant to the lease, plaintiff was required to inspect, clean, repair, and/or maintain the 10-ton water tower serving the water-cooled air-conditioning system servicing the premises and to register the water tower with the appropriate City agencies[.]
By notice of default dated April 9, 2018...defendant alleges that plaintiff is violating a substantial obligation of its tenancy by failing to take required actions related to the water tower, and provides that plaintiff had to cure the default on or before April 23, 2018, or defendant would terminate the tenancy and remove it from the premises.
The pending motion:
On or about April 21, 2018, plaintiff commenced the instant action by summons and complaint, seeking a declaration that it is not in default of its lease as set forth in the notice of default and an order permanently enjoining defendant from terminating the lease based on the aforesaid default...Simultaneously, plaintiff filed an order to show cause seeking a declaration that it is not in default and that the notice of default is null and of no force and effect, and an order, pending the hearing and determination of its motion, staying and enjoining defendant from taking action to terminate the lease[.]
[Plaintiff advised] defendant of its intention to install an air-cooled window unit to replace the water tower, which the lease permits, and that defendant improperly rejected its request and instead served it with the notice of default. Plaintiff contends that it has valid reasons for replacing the water tower, including that it is old and past its useful life span, that there had been an outbreak of Legionalla disease related to water-cooled units, and that the cost and expense of reporting, maintaining, cleaning, and caring for the water tower will exceed $15,000 per year. It denies that it is in default of the lease but contends that if it is found to be in default, it is willing to cure it by any means short of vacating the premises[.]
[T]he lease requires plaintiff to take care of the existing water tower, and that plaintiff's claim that the tower is past its useful life span is based on inadmissible hearsay. It also argues that plaintiff's conclusory assertions of a desire or willingness to cure a default do not entitle it to a Yellowstone injunction, and that plaintiff has not demonstrated the ability and willingness to cure[.]
The applicable law:
A Yellowstone injunction may be granted on a showing by the tenant that: (1) it holds a commercial lease; (2) it received a notice of default; (3) it requested injunctive relief before the expiration of the cure period in the notice of default and 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...As the first three elements are undisputed here, the sole issue is whether plaintiff demonstrates that it is able and willing to cure its default.
And, as follows, denied the motion:
Whether plaintiff desires, and is entitled under the lease, to replace the water tower with a new unit is irrelevant to whether it defaulted by failing to perform the functions it was obligated to do as specified in the notice of default or whether it is able and willing to perform its obligations under the lease. Other than the affidavit of its principal wherein she states conclusorily that plaintiff is willing to cure any default by any means, plaintiff submits no evidence to support its claim that it is willing and able to cure it or that it has made any effort to do so.
Moreover, plaintiff's alleged willingness to cure the defaults is contradicted by its continued failure to cure, and by its complaints that the cure would be expensive and that defendant's conduct in seeking to hold it in default constitutes a "contrived scheme to impose extra-legal obligations upon [it] and to potentially endanger the public by insisting on [its] continued use of a water cooled air conditioning system that has been found to be a public danger by both New York City and New York State Emergency Regulations."...And, having obtained an estimate for the repair and maintenance of the water tower in October 2017...plaintiff does not explain why between then and now it has nevertheless failed to make the repairs. Plaintiff thus fails to meet is burden of establishing that is willing and able to cure the defaults[.]
Xiu Lan Ni v. Fortune Plaza LLC., 2018 NY Slip Op 30916(U), Sup. Queens Ct. Co. (April 16, 2018)
Supreme Court entertained an application for Yellowstone relief "enjoining defendant from terminating the lease agreement between the parties for the operation of a Laundromat located at 133-24 Sanford Avenue, Flushing, New York 11355, and from instituting any proceedings in connection therewith or from otherwise interfering with plaintiff's quiet enjoyment of the subject premises."
The Court summarized the facts:
133 Plus 24 Sanford Ave Realty Corp. acquired the real property known as 133-24 Sanford Avenue, Flushing, New York, from 133-24 Sanford Ave. Realty Corp., pursuant to a deed dated April 27, 1999. Said deed was executed by Mohammad A. Malik, as president of 133-24 Sanford Ave. Realty Corp. The subject real property is improved by a residential apartment building, with a ground floor commercial space.
On September 5, 2004, Mohammad A. Malik as president of 133 Plus 24 Sandford (sic) Ave. Realty Corp. entered into a commercial lease with Special Diner Inc., for the ground floor #1L, for use as a laundromat only. The lease term commenced on November 1, 2004 and ended on October 31, 2015. The 20 page rider attached to the leaser contains 86 paragraphs, and was signed by the landlord and the tenant.
On September 29, 2005, Special Diner Inc. sold its interest in the laundromat at the subject premises to Xiu Lan Xui, and a bill of sale was signed on October 4, 2005. Special Diner, Inc., with the consent of the property owner Sanford, assigned the subject lease to Ms. Xi, pursuant to a three page written agreement dated September 29, 2005 and executed on October 4, 2005.
The 2009 litigation:
A dispute arose between Sanford and Ms. Ni concerning water and gas bills and the issuance of a certificate of occupancy. In 2009, Sanford commenced a commercial holdover proceeding in Civil Court, Queens County...that was settled pursuant to a stipulation dated July 2, 2009. Sanford thereafter moved for a judgment of possession and a warrant of eviction based upon an alleged breach of said stipulation and the tenant cross moved for an order directing the owner to provide access for the installation of submeters. The court therein, in a decision and order dated September 17, 2010, granted the motion and cross motion only to the extent that the tenant was given 30 days from the date of the order to apply for a certificate of occupancy, and the owner was directed to sign off on any documents the tenant needed and to provide access to install a new water meter for the water heating system.
In November 2010, Sanford moved for final judgment of possession and a warrant of eviction based upon the tenant's failure to comply with the stipulation of settlement. After a hearing, the court therein denied the landlord's motion and made certain determinations with respect to the rights of the parties. The Appellate Term, in an order dated February 23, 2015, modified the court's order by striking the various determinations with respect to the rights of the parties, as said determinations exceeded the court's limited declaratory judgment authority[.]
Sanford thereafter moved to restore the matter to the calendar for a trial/hearing on all issues not resolved in the Appellate Term's order. The court therein, following a hearing issued a decision and order dated September 28, 2015, determined that the tenant had complied with the stipulation of settlement and the order of September 17, 2010, by filing an application for an amended certificate of occupancy on October 13, 2010, which was disapproved on October 26, 2010. The court noted that there were many outstanding violations for the building through January 18, 2011, that were unrelated to the leased premises and affected the issuance of the certificate of occupancy. The court found that the owner had not shown good cause for vacating the stipulation of settlement.
The 2015 litigation:
In 2015, Sanford commenced a commercial holdover proceeding against Xiu Lan Ni d/b/a Rong Cheng Laundromat Inc., and Xiu Lan Ni...based upon an alleged failure to pay all charges for sewer and water usage of $50,940.68, per the notice to cure dated April 17, 2015. Sanford terminated the lease by a notice dated May 14, 2015. The court therein, following a non-jury trial, in a decision and order dated February 10, 2016, determined that the respondents had defaulted under the lease and rider by failing to timely pay its water and sewer charges to the DEP or the landlord, and that the fact that they paid the disputed DEP bill of $50,940.68 after the commencement of the action, although the amount owed the owner was only $5,437.89, did not avoid forfeiture of the lease. The owner was granted a final judgment of possession, and the issuance of the warrant was stayed for five days. The execution of the warrant was stayed through May 31, 2016, on the condition that the respondents remain current in use and occupancy payments of $3,390.47, and remain current in payments of additional use and occupancy for water, sewer and gas payments to the landlord within seven days of demand. A final judgment was entered on February 11, 2016.
The tenants filed an appeal from the final judgment entered on February 11, 2016, and thereafter moved for a stay pending the determination of the appeal, and the landlord cross moved for an order directing the appellants to pay use and occupancy at the monthly rate of $40,000, legal fees and costs. The Appellate Term, Second Department, in an order dated October 17, 2016, granted the tenants' motion on condition that the appeal be perfected by December 2, 2016, and directed that they pay to the landlord all arrears in rent/use and occupancy at the rate of $3,390.47, within 10 days of said decision and order, and to continue to pay the landlord use and occupancy at the same rate as it became due. The landlord's cross motion was denied.
The subsequent developments:
While said appeal was pending, Sanford transferred ownership of the subject real property to Fortune Plaza LLC, pursuant to a deed dated March 13, 2017. Sanford, in a separate agreement dated March 13, 2017 assigned the leases and rents for said real property to Fortune Plaza LLC. Said assignment agreement was signed by Mohammad A. Malik, as president of Sanford, and by Mohammad A. Malik, as the sole member of Fortune Plaza LLC.
The Appellate Term, in a decision and order dated December 1, 2017, reversed the final judgment of possession and remitted the matter to the Civil Court for a final judgment dismissing the petition. The Appellate Term determined that where, as here, the basis for the landlord's termination of a commercial lease is an alleged default in rent, the predicate notices must properly set forth the approximate good faith amount of rent owed, and that the trial court had, in effect, found that the landlord had overstated the amount of additional rent owed by $45,502.79, approximately nine times the amount due. The court therefore found that the notices were defective and did not operate to terminate the lease, and as the landlord failed to establish a proper termination of the lease, it failed to make out it its prima facie case...The Appellate Term, in a decision and order dated February 16, 2018, denied the landlord's motion for leave to appeal to the Appellate Division.
The 30 day-notice:
Ms. Ni is in receipt of a Thirty Day Notice terminating a month to month tenancy, dated December 21, 2017. Said notice, addressed to Xiu Lan Ni d/b/a Rong Cheng Laundromat Inc., and Xiu Lan Ni, appears to have been issued by Sanford, the now prior owner of the subject leased premises, and the copy submitted to the court is not signed.
Ms. Ni was served with a separate Thirty Day Notice Terminating a month to month tenancy also dated December 21, 2017, addressed to Xiu Lan Ni d/b/a Rong Cheng Laundromat Inc., and Xiu Lan Ni, and issued by Fortune Plaza LLC as successor in interest to Sanford. Said notice of termination was served on December 28, 2017, by serving a person of suitable age and discretion at the subject laundromat and mailed to the subject premises on December 29, 2017. The Thirty Day Notice states that "[t]he Agreement of Lease dated September 5th, 2004...which provides for a term of eleven (11) years terminated on October 31st, 2015 and any option to extend expired on your default of a condition precedent that you provide the Owner with a written notice of election to exercise said option by certified mail, return receipt requested, at least six (6) months prior to the expiration of the term of the lease".
The legal template:
A Yellowstone injunction is a creation of case law originating the with the decision of the Court of Appeals in First Natl. Stores v Yellowstone Shopping Ctr....The purpose of the Yellowstone injunction is to maintain the status quo so that a commercial tenant may protect its valuable property interest in its lease while challenging the landlord's assessment of its rights...A Yellowstone injunction forestalls 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[.]
In order to obtain a Yellowstone injunction, the tenant must establish (1) the existence of a commercial lease, (2) the issuance by the landlord of a notice of default, notice to cure, or threat of termination of the lease, (3) an application for a TRO made prior to the expiration of the cure period, and (4) the tenant's desire and ability to cure any alleged default by means short of vacating the premises[.]
Plaintiff asserts that the subject lease term was extended to October 31, 2020, pursuant the terms of the July 2, 2009 stipulation in the first Civil Court holdover proceeding. Paragraph 10 of said stipulation provides as follows: "Provided Respondents comply and are not in default through 10/31/15, owner agrees to extend the lease for five additional years upon the same terms and conditions of the current lease except the yearly increases shall be 7% (seven) for said additional term. Additional rents pursuant to original lease shall be condition of the additional 5 years as well; but water is paragraph 60 of the lease + paragraph 13 of the assignment".
[T]he lease terminated on October 31, 2015, pursuant to both the July 2, 2009 stipulation and Article 16 of the assignment of the lease. Article or paragraph 16 of the Assignment provides as follows:
The Owner hereby grants to the Assignee an option to extend the term of the lease for an additional five (5) years on condition that the Assignee provide the Owner with notice of its election to exercise said option by certified mail, return receipt requested, at least six (6) months prior to the expiration of the term of the lease. The rental for said option term shall be agreed upon by the parties on or before three (3) months prior to the expiration of the lease or the option shall be null and void.
Defendants assert that the lease, as modified by paragraph 16 of the Assignment, required plaintiff to provide the owner with notice of its election to exercise the option, by certified mail, return receipt requested, at least six months prior to its expiration, and that plaintiff never exercised said option. It is further asserted that as the July 2, 2009 stipulation states that the extension of the lease was "upon the same terms and conditions of the lease", plaintiff was required to exercise the option in the manner specified in paragraph 16 of the Assignment, and that it failed to do so. Defendants further assert that the lease was not extended pursuant to the terms of the July 2, 2009 stipulation, as the tenant was in default in the payment of the water/sewer account through October 31, 2015, defaulted in the payment of use and occupancy during the second holdover proceeding, and never paid the owner rent based upon the 7% increase set forth in the stipulation of settlement.
Defendants also state, among other things, that paragraph 86 of the rider to the lease provides as follows:
Tenant waives his right to bring any plenary actions and/or declaratory action with respect to any provision of this Lease, and expressly agrees not to seek injunctive relief, which would stay, extend or otherwise toll any of the time limitations or provisions of the Lease, or any notice sent pursuant thereto. Any breach of this paragraph shall constitute a violation of a substantial obligation of the tenancy, and shall be grounds for the immediate termination of this Lease. It is further agreed that in the event injunction relief is sought, or if a Yellowstone injunction...is sought, such relief shall be denied, and Landlord shall be entitled to recover the costs of opposing such an application or action, including its attorneys' fees actually incurred.
[T]he lease has not terminated and that the terms for renewing the lease forth in paragraph 10 of the July 2, 2009 stipulation of settlement, superceded the renewal provisions set forth in paragraph 16 of the assignment. It is therefore asserted that as of July 2, 2009, plaintiff was no longer required to exercise the option to renew in the manner specified in the Assignment. It is further asserted that the plaintiff does not owe the defendant any sums for the water bill; that the defendants failed to forward her payments to the water board; that she had overpaid the defendant for the water bill; that she has paid the water bill directly; and that she did not default in her rental payments during the pendency of the Civil Court action and appeal which resulted in the Appellate Term's order of December 1, 2017.
Here, the plain language of paragraph 86 of the lease rider reflects the parties' mutual intent to adjudicate disputes by summary proceedings. To the extent that plaintiff claims that the subject lease was extended and that she is not in breach of the same, she has waived any right she has to Yellowstone relief, pursuant to paragraph 86 of the rider to the lease[.]
Namdor, Inc. v. Boulevard Retail LLC, 2018 NY Slip Op 31960(U), Sup. Ct. N.Y. Co. (March 23, 2018)
Supreme Court, addressing a motion for Yellowstone relief, summarized the facts
On April 25, 1988, Broadway 86th Street Associates, as landlord, and Gristedes Supermarkets, Inc....as tenant, entered into a commercial lease commencing May 1, 1988 for a term of 10 years with two options to renew for an additional 20 years total; the lease is scheduled to expire in October 2018. Defendant Boulevard Retail LLC is the successor landlord...By a Notice to Cure, dated March 3, 2017, addressed to Gristedes, Inc., the Landlord informed the tenant of lease violations arising from a May 27, 2016 ECB violation for potentially dangerous discharges from Gristedes Inc.'s cooling towers which are allegedly too close to residences, giving twenty days to cure.
According to Charles D'Amico, Senior Vice President of Real Estate for Red Apple Group, Inc., the parent company to Namdor, Inc., Namdor has attempted to address the violation for two years. It engaged an engineer, submitted drawings, and offered to replace the cooling tower. The Landlord has yet to consent to any proposal. At argument, Mr. Flitt, attorney for the Landlord, informed the court that he expects to sign an agreement allowing an easement for repairs. Daniel J. Ansell, attorney for Namdor, challenges the Default Notice as it was served on Gristedes, Inc., an entity that has not existed since 1997 according to the NYS Secretary of State.
Also relevant here is the Landlord's nonpayment action against Gristedes, Inc....in NYC Civil Court. In her January 18, 2018 affirmation, Emily Pankow, Esq., "Assistant General Counsel of Red Apple Group, Inc, the parent company of respondent Gristede's Supermarkets Inc." states:
the dispute...involves in part Gristedes' cooling tower and Petitioner's claim that Gristedes has failed to maintain it properly. Without conceding any default, Gristedes developed a plan to alter the cooling tower and its systems. Petitioner, however, asserted that approval of such plan by the Board of Managers of the Boulevard Condominium...was necessary before the plan could be implemented. Such approval has been delayed...Gristedes has objected to this delay as unreasonable and unjustified[.]
Namdor is not mentioned. At argument, the court was informed that, at the Civil Court's direction, Gristedes (a/k/a Namdor) has paid two months use and occupancy.
The Yellowstone template:
In order to obtain a Yellowstone injunction, the moving party 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[.]
First, the Landlord argues that Namdor cannot satisfy the first requirement because it is not the named tenant on the lease and does not hold a commercial lease. As proof that Namdor is not the successor-in-interest to Gristedes, Inc., the Landlord relies on the parties' October 25, 2006 renewal letter that references Gristede's Supermarkets, Inc., not Namdor. The Landlord also points to Ms. Pankow's affirmation as a judicial admission that Gristedes, Inc., and not Namdor, is the tenant. However, Namdor submits a 1997 certificate of merger demonstrating that Gristedes's Supermarkets Inc. became Gristedes Operating Corp., and according to a 2000 certificate of merger, Gristedes's Operating Corp. was merged into Namdor, Inc. Therefore, Namdor Inc. d/b/a Gristedes's Supermarkets has established with unassailable documentary proof that it is the commercial tenant, holds the commercial lease, and thus, the proper party to initiate this action.
The court finds that Namdor has also satisfied additional three elements necessary for a Yellowstone Injunction. Namdor received the March 3, 2017 Notice to Cure addressed to Gristedes from the landlord which threatens termination of the lease. Namdor timely requested injunctive relief prior to the termination of the lease. Finally, Mr. D'Amico established that Namdor is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises.
The Landlord objects that as a matter of equity, the injunction should be denied because Namdor owes $521,238.42 in rental arrears. The court rejects the Landlord's reliance [the] proposition that there is a fifth requirement for a Yellowstone injunction, namely "the moving party must be in good standing under the lease, and cannot be liable for rental arrears due and owing thereunder."...While it is true for a breach of contract claim that plaintiff must allege that it is in good standing because it has performed under the contract, there is no such requirement in the legion of Yellowstone Injunction cases. This court is not prepared to change the established law[.]
And denied the landlord's request for a bond:
The Landlord requests a bond as security "to reimburse the defendant for damages sustained if it is later determined that the preliminary injunction was erroneously granted."...Namdor objects that its improvements of over $4,000,000 since 2000 secure the Landlord in the event that the Yellowstone is improvidently granted. Eighteen-year-old improvements are likely to be demolished if the lease expires, and thus, they do not protect the Landlord. However, the Landlord fails to identify the harm it would incur if the Yellowstone is improvidently granted. Indeed, if the lease expires, the grocery store will be evicted and the offensive cooling tower will be inoperative. Further, this court will not interfere with the expedited nonpayment proceeding in Civil Court[.]
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.