Can Court 'Revive' Terminated Lease?

Q: After I sent a notice of default to a tenant and asked it to cure the default under the terms we had agreed on in the lease, the tenant claimed it hadn’t defaulted. There have been protracted discussions over the course of about two months about whether the tenant’s actions are a default. Finally, I sent it a notice that because it hasn’t cured the default, I have terminated the lease. Now, the tenant is asking a court to get involved, asking for a declaration that it’s not in default and for a Yellowstone injunction that would prevent me from evicting it until the matter is resolved. What’s the likelihood that it will prevail?

A: A court could deny the tenant’s request for a Yellowstone injunction because the tenant waited too long to make the request. Generally, a tenant disputes a default alleged in a notice to cure by making an application for injunctive relief in the form of a Yellowstone injunction. A Yellowstone injunction maintains the status quo so that a tenant confronted by a threat of termination of its lease may obtain a stay tolling the cure period so that the tenant may cure a default and avoid a forfeiture.

To get this type of injunction, the tenant must demonstrate that: (1) it holds a commercial lease; (2) it received a notice of default, a notice to cure, or a threat of termination; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is ready, willing, and able to cure the alleged default by any means short of vacating the premises. This relief is designed to prevent the unfair or early termination of a tenant’s lease; that’s why courts routinely grant Yellowstone injunctions.

However, courts have refused to grant this type of injunction when a tenant has sought one after expiration of the period to cure and service of the notice of termination.

In a recent New York case that’s similar to yours, the landlord prevailed because the tenant hadn’t asked for a Yellowstone injunction in a timely manner. In that case, the landlord had mailed to the tenant a notice of default and notice to cure because it believed that the tenant had assigned its lease without the landlord’s consent—a violation of the lease. The tenant asserted that its dealings with an outside party weren’t an assignment of the lease; rather, the new party simply acquired some of the tenant’s assets, but the ownership hadn’t changed. The landlord and tenant exchanged a series of letters regarding the issue, until the landlord finally served a notice of cancellation, notifying tenant that it had elected to terminate the lease based upon what it still believed was the tenant’s failure to cure the alleged default in a timely manner.

At that point, the tenant asked a court for a Yellowstone injunction to permanently enjoin the landlord from taking any action to terminate the lease or evict tenant based on the allegations in the notice of default. It also asked for a declaratory judgment that: (1) the tenant had not assigned the lease and was not in default of the lease for any reason alleged in the notice of default; (2) the notice of default was a nullity; and (3) the landlord could not terminate the lease or evict the tenant.

But the Supreme Court of New York denied the tenant’s motion. It noted that it was undisputed that: (1) the lease states that the tenant has 30 days to cure any alleged default of the terms of the lease; (2) the landlord mailed a written notice of default and notice to cure; (3) the tenant received the notice; (4) no Yellowstone injunction was sought by the tenant within 30 days to toll the cure period; (5) after the 30-day period, the landlord mailed a five-day notice of termination stating that the landlord elected to cancel the lease; and (6) the tenant then asked the court for injunctive relief.

The court found that the tenant’s failure to seek injunctive relief during the cure period was fatal and foreclosed any opportunity for subsequent injunctive relief.

The court pointed out that the notice of default specifically alleged that the tenant had violated the assignment provision of the lease, and, accordingly, the tenant should have acted expeditiously to secure a Yellowstone injunction. An application later than that was considered to be untimely.

The court also mentioned that the lease had been terminated, and the court had no authority to enjoin the landlord from cancelling the lease. Since there was no temporary restraining order in place at the time the notice of cancellation was served, the notice was validly served and the lease was terminated. The court also noted that it had been well settled in other cases that, once a lease was terminated in accordance with its terms, the court lacked the power to “revive” it. The court ruled in favor of the landlord [Westside Radiology Associates, P.C. v. The St. Luke’s-Roosevelt Hospital Center, SLRHC 425 59th Street Condominium, LLC, and Beth Israel Medical Center, May 2016].