In Ronald Benderson 1995 Trust v. Erie County Medical Center Corporation, Justice Walker of the Erie County Commercial Division granted Plaintiff’s request for a Yellowstone injunction where the defendant landlord provided a faulty notice of default to the plaintiff tenant.  This decision highlights the importance of proper notice in order to successfully defend against a Yellowstone injunction.

Yellowstone injunctions, which take their name after a 1968 Court of Appeals case,[1] are a special type of injunction in the context of commercial leases that toll the tenant’s time to cure an alleged lease default while the tenant pursues a legal determination as to whether cure is in fact required under the terms of the lease.  By pursuing this injunctive relief, a commercial tenant can avoid the potentially unnecessary cost of curing the alleged default, while ensuring that its interest in the lease—which is often a tenant’s most valuable business asset—is protected until a court has had a chance to weigh in on the merits of the dispute. 

Background

This case arises out of a dispute between a commercial real estate tenant-plaintiff and a hospital landlord-defendant in the context of a commercial lease for retail space located in the lobby of the hospital.  The initial term of the lease, which was for ten years, provided that the tenant would pay a “Partial Rent” amount until all rentable space was sublet and open for business.  The Partial Rent was calculated by “multiplying the Full Rent due for each month by a fraction the numerator of which is the total combined square footage of each subtenant open for business in the [lobby] and the denominator of which is the total square footage of the [lobby].”[2]  Plaintiff began paying Partial Rent in accordance with the lease provisions on May 22, 2003.  

The lease provided plaintiff the option to renew for a second ten-year term, and specified that the full rent for the second ten-year term would increase by a certain amount.  The renewal option, however, was silent as to the Partial Rent provision.  Plaintiff exercised the renewal option on August 22, 2011, and served defendant with a notice clarifying the rent for the renewal period in accordance with the Partial Rent provision, i.e., the monthly rent for the renewal period multiplied by the Subtenant occupancy rate.  Defendant accepted the prorated rent without objection until October 2020.

Following a major economic loss during the COVID-19 pandemic and an appraisal which determined that defendant was losing money on its lease of the lobby space, defendant sent plaintiff a notice of a default under the lease.  After a few months of trying to resolve their disputes, defendant directed plaintiff to “quit and surrender” the lobby space.  Plaintiff then moved for a Yellowstone injunction. 

Decision on Plaintiff’s Application for a Yellowstone Injunction

In order to succeed on a Yellowstone injunction, a plaintiff 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.”[3]  As the Court itself acknowledged, this standard is less demanding than that for a normal preliminary injunction.[4]  New York courts typically do not require a showing of likelihood of success on the merits and irreparable harm in order to issue a  Yellowstone injunction,[5] although the Court nonetheless proceeded with an analysis of the usual preliminary injunction factors in reaching its decision in this case.

As an initial matter, the Court found that the plaintiff was entitled to the requested relief because the alleged notice of default was defective in a number of respects.  For example, it was sent to the wrong party at the wrong address in violation of the notice clause in the lease.  Furthermore, the Court held that the notice violated then-Governor Andrew Cuomo’s Executive Order providing for a moratorium on commercial evictions during the COVID-19 pandemic. 

More importantly, the Court found that the notice of default was “so impermissibly vague that it was insufficient to commence a ‘cure’ period, as a matter of law.”[6]  It claimed for the first time that the Full Rent Commencement date had occurred on an unspecified date in 2014 and that plaintiff “shall pay…[the Full Rent amount],” but also provided two different and logically inconsistent rental rates.[7]  The notice went on to say that the renewal option did not include a Partial Rent period.

The notice provided thirty days to cure the default “to avoid termination of the Lease,” but did not explain how plaintiff could cure the alleged breach.  “Notably, the notice letter was silent as to whether ‘cure’ meant paying increased rent moving forward, paying back-rent for years in the past, or which amount of rent would apply in either case.”[8]  Because of these ambiguities with respect to plaintiff’s ability to cure, the notice letter was insufficient to commence a cure period as a matter of law, and thus the “cure” period could not have expired because it was never commenced. 

The Court went on to address the plaintiff’s likelihood of success on the merits with respect to the remaining Yellowstone factors.  Although the Court recognized that the defendant had some meritorious public policy arguments with respect to the validity of the lease in question, and that the plaintiff had likely failed to pay the full amount of rent due under the lease, it ultimately granted the plaintiff’s request for injunctive relief, noting New York’s well-settled law that the loss of a leasehold constitutes irreparable harm and that the equities disfavor the forfeiture of valuable leasehold interests, particularly where, as here, the notice of default was a nullity. 

Conclusion

The Benderson case highlights the importance of issuing a proper notice of default—including by providing sufficient detail as to how a tenant may cure any alleged default—when seeking to terminate a lease.  The failure to provide a “clear, unambiguous, and unequivocal” notice of default can make it easier for a tenant to obtain a Yellowstone injunction.