Yellowstone Injunction Motion Denied Because Tenant Failed to Show Ability to Cure

On September 28, 2022, Justice Andrea Masley of the New York County Commercial Division issued a decision in Urban Commons 2 W. LLC v. Battery Park City Authority, 2022 N.Y. Slip Op. 33268(U), denying a commercial tenant's motion for a Yellowstone inunction on the ground that the tenant failed to show that it had funds available to cure its default in the payment of rent if the landlord prevailed in the action, explaining:

To obtain a Yellowstone injunction, the moving party 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 [*6] to cure the alleged default by any means short of vacating the premises." (225 E. 36th St. Garage Corp. v 221 E. 36th Owners Corp., 211 AD2d 420, 421, 621 N.Y.S.2d 302 [1St Dept 1995] [citations omitted].) "[T]he tenant need not, as a prerequisite to the granting of a Yellowstone injunction, demonstrate a likelihood of success on the merits." (Herzfeld & Stern v Ironwood Realty Corp., 102 AD2d 737, 738, 477 N.Y.S.2d 7 [1st Dept 1984] [citations omitted].)

The purpose of a Yellowstone injunction is to permit a tenant to "obtain[] a stay of the cure period before it expire[s] to preserve the lease until the merits of the dispute [can] be settled in court." (Post v 120 E. End Ave. Corp., 62 NY2d 19, 25, 464 N.E.2d 125, 475 N.Y.S.2d 821 [1984].) "[T]he law does not favor [a] forfeiture." (Herzfeld & Stern, 102 AD2d at 738[internal quotation omitted].)

[**5] The first two Yellowstone requirements are not in issue. Rather, the motion is denied for failure to satisfy the other two prongs.

First, Tenant fails to establish an ability to cure. Tenant is a limited liability company whose only asset, according to Landlord, is the lease, which Tenant does not dispute. According to Tenant, the lease is worthless. (NYSCEF 4, Woods1 aff, ¶ 26.) Tenant also fails to provide any financial documentation to establish that it has funds available. The court also rejects the letters of intent and proof of funds from commercial lenders and investors for loans and equity contributions, submitted on reply, as proof of Tenant's [*7] ability to cure: i.e., pay $10 million in past due rent. (NYSCEF 43, 45, 47, 49, 51.) Woods attests, "since 2019 and through today, Plaintiffs have been shopping for and negotiating offers from financial institutions for new lines of credit and investors for equity." (NYSCEF 37, Woods aff, ¶ 25). Tenant claims that the three submitted letters (NYSCEF 43, 45, and 49) are a representative sampling of 17 such proposals. (NYSCEF 37, Woods aff, ¶25.) The court's assessment is limited to the letters actually provided. However, one of the letters expired within 24 hours of its date, on June 24, 2022. (NYSCEF 43.) None of the remaining letters is accompanied by a sworn statement attesting to authenticity. Moreover, any plan depends on Landlord's consent, which Tenant claims has thus far been unreasonably withheld since October 10, 2019.

Because a tenant seeking a Yellowstone injunction doesn't have to show a likelihood of success, getting a Yellowstone injunction, if timely requested, is often not very difficult. But as this case shows, a tenant must still show that it has the ability to cure its alleged default, which in this case meant showing ability to pay unpaid rent.

The attorneys at Schlam Stone & Dolan frequently litigate commercial landlord-tenant disputes and Yellowstone inunctions. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about a Yellowstone injunction.