THE RETURN OF YELLOWSTONE

Awaiting signature by the Governor is S5614 which adds a new section 235-h to the real property law and prohibits commercial leases from including a waiver of the right to a declaratory judgment action and states that the inclusion of such a waiver in a commercial lease shall be null and void as against public policy. As the Senate stated:

"For the last 50 years, in cases where a landlord serves a commercial
tenant with a notice to cure a defect, and seeks to terminate a lease if
the defaults under the lease are not cured within a certain amount of
time, the tenant has had the right to seek additional time to cure. The
commercial tenant has been able to file for an injunction to toll the
period of time allowed to cure the default, and to prevent the landlord
from terminating the lease. This is known as a Yellowstone injunction,
(see First Nail. Stores v. Yellowstone Shopping Ctr., 21 N.Y.2d 630
(1968).

Until recently the question of whether a commercial tenant could waive
its right to obtain a Yellowstone injunction had not been ruled upon by
an appeals court until a recent ruling in the Second Department of the
Appellate Division (159 MP Corp. v. Redbridge Bedford, 2018 N.Y. Slip.
Op. 00537 (2d Dept, Jan.31, 2018) held the waiver language in the lease
was enforceable and not against public policy.  The court further found
that the legislature "has not enacted any specific or blanket statutory
provision prohibiting as void or unenforceable a tenant's waiver of
declaratory judgment remedies."

This legislation seeks to enact such a provision as a matter of public
policy and restore the right of commercial tenants to cure under a
declaratory judgment action as has been the practice since 1968.  The
ability to cure through this process protects commercial tenants from
landlords seeking to remove tenants in the middle of a lease period
without appropriate ability to cure or judicial review. To allow waiver
clauses of the Yellowstone injunction will be disruptive of commerce,
unfair to commercial tenants and allow landlords to use minor lease
issues as a method to remove and replace tenants in the middle of lease
terms. Commercial landlords would be able to prematurely terminate leas-
es whenever they wanted to force a tenant out, whether the default was
legitimate or not, and the tenant who agreed to a waiver would have no
recourse."