Tenant's Yellowstone Injunction Appropriate Pending Outcome of Late Rent Claims

Facts: A tenant rented space for its office on two floors of a building. When it attempted to exercise its option to renew its lease for an additional five-year term, the landlord offered to buy out the lease, but the tenant rejected the offer. A few weeks later, the tenant received a termination notice, in which the landlord claimed that the tenant had been “late” with certain rental payments and that, as a result, the lease would be terminated the following month.

Prior to receiving the notice, the tenant had never received a notice of nonpayment. The tenant claimed that the landlord’s allegations weren’t accurate and that it had never received a rent invoice containing a late charge or informing it that the rent was late. The tenant acknowledged that the landlord had asked the tenant to pay for an electric meter, and had listed the charge as additional rent. The tenant asked for substantiation of the charge for the meter, but because the landlord hadn’t provided this, the tenant refused to pay. It assured the court that it was ready and willing to cure this violation, if it was determined that the charge was correct.

The tenant asked the court for a Yellowstone injunction, which maintains 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”—that is, pausing—the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.

The party requesting a Yellowstone injunction 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.

Decision: A New York trial court granted the tenant’s request for a Yellowstone injunction.

Reasoning: The trial court noted that “Yellowstone relief is designed to prevent the unjustified or premature termination of a valuable leasehold interest by allowing a tenant to challenge, during the pendency of litigation, its landlord’s argument that the lease should be terminated.”

Here, the tenant established the criteria necessary for the issuance of a Yellowstone injunction. The tenant showed that: (1) it holds a commercial lease; (2) the landlord served a notice of termination on the tenant threatening to terminate its lease based on its alleged failure to pay rent on time on three occasions during a 24-month period; (3) it sought injunctive relief prior to the date set forth in the notice for the termination of the lease; and (4) it is willing and able to cure the alleged default—that is, the cost of the electric meter and/or late rent charges, if the court determined that the tenant owed them.   

The trial court pointed out that the tenant had asked the landlord multiple times to provide information that it could use to electronically pay its rent on the set date each month, to avoid late payments. The landlord had refused. The trial court also stated that the landlord’s contention regarding late rent payments “appears to be exaggerated,” because although the landlord claimed that the tenant paid its rent late on several occasions, there is only one entry on the ledger submitted to the court that reflects a late charge.

The landlord asserted that the tenant’s request for a Yellowstone injunction should be denied because the tenant supposedly cannot cure its default, but the trial court concluded that this contention was without merit. Specifically, the landlord argued that the tenant’s failure to pay rent more than three times in a 24-month period entitles it to terminate the lease pursuant to a certain provision, without serving the tenant with a notice to cure. However, the notice was based on not just that provision, but also a provision that required the landlord to provide the tenant with at least five days to cure.

The trial court ordered a trial to determine the facts of the case and gave the tenant a Yellowstone injunction to toll the termination of the lease, pending the outcome of the trial.

• 1-800-Flowers.Com, Inc. v. 220 Fifth Realty LLC, November 2018