As It Turns Out, <i>Yellowstone</i> Waivers Are Enforceable

The majority continued:

“To hold that the waiver of declaratory judgment remedies in contractual leases between sophisticated parties is unenforceable as a matter of public policy does violence to the notion that the parties are free to negotiate and fashion their contracts with terms to which they freely and voluntarily bind themselves. The fact that with the benefit of hindsight, a party believes that it had agreed to an unfavorable contractual term, does not provide courts with authority to rewrite the terms of a contract or to extricate parties from poor bargains … the plain language of the lease riders reflects the parties' mutual intent to adjudicate disputes by means of summary proceedings. Declaratory and Yellowstone remedies are rights private to the plaintiffs that they could freely, voluntarily, and knowingly waive. We therefore enforce the waivers in the lease riders and decline to strike them ….”

The Second Department next held that the plaintiffs had “the burden of demonstrating a triable issue of fact as to whether the waiver provisions violate public policy,” and had not done so “where the record is silent as to the consideration they received in exchange for their waivers.” Such language allows for the possibility that a Yellowstone waiver, under the right facts, could be deemed unconscionable.

The majority next addressed the dissent's concern that without declaratory relief to toll the cure period, plaintiffs would be without any remedies to save their leases because there is no statutory authority permitting a commercial tenant to commence a summary proceeding. The majority rejected that argument, noting that “plaintiffs had the contractual right to receive notices to cure and an opportunity to correct any claimed breaches” within the negotiated cure period. Id. at 8. The majority also observed that plaintiffs maintained the right to seek money damages from defendant if defendant were to breach the contract or commit tortious conduct injurious to persons or property. Lastly, the majority noted that “plaintiffs did not surrender the right to fully litigate and defend themselves in any summary proceeding that the defendant might commence in Civil Court ….” Id.

Dissent

In her dissent, Justice Francesca E. Connolly opined that the waiver violated public policy. Justice Connolly wrote that a tenant's broad waiver of the right to seek declaratory relief — and, implicitly, a Yellowstone injunction — should be void because the enforcement of same would deprive a commercial tenant of any affirmative and meaningful means of accessing the courts to protect it leasehold interest.

Conclusion

Practitioners advising landlords, at least in the Second Department, should strongly consider whether to include a Yellowstone waiver when drafting a commercial or retail lease. Attorneys advising tenants should either attempt to strike the waiver or, at least, obtain something of value in return. The outcome will depend on the relative bargaining positions of the parties, the precise free market approach that the Second Department endorsed.

One thing is for certain: Yellowstone waivers will ultimately result in many leasehold forfeitures. It remains to be seen whether the legislature or the Court of Appeals will be willing to accept that result.

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Jeffrey Turkel, a member of this newsletter's Board of Editors, is a member in the Manhattan real estate law firm of Rosenberg & Estis, P.C. Joshua Kopelowitz is also a member of the firm.