Yellowstone Injunction Granted for Restaurant Tenant

Facts: An owner bought a building that already leased space to a restaurant, among other tenants. The tenants’ leases were assigned to the owner. The owner discovered that a tenant renting space for two bars and a delicatessen (restaurant tenant) in the building had been using the basement of the building for storage.

     The owner sent a letter to the tenant, explaining that the tenant’s lease didn’t extend to the basement and demanding that the items be removed immediately. The tenant sent a letter to the owner, stating that there was nothing in the lease that excluded it from using the basement, and that the tenant had used the basement for almost 19 years.

     The owner served the tenant with a “Fifteen Day Notice of Default,” asserting that the tenant was using and occupying the basement contrary to the provisions of the lease and without prior written authorization by the owner; the notice gave the tenant 15 days to cure—that is, fix—the default.

     The tenant asked a New York court for a preliminary and permanent injunction (an order from a court that requires a party to do or refrain from doing something) enjoining the owner from terminating its lease or attempting to evict it. It also sought a declaratory judgment (a binding judgment from a court defining the legal relationship between parties and their rights in the matter that the court is determining) that the owner couldn’t terminate the tenant’s tenancy because of its use and occupancy of the basement, as it was in accordance with the terms of the lease.

     The tenant stated that while it believed that its use of the basement was in compliance with the terms of the lease, it was willing to cure any purported lease defaults by ceasing its occupancy of the basement if the court were to find that the space wasn’t part of the lease agreement. Also, the tenant contended that since the inception of the lease, it was the previous owner’s and its understanding that the lease covered the basement space, and that the tenant has been using the space continuously for almost 19 years.

     The owner asked the court to dismiss the case. It argued that the tenant didn’t demonstrate an ability and/or desire to cure, and that it illegally and without authority occupied the basement.

Decision: The court granted the injunction and ordered a trial.

Reasoning: The court noted that the type of injunction—that is, a Yellowstone injunction—that the tenant requested—serves the purpose of maintaining 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.”

     A tenant seeking a Yellowstone injunction must demonstrate that it: (1) has a commercial lease; (2) has received a notice to cure from the owner; and (3) has requested injunctive relief prior to the expiration of the cure period. The tenant also must show that it’s prepared to and maintains the ability to cure the alleged defaults.

     The court said that the tenant in this case made a sufficient showing for Yellowstone relief. There was no dispute that it had a lease for its space, had received a notice of default stating that it was in default of the lease for using and occupying the basement space beneath the premises, and had applied for Yellowstone relief before the expiration of the cure period.

     The tenant also established its willingness and ability to cure the alleged default by submitting an affidavit in which it stated that it “is willing to cure any purported lease defaults by ceasing its occupancy of the basement space if the court finds that the basement space is not part of the lease agreement.”

     The court next addressed the owner’s claim that under the terms of the lease, the basement area was excluded. “Here, the lease doesn’t conclusively establish whether or not the tenant is authorized to use the basement space,” the court determined. Accordingly, the court couldn’t resolve whether the basement was covered pursuant to the terms of the lease.

     Further, the notice of default only charged that the tenant was in default due to the use of the basement space. “In light of the conflicting allegations regarding the use of the basement, an injunction is necessary to preserve the status quo until a trial can be conducted on the merits of the case,” the court decided.

• Weinberg Holdings LLC v. Ruru & Assoc. LLC, February 2013