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Let Freedom (of Contract) Ring: Yellowstone Waivers Are Enforceable
This is the third in a series of articles exploring whether parties to a commercial lease can contractually waive a tenant's right to seek a Yellowstone injunction. The first article, "Are Yellowstone Waivers Enforceable?," NYLJ, April 10, 2014, at 4, col. 1, was written before any appellate authority existed on the issue. Our second article, "As it Turns Out, Yellowstone Waivers Are Enforceable," 34 NY Real Estate Law Reporter 5 (April, 2018), written four years later, discussed the evolution of the law following the seminal holding in 159 MP Corp. v Redbridge Bedford, LLC, 160 AD3d 176 (2d Dept 2018). (Both prior articles were co-authored by Joshua Kopelowitz and Jeffrey Turkel.) In Redbridge, the Appellate Division Second Department, citing our article, held that parties to a commercial contract are free to limit a tenant's ability to seek a declaratory judgment and, specifically, a Yellowstone injunction. On May 7, 2019, the Court of Appeals, in 159 MP Corp. v Redbridge Bedford, LLC, 2019 NY Slip Op 03526, affirmed the Second Department's ruling and reasoning, thereby leaving no doubt that a contractual waiver of a right to seek a declaratory judgment and/or a Yellowstone injunction in a commercial lease is enforceable.
What Is a Yellowstone Injunction?
A Yellowstone injunction is a remedy, created by case law, that allows a commercial tenant to seek a judicial determination regarding an alleged default under its lease after receipt of a notice to cure from their landlord. "The sole purpose of a Yellowstone injunction is to maintain the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture." Universal Communications Network, Inc. v 229 West 28th Owner, LLC 85 AD3d 668, 669 (1st Dept 2011).
Yellowstone Waivers are Enforceable in New York
In Redbridge, the plaintiffs sought and obtained leave to appeal to the Court of Appeals from the Second Department's decision. On May 7, 2019, in a 4-3 decision written by Chief Judge DiFiore, the Court of Appeals affirmed the Second Department's determination that a tenant may contractually waive its right to declaratory relief, including its right to a Yellowstone injunction.
The foundation of the Court of Appeals' decision is the longstanding principle that the agreement of two parties to a contract should be enforced according to its terms. "By disfavoring judicial upending of the balance struck at the conclusion of the parties' negotiations, our public policy in favor of freedom of contract both promotes certainty and predictability and respects the autonomy of commercial parties in ordering their own business arrangements." Id. at 3.
The Court, in its discussion, noted that where two separate public policy concerns are present (i.e., freedom of contract and the unenforceability of contractual provisions that violate public policy), the most important function of the judicial system "is to enforce contracts rather than invalidate them on the pretext of public policy unless they clearly … contravene public right or the public welfare." Id. at 3 (citations omitted).
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