Yellowstone Proceedings Update

Author:Mr Victor Metsch
Profession:Smith Gambrell & Russell LLP

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...

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