Yellowstone Injunctions Are Applicable to Residential Leases

The term “Yellowstone injunction,” which derives from the Court of Appeals' decision in National Stores, Inc. v. Yellowstone Shopping Center, 21 N.Y.2d 630 (1968), has evolved into a universally recognized brand name among experienced New York real estate litigators. These routinely granted injunctions stay the expiration of the cure period set forth in a landlord's notice to cure, and enjoin the landlord's termination of the lease, until the merits of the alleged default is determined by a court. When a tenant fails to obtain the injunction prior to the expiration of the noticed cure period, the lease terminates and, under Yellowstone, courts are powerless to revive it.

Commercial Leases

The dispute in Yellowstone concerned a commercial lease, and Yellowstone injunctions have, over the years, primarily been issued to enjoin the termination of commercial leases. In fact, many decisions specifically hold that the tenant must be a party to a “commercial” lease to obtain a Yellowstone injunction. See, e.g., Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assoc., 93 N.Y.2d 508, 514 (1999); Hempstead Video, Inc. v. 363 Rockaway Associates, LLP, 38 A.D.3d 838, 839 (2d Dep't 2007).

However, while the commercial lease requirement was the prevailing view for many years, courts also found during the same general time period that Yellowstone injunctions could be issued to enjoin the termination of a residential lease. See, e.g., Stolz v. 111 Tenants Corp., 3 A.D.3d 421, 422 (1st Dep't 2004); Cohn v. White Oak Cooperative Housing Corp., 243 A.D.2d 440, 441-42 (2d Dep't 1997); Somekh v. Ipswich House, Inc., 81 A.D.2d 662, 363 (1981).

The Second Department Ruling

The Second Department explicitly addressed the applicability of Yellowstone relief to a residential lease in Hopp v. Raimondi, 51 A.D.3d 726, 727-28 (2d Dep't 2008), and found that the rules for Yellowstone injunctions are not only applicable to residential leases, but such injunctions are the only option available to residential tenants outside of New York City to extend cure periods. This, according to the Hopp court, is because RPAPL 753(4), which provides a losing residential tenant 10 days to cure lease violations before being subject to removal, applies only to New York City tenants. In Caldwell v. American Package Company, Inc., 57 A.D.3d 15 (2d Dep't 2008), the Second Department confirmed that Hopp changed the law in that department when it said, citing Hopp, that traditionally it had required Yellowstone injunction applicants to hold a commercial lease, but “[r]ecently, however, we have extended the availability of Yellowstone injunctions to residential tenants.” The more recent decisions also make it clear that, in the First Department, Yellowstone injunctions may be issued with respect to residential leases. See, e.g., Abramowitz v. 145 East 16th Street LLC, 50 A.D.3d 594 (1st Dep't 2008).

Goldcrest

The Second Department's recent decision in Goldcrest Realty Company v. 61 Bronx River Owners, Inc., 83 A.D.3d 129 (2d Dep't Mar. 29, 2011) provided another opportunity for that court to clarify the application of the Yellowstone doctrine to residential leases. In Goldcrest, the plaintiff sponsor, the holder of unsold shares allocated to 15 apartments located within a co-op building, refused to pay maintenance fees to the defendant co-op, claiming that it had prepaid them. The co-op sent notices of default, dated Sept. 17, 2009, notifying the sponsor that it was in default of its obligation to pay maintenance fees under the proprietary lease, and demanding that the sponsor cure the default on or before Oct. 2, 2009. After the sponsor failed to cure its default by that date, the co-op mailed notices of termination, dated Oct. 5, 2009, to the sponsor. On Oct. 14, 2009, the Supreme Court, Westchester County granted the sponsor's application for a Yellowstone injunction, one day before the Oct. 15, 2009 termination date set forth in the co-op's notice of termination, but 12 days after the expiration of the cure period set forth in the co-op's notice of default. In granting the application for Yellowstone relief, the trial court rejected the co-op's contention that it was untimely because it was submitted after the cure period had expired. Instead, the trial court sustained the sponsor's argument that the application was timely because it was submitted before the termination date set forth in the co-op's notice of termination.

On appeal, the Second Department relied heavily on its decision in Korova Milk Bar v. of White Plains, Inc. v. PRE Props, LLC, 70 A.D.3d 646 (2d Dep't 2010) to reverse the trial court's decision granting Yellowstone relief, and reaffirmed that an application for a Yellowstone injunction must be made prior to the expiration of the subject cure period, as well as before the termination of the lease. The Second Department then addressed the sponsor's contention that the Korova decision should not apply to the sponsor's application “because this case involves proprietary leases in a residential cooperative, as opposed to a commercial lease like the one in Korova.” Relying on its decision in Hopp, the Second Department rejected that contention, and held that “[s]ince the plaintiff did not seek Yellowstone relief within the cure period, the Supreme Court improperly granted the relief.”

The trial court did not rule on the sponsor's application for an Article 63 injunction enjoining the termination of the lease. On appeal, the sponsor contended that the trial court should have granted it. This gave the Second Department the opportunity to close a loophole in the law by which some tenants have obtained Article 63 injunctions enjoining a lease termination even though an application for a Yellowstone Injunction would have been denied because the cure period had expired. The Second Department agreed with previous decisions by the First and Third Departments holding that applications for Article 63 injunctions seeking to enjoin a lease termination must be submitted before the expiration of the cure period. Consequently, in the Second Department, tenants who miss the deadline for the application of Yellowstone injunction are now out of luck ' Article 63 is no longer a viable option.

Jack Malley is a Partner at Smith, Buss & Jacobs, LLP. A member of the firm's commercial litigation and real estate departments, Mr. Malley concentrates his litigation practice on the representation of clients in complex commercial litigation actions. He served as counsel for 61 Bronx River Road Owners, Inc. in the Goldcrest Realty case.

The term “Yellowstone injunction,” which derives from the Court of Appeals' decision in National Stores, Inc. v. Yellowstone Shopping Center , 21 N.Y.2d 630 (1968), has evolved into a universally recognized brand name among experienced New York real estate litigators. These routinely granted injunctions stay the expiration of the cure period set forth in a landlord's notice to cure, and enjoin the landlord's termination of the lease, until the merits of the alleged default is determined by a court. When a tenant fails to obtain the injunction prior to the expiration of the noticed cure period, the lease terminates and, under Yellowstone, courts are powerless to revive it.

Commercial Leases

The dispute in Yellowstone concerned a commercial lease, and Yellowstone injunctions have, over the years, primarily been issued to enjoin the termination of commercial leases. In fact, many decisions specifically hold that the tenant must be a party to a “commercial” lease to obtain a Yellowstone injunction. See, e.g., Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assoc., 93 N.Y.2d 508, 514 (1999); Hempstead Video, Inc. v. 363 Rockaway Associates, LLP, 38 A.D.3d 838, 839 (2d Dep't 2007).

However, while the commercial lease requirement was the prevailing view for many years, courts also found during the same general time period that Yellowstone injunctions could be issued to enjoin the termination of a residential lease. See, e.g., Stolz v. 111 Tenants Corp., 3 A.D.3d 421, 422 (1st Dep't 2004); Cohn v. White Oak Cooperative Housing Corp. , 243 A.D.2d 440, 441-42 (2d Dep't 1997); Somekh v. Ipswich House, Inc. , 81 A.D.2d 662, 363 (1981).

The Second Department Ruling

The Second Department explicitly addressed the applicability of Yellowstone relief to a residential lease in Hopp v. Raimondi , 51 A.D.3d 726, 727-28 (2d Dep't 2008), and found that the rules for Yellowstone injunctions are not only applicable to residential leases, but such injunctions are the only option available to residential tenants outside of New York City to extend cure periods. This, according to the Hopp court, is because RPAPL 753(4), which provides a losing residential tenant 10 days to cure lease violations before being subject to removal, applies only to New York City tenants. In Caldwell v. American Package Company, Inc. , 57 A.D.3d 15 (2d Dep't 2008), the Second Department confirmed that Hopp changed the law in that department when it said, citing Hopp , that traditionally it had required Yellowstone injunction applicants to hold a commercial lease, but “[r]ecently, however, we have extended the availability of Yellowstone injunctions to residential tenants.” The more recent decisions also make it clear that, in the First Department, Yellowstone injunctions may be issued with respect to residential leases. See, e.g., Abramowitz v. 145 East 16th Street LLC, 50 A.D.3d 594 (1st Dep't 2008).

Goldcrest

The Second Department's recent decision in Goldcrest Realty Company v. 61 Bronx River Owners, Inc., 83 A.D.3d 129 (2d Dep't Mar. 29, 2011) provided another opportunity for that court to clarify the application of the Yellowstone doctrine to residential leases. In Goldcrest, the plaintiff sponsor, the holder of unsold shares allocated to 15 apartments located within a co-op building, refused to pay maintenance fees to the defendant co-op, claiming that it had prepaid them. The co-op sent notices of default, dated Sept. 17, 2009, notifying the sponsor that it was in default of its obligation to pay maintenance fees under the proprietary lease, and demanding that the sponsor cure the default on or before Oct. 2, 2009. After the sponsor failed to cure its default by that date, the co-op mailed notices of termination, dated Oct. 5, 2009, to the sponsor. On Oct. 14, 2009, the Supreme Court, Westchester County granted the sponsor's application for a Yellowstone injunction, one day before the Oct. 15, 2009 termination date set forth in the co-op's notice of termination, but 12 days after the expiration of the cure period set forth in the co-op's notice of default. In granting the application for Yellowstone relief, the trial court rejected the co-op's contention that it was untimely because it was submitted after the cure period had expired. Instead, the trial court sustained the sponsor's argument that the application was timely because it was submitted before the termination date set forth in the co-op's notice of termination.

On appeal, the Second Department relied heavily on its decision in Korova Milk Bar v. of White Plains, Inc. v. PRE Props, LLC , 70 A.D.3d 646 (2d Dep't 2010) to reverse the trial court's decision granting Yellowstone relief, and reaffirmed that an application for a Yellowstone injunction must be made prior to the expiration of the subject cure period, as well as before the termination of the lease. The Second Department then addressed the sponsor's contention that the Korova decision should not apply to the sponsor's application “because this case involves proprietary leases in a residential cooperative, as opposed to a commercial lease like the one in Korova.” Relying on its decision in Hopp, the Second Department rejected that contention, and held that “[s]ince the plaintiff did not seek Yellowstone relief within the cure period, the Supreme Court improperly granted the relief.”

The trial court did not rule on the sponsor's application for an Article 63 injunction enjoining the termination of the lease. On appeal, the sponsor contended that the trial court should have granted it. This gave the Second Department the opportunity to close a loophole in the law by which some tenants have obtained Article 63 injunctions enjoining a lease termination even though an application for a Yellowstone Injunction would have been denied because the cure period had expired. The Second Department agreed with previous decisions by the First and Third Departments holding that applications for Article 63 injunctions seeking to enjoin a lease termination must be submitted before the expiration of the cure period. Consequently, in the Second Department, tenants who miss the deadline for the application of Yellowstone injunction are now out of luck ' Article 63 is no longer a viable option.

Jack Malley is a Partner at Smith, Buss & Jacobs, LLP. A member of the firm's commercial litigation and real estate departments, Mr. Malley concentrates his litigation practice on the representation of clients in complex commercial litigation actions. He served as counsel for 61 Bronx River Road Owners, Inc. in the Goldcrest Realty case.