A Yellowstone injunction permits a tenant who has been served with a notice to cure or a notice of a default by its landlord to obtain a stay tolling the cure period and enjoining the landlord from terminating the lease pending determination of whether the tenant is, in fact, in default. Recently, and with little media attention, the New York State Legislature enacted a law that appears to nullify, as contrary to public policy, any commercial lease provision that waives a tenant's right to seek a Yellowstone injunction. But the statute as written may not accomplish the Legislature's goal.

On Dec. 20, 2019, Real Property Law §235-h was signed into law. The two-sentence statute, entitled "Waiver of right to bring a declaratory judgment action," reads:

No commercial lease shall contain any provision waiving or prohibiting the right of any tenant to bring a declaratory judgment action with respect to any provision, term or condition of such commercial lease. The inclusion of any such waiver provision in a commercial lease shall be null and void as against public policy.

According to the Assembly's official Justification for the bill, the impetus for this new law was the Appellate Division, Second Department's decision in 159 MP Corp. v. Redbridge Bedford, 160 A.D.3d 176 (2d Dept. 2018), which was affirmed by the Court of Appeals in May 2019 (33 N.Y.3d 353 (2019)). In that landlord/tenant case, the Second Department held a commercial lease clause enforceable, and not void as against public policy, in which the tenant waived the right to seek a declaratory judgment, and therefore (it was claimed) also waived the right to seek a Yellowstone injunction.

Even before the Court of Appeals affirmed the Second Department's decision, many commentators argued that the ruling had the "potential to shift the balance of power in commercial landlord/tenant relations" and wondered whether it would "generate a flood of Yellowstone waivers." See, e.g., Schwartz, NY Decision Opens Door for Yellowstone Injunction Waivers, Law360, Feb. 8, 2018. Cognizant of these calls, the Legislature enacted RPL 235-h at the close of 2019.

The rationale behind RPL 235-h. The statute's legislative history—specifically, the Assembly's Justification contained in its Memorandum in Support of Legislation (Memo)—notes that the Second Department's decision in 159 MP Corp. held that a commercial lease clause waiving the right of a tenant to seek a declaratory judgment "was enforceable and not against public policy." 2019 New York Assembly Bill No. 2554 Memo. The Justification further notes the Second Department's observation in 159 MP Corp. that the Legislature "has not enacted any specific or blanket statutory provision prohibiting as void or unenforceable a tenant's waiver of declaratory judgment remedies."

Thus, the Justification explains that "This legislation seeks to enact such a provision as a matter of public policy and restore the right of commercial tenants to cure under a declaratory judgment action as has been the practice since 1968," when the Court of Appeals first announced what became the Yellowstone doctrine. The Justification concludes by finding that:

To allow waiver clauses of the Yellowstone injunction will be disruptive of commerce, unfair to commercial tenants and allow landlords to use minor lease issues as a method to remove and replace tenants in the middle of lease terms. Commercial landlords would be able to prematurely terminate leases whenever they wanted to force a tenant out, whether the default was legitimate or not, and the tenant who agreed to a waiver would have no recourse.

In enacting RPL 235-h, the Legislature appeared to memorialize its disagreement with the holding of 159 MP Corp., in which the Court of Appeals expressly stated that "Yellowstone relief is not an end in itself but merely a means of maintaining the status quo" (33 N.Y.3d at 366), and "Yellowstone injunctions are useful procedural tools for tenants … But there is no strong societal interest in the ability of commercial entities to seek such a remedy that would justify voiding an unambiguous declaratory judgment waiver negotiated at arm's length, merely because this incidentally precluded access to Yellowstone relief." Id. at 366-67.

Does a bar on declaratory judgment waivers necessarily bar Yellowstone waivers? Despite the legislative history's professed concern about protecting the Yellowstone injunction, the text of the new statute prioritizes the protection of a tenant's right to seek a declaratory judgment but does not mention Yellowstone injunctions at all. This omission is curious because there may be ways of framing an application for a Yellowstone injunction without a cause of action for a declaratory judgment. For example, a tenant who has waived the right to seek a declaratory judgment could plead a cause of action in its complaint for a permanent injunction barring the landlord from terminating its lease based on the default(s) alleged in a notice to cure, on the ground that the tenant is not actually in default of its lease and therefore has nothing to cure.

Similarly, a tenant could move for a Yellowstone injunction where the ultimate relief sought in the tenant's complaint is a mandatory injunction compelling the landlord to withdraw a notice to cure on the ground that the default alleged in the notice was not bona fide. To obtain such relief, the tenant would have to establish that it is not in default, but it would not have to do so by obtaining a declaratory judgment.

Does RPL 235-h preclude 'Yellowstone' waivers? A commercial lease containing a waiver of the right to seek a Yellowstone injunction, without a waiver of the right to seek a declaratory judgment, would be at odds with the Assembly's Justification and the spirit of RPL 235-h, but would not contravene the plain text of the statute.

If such a lease clause is enforceable, a tenant faced with a landlord's notice to cure could seek a declaration that it is not in default, and would be forced to move for a preliminary injunction—which has a higher burden of proof and is therefore more difficult to obtain than a Yellowstone injunction—tolling the period in which it can cure its default and barring the landlord from terminating its lease pending a determination of the dispute.

Enterprising lease drafters and litigators are likely to test this loophole by insisting on (and then seeking to enforce) Yellowstone waivers without concomitant waivers of the tenant's right to seek declaratory relief (which are now illegal). Some courts may harmonize the perceived legislative intent with the text of the statute and hold that Yellowstone waivers are unlawful. But some may hold that the text of RPL 235-h is clear and unambiguous, does not prohibit Yellowstone injunction waivers, and therefore the court need not inquire any further into the meaning of the statute.

When that happens, the Legislature may wish it had simply outlawed Yellowstone injunction waivers, rather than taking an indirect path in an effort to achieve the same goal. Since the Court of Appeals itself has called the Yellowstone injunction a "creative remedy" (Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc., 93 N.Y.2d 508, 514 (1999)), it is only fitting that lawyers use creative strategies to test the remedy's resilience.

Dani Schwartz is a partner at Wachtel Missry. He focuses his practice on real estate litigation, arbitration, and appeals.