159 MP Corp v. Redbridge Bedford, LLC: The Begining of the End for the Yellowstone Doctrine
For many years, New York commercial tenants have had an important protection commonly referred to as a Yellowstone injunction. This right arose from a New York Court of Appeals decision in 1968, titled First Nat’l Stores v. Yellowstone Shopping Ctr, 21 N.Y.2d 630 (1968), in which the court allowed a commercial tenant who received a notice of default or notice to cure to file an action for declaratory relief and to receive a Yellowstone injunction against the Landlord. This injunction essentially stays the cure period pursuant to the Lease, and enjoins the landlord from terminating the lease while the court determines the issue of whether a default under the lease has occurred.
However, in a recent decision by the New York Court of Appeals, the Court raised the issue of whether an express waiver in a commercial tenant’s lease, regarding Tenant’s right to bring an action for declaratory judgment, was enforceable as a matter of public policy. In the end, the Court rejected the Tenant’s argument that as a matter of public policy, such a waiver should be unenforceable, and held that “the right to commence a declaratory judgment action, although a useful litigation tool, does not reflect such a fundamental public policy interest that it may not be waived by counseled, commercial entities in exchange for other benefits or concessions.” 159 MP Corp v Redbridge Bedford, LLC, 2019 Slip Op 03526. The Court reasoned that the waiver was clear and unambiguous, adopted by sophisticated parties negotiating at arm’s length, by parties who had relatively equal bargaining power, and does not violate a public policy interest that outweighs the strong public policy in favor of freedom of contract.
In Justice Wilson’s dissent, he states that freedom of contract is not a limitless right, and that the decision in this case will result in the elimination the Yellowstone injunction. He cautions that in any future commercial lease, landlords will undoubtably include a waiver of declaratory and Yellowstone injunctions as a matter of course, enabling landlords to terminate a lease based on a tenant’s technical “default” whenever a landlord wants out of a lease, such as where rent values in the area have increased, and eliminating the tenants right to protect themselves via Yellowstone injunction.
As a result of this case, depending on the parties bargaining power, commercial tenants may be forced to include in their lease this waiver of Tenant’s right to bring an action for declaratory judgment, or seek a Yellowstone injunction. Landlords and Tenants must now be aware of the ramifications of putting such language in all future commercial leases. In this specific instance, the language that was included was as follows:
"Tenant waives its right to bring a declaratory judgment action with respect to any
provision of this Lease or with respect to any notice sent pursuant to the provisions
of this Lease . . . [I]t is the intention of the parties hereto that their disputes be
adjudicated via summary proceedings[.]"
This decision greatly expands landlords’ power over commercial tenants and/or sophisticated tenants who are represented by counsel, if such language is included their leases. Absent legislative action, this decision truly alters the balance of power in landlord-tenant law in New York State.
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