Prince Fashions, Inc. v. 60G 542 Broadway Owner, LLC, 2017 NY Slip Op 02918 (App. Div. 1^st Dept. April 18, 2017)

The Appellate Division addressed an Order of Supreme Court that denied plaintiff’s motion for a Yellowstone injunction stating that:

Defendant’s representations to this Court, uncontroverted by plaintiff, are that immediately following Supreme Court’s denial of plaintiff’s Yellowstone motion, on July 1, 2016, defendant served a notice of lease cancellation on plaintiff terminating the lease effective July 5, 2016, and commenced a holdover proceeding against plaintiff. Although plaintiff had the opportunity to seek injunctive relief from either Supreme Court or from this Court pursuant to CPLR 5519 between July 1, 2016, and July 5, 2016, when the cure period expired, it failed to do so. Because by that time, plaintiff’s lease was terminated, and a holdover proceeding had been commenced, appellate relief is barred[.]

With the admonition that:

Were we to consider plaintiff’s arguments on their merits, we would reject them. The notice of default delivered by defendant to plaintiff stated that plaintiff had breached its obligations to defendant under the terms of the lease by failing to “maintain general public liability insurance [policies]…in favor of Landlord and Tenant against claims…occurring in or upon the [Retail] [P]remises” and by failing to deliver such policies to defendant.

The default alleged is incurable for several reasons. First, the period in question involves commercial general liability (CGL) insurance policies for the periods 2014-2015 and 2015-2016. These policies were all obtained by, and named, plaintiff’s subtenants as the insureds, but did not name defendant as a certificate holder or additional insured. Additionally, the evidence plaintiff proffers as to one of the 2014-2015 policies evinces that no party, not even defendant’s predecessor, was named as an additional insured. These policies would not cure the default, not only because they are not “in favor” of defendant, but also because a “ landlord is not required to accept [a] subtenant’s performance in lieu of tenant’s’”[.]

Further, the policy obtained by plaintiff after receiving the notice of default on March 4, 2016, and covering the policy period March 10, 2016, to March 10, 2017, cannot cure the default. The fact that plaintiff obtained this prospective CGL insurance coverage cannot retrospectively cure the default arising from plaintiff’s failure to have continuously maintained insurance coverage in the landlord’s favor as required by its commercial lease…Because plaintiff’s evident failure to obtain insurance naming defendant as an additional insured constitutes an incurable default, were we to consider the merits, plaintiff would not be entitled to Yellowstone injunctive relief.

Confidence Beauty Salon Corp. v. 299 Third SA, LLC, 2017 NY  Slip Op 01652  (App. Div. 1^st Dept. March 7, 2017)

Supreme Court denied plaintiff’s application for a Yellowstone injunction.

The First Department, as follows, summarily affirmed:

The denial of Yellowstone relief was a provident exercise of discretion because plaintiff failed to aver, let alone demonstrate, that it had the ability to cure its alleged defaults[.]

Tap Tap, LLC v 558 Seventh Ave. Corp., 2016 NY Slip Op 07122 (App. Div. 1^st Dept. November 1, 2016)

Supreme Court addressed various motions in an action seeking declaratory and Yellowstone injunctive relief arising from an alleged breach of a lease for commercial property.

The Appellate Division summarized the facts:

On or about April 3, 2015, defendants served a 15-day notice of default on plaintiff tenant, citing five open violations with respect to the commercially leased space. On April 22, 2015, after the cure period expired, defendants served plaintiff a three-day notice of cancellation, advising plaintiff that it continued to violate the lease by failing to remove the conditions that led to the violations being filed against the building, and terminating the lease effective April 25, 2015.

The prior proceedings in Civil Court:

On May 13, 2015, defendants commenced a summary holdover proceeding in Civil Court seeking plaintiff’s eviction based upon the lease cancellation, and on May 18, 2015, plaintiff commenced the instant action seeking declarations that the notices were nullities, that plaintiff is not in default of the lease because the alleged violations do not constitute material breaches, and that the issuance of the notice of cancellation was improper because plaintiff had diligently and in good faith undertook to remove the violations. Plaintiff also sought injunctions prohibiting defendants from recovering the premises so long as plaintiff worked towards removing the violations and requiring defendants to cooperate with those efforts.

The prior proceedings in Supreme Court:

On June 2, 2015, plaintiff moved in Supreme Court by order to show cause for a Yellowstone injunction to stay and toll the 15-day notice, to stay the termination pursuant to the notice of cancellation, and to stay the holdover proceedings. After initially granting an interim stay, the court vacated it to address the threshold issue regarding the facial validity of the notices, and in the order entered June 30, 2015, the court held that plaintiff’s objections to the notices on the ground that they were invalid and fatally defective lack merit; plaintiff’s appeal of that ruling is unavailing. The court further set a conference to discuss the issue of “ability to cure,” and prior to the conference, defendants cross-moved to dismiss the complaint and opposed plaintiff’s application for Yellowstone relief. At the August 4, 2015, conference, the court ordered that plaintiff’s “order to show cause is resolved to the extent that the action is dismissed without prejudice.” It further held that “dismissal shall be lifted and the case reopened upon presentation by plaintiff of documentary evidence establishing ‘cure’ of outstanding DOB violations and compliance with lease provisions.”

Concluding that:

The court’s August 2015 order was erroneous. The court improperly resolved plaintiff’s order to show cause seeking Yellowstone relief without applying the proper standard for such relief, and improperly dismissed the entire action, sua sponte, when there was no basis for the court to do so. The court also improperly conditioned reopening the action based on presentation of evidence establishing that the violations had been cured when plaintiff was not required to make such a showing in order to assert its claims or obtain a Yellowstone injunction. The subsequent orders that modified the August 2015 order failed to resolve the errors, and instead compounded them.

Accordingly, the matter is reopened, the complaint reinstated, and the matter remanded to Supreme Court to consider whether, under the circumstances, plaintiff’s Yellowstone injunction was timely filed…and otherwise warranted on the merits[.]

Three Amigos SJL Rest., Inc. v. 250 W. 43 Owner LLC, 2016 NY Slip Op 07587 (App. Div. 1^st Dept. November 15, 2016)

Supreme Court granted the motion of plaintiff/tenant for a Yellowstone injunction and denied the cross-motion for partial summary judgment of defendant/landlord.

The First Department, as follows, summarily reversed:

Plaintiff’s admitted failure to procure retroactive umbrella coverage was a material breach allowing for termination of the lease[.]

Plaintiff is not entitled to a Yellowstone injunction, since it sought such relief after the expiration of the cure period specified in the lease and the notice to cure.  A tenant is not entitled to Yellowstone injunction after the expiration of the cure period…Although this Court has recognized a limited exception in certain circumstances…plaintiff does not so argue that it sought to cure the default.  Rather, plaintiff claims that it cured the default within the specified period.  Accordingly, it needed to move for Yellowstone relief before the expiration of the specified period…which it failed to do.

276-43 Gourmet Grocery, Inc. v. 250 W. 43 Owner LLC, 2016 NY Slip Op 06460 (App. Div. 1^st Dept. October 4, 2016)

Supreme Court granted plaintiff/tenant’s motion for a Yellowstone injunction.

The First Department, as follows, summarily modified:

The four requirements for a Yellowstone injunction are set forth in Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc.… Contrary to defendants’ claim, there is no fifth requirement that the tenant’s complaint contain a claim for a declaration of rights with respect to the lease violations mentioned in the landlord’s notice to cure. We note that, in the case at bar, defendants’ first counterclaim deals with one of the two grounds mentioned in the notice to cure (article 43 of the lease). However, none of the pleadings deals with the other ground mentioned in the notice to cure (article six of the lease). Since the purpose of a Yellowstone injunction is to stay “the cure period before it expire[s] to preserve the lease” until resolution of the dispute on the merits…we exercise our discretion…to condition the continuance of the injunction upon plaintiff’s moving, within the time period indicated, to amend the complaint to add a claim with respect to article six. We note that plaintiff has evinced a willingness to amend its complaint.

Defendants’ contention that plaintiff’s unclean hands bar it from obtaining the equitable relief of an injunction is preserved but unavailing, since defendants made no showing that they had been injured by plaintiff’s allegedly obtaining a liquor license under false pretenses.

American Youth Dance Theater, Inc. v. 4000 E. 102^nd St. Corp., 2016 NY Slip Op 05087 (App. Div. 1^st Dept. June 28, 2016)

Supreme Court granted the motion of plaintiff/tenant for a preliminary injunction.  The First Department, as follows, summarily affirmed:

The motion court properly found that plaintiff’s defaults were curable and that, having demonstrated its willingness to cure them, plaintiff should be permitted to do so within a reasonable time…The lease, lease rider, and lease amendment, as well as the course of dealing between the parties, establish that the parties intended that plaintiff would continue working toward obtaining the certificate of occupancy (C/O) after the deadline passed, and an uncontroverted affidavit by plaintiff’s president detailing plaintiff’s efforts to obtain approval of the renovation plans and the C/O establishes that, despite its best efforts, plaintiff was unable to obtain a C/O.

PS Food Corp. v. Granville Payne Retail, LLC, 2016 NY Slip Op 04926 (App. Div. 2d Dept. June 22, 2016)

Supreme Court denied the motion of plaintiff/tenant for summary judgment declaring that a notice of default was invalid and granted the motion of defendant/landlord for summary judgment and declared that the notice of default was valid.

The Appellate Division summarized the facts:

The plaintiff entered into a 26-year lease with the defendant. The plaintiff leased the first floor and the basement of a seven-story condominium building, and operates a Key Food Supermarket in the leased space. After receiving a notice of default and then a notice of termination of the lease from the defendant, the plaintiff commenced this action, inter alia, for a judgment declaring that the notice of default was invalid. The Supreme Court denied the plaintiff’s motion for summary judgment declaring, among other things, that the notice of default was invalid, granted the defendant’s motion for summary judgment, and declared, among other things, that the notice of default was valid. The plaintiff appeals.

Concluding that:

The defendant established its prima facie entitlement to judgment as a matter of law declaring, among other things, that the notice of default was valid. The notice of default sufficiently informed the plaintiff of the claimed default under the lease and of the forfeiture and termination of the lease if the claimed default was not cured within a set period of time…In opposition to the defendant’s motion, the plaintiff failed to raise a triable issue of fact[.]

IP Intl. Prods., Inc. v. 275 Canal St. Assoc., 2016 NY  Slip Op 03668  (App. Div. 1^st Dept. May 10, 2016)

The Appellate Division, as follows, summarily affirmed the Decision of Supreme Court that denied plaintiff’s application for a Yellowstone injunction:

The court providently exercised its discretion in denying plaintiff’s application for a Yellowstone injunction, because plaintiff failed to demonstrate a willingness to cure…Plaintiff’s assertions to the contrary are belied by its continued violation of the alterations provision of the lease, even as to it purports to “cure” defects.

SBA Monarch Towers I, LLC v. Hirakis, 2017 NY  Slip Op 31580(U)  [Sup. Ct. Q. Co. June 9, 2017]

Supreme Court addressed a motion for Yellowstone relief.

The Court summarized the facts:

Defendant Peter Hirakis owns property known as 113-02/12 Springfield Blvd. Queens Village, New York.  Plaintiff SBA Monarch Towers I, LLC, a wireless communications company, is the successor tenant under a 2007 site lease between defendant Hirakis, as landlord, and Omnipoint Communications, Inc., as tenant.  Section 3 of the lease permits the use of the demised premises “for the transmission and reception of radio communications signals and for the construction, installation, operation [etc.] of related facilities, including without limitation, tower and base, antennas, microwave dishes, equipment shelters and/or cabinets and related activities.”  Section 7(f) of the site lease allows unrestricted access to the leased premises “24 hours a day, 7 days a week” without interference from the defendant for the purpose of altering, replacing, expanding, enhancing, or upgrading the antenna facilities.

Defendant Hirakis has restricted the plaintiff’s access to the leased premises to only certain hours of the day and has demanded that the plaintiff contact only him to open a locked access gate.

Plaintiff SBA brought the instant action for the purpose of, inter alia, obtaining a declaratory judgment that defendant Hirakis has breached the site lease by prohibiting unrestricted access to the leased premises, obstructing the access way to the leased premises, and interfering with necessary work on the antenna facilities.

While this action was pending, defendant Hirakis sent plaintiff SBA a “30 Days Notice to Tenant of Termination of Tenancy and Landlord’s Intention To Recover Possession.”  Defendant Hirakis has demanded that SBA build a fence around the leased premises, and plaintiff SBA has denied that it has any obligation to build the fence.

The applicable law:

The purpose of a Yellowstone injunction is to enable a tenant confronted by a notice of default, a notice to cure, or a threat of termination of the lease to obtain a stay tolling the running of the cure period so that, after a determination of the merits, the tenant may cure the defect and avoid a forfeiture of the leasehold…Having such a purpose, a Yellowstone injunction may issue even though the applicant has not made the usual tripartite showing for obtaining provisional relief…Whatever the merits of the case, the courts have routinely granted Yellowstone injunctions, and the plaintiff tenant is not required to show a probability of success on the merits…A Yellowstone injunction is intended only to preserve the status quo, and it may be granted without consideration of the merits of the case[.]

A tenant 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[.]

Concluding that:

The plaintiff herein has made an adequate showing of its entitlement to a Yellowstone injunction…Although factual issues may exist in this case, they do not in themselves preclude the issuance of a preliminary injunction[.]

Xo Rest. v. 58 Elizabeth NY LLC, 2017 NY  Slip Op 31229(U)  [Sup. Ct. N.Y. Co. June 8, 2017]

Supreme Court addressed an application for Yellowstone relief.

The Court summarized the facts and contentions of the parties:

This action arises out of defendant 58 Elizabeth NY LLC’s…notice of default dated January 24, 2017, regarding plaintiff’s tenancy for a ground floor premises located at 146 Hester Street, New York, New York. Plaintiff contends that it operates a restaurant at this location and has invested $300,000 into the premises. Plaintiff wants time to cure the defaults alleged in the January 24 default notice.

In opposition, the Landlord, who acquired title to the property in May 2016, contends that plaintiff is not willing and able to cure the lease defaults and insists that plaintiff is illegally using the courtyard. Landlord argues that the HVAC equipment located in the courtyard violates the terms of plaintiff’s lease. The Landlord argues that it is immaterial whether the previous owner allowed plaintiff to use the courtyard because plaintiff’s lease contains a merger clause which the Landlord argues prevents any agreements not contained in the four corners of the lease. The Landlord contends that it will suffer significant prejudice by allowing the HVAC equipment to exist in the courtyard because the equipment impedes egress and ingress to the property.

In reply, plaintiff observes that the HVAC equipment was in place when plaintiff entered into its existing lease with a previous owner in 2007. Plaintiff argues that the courtyard is not a common space and the only people who have access to the courtyard are those associated with plaintiff or the landlord. Plaintiff insists that the HVAC equipment is part of the demised premises and notes that the lease contains a rider in which plaintiff agreed to maintain and repair cooling units. Plaintiff also contends that it has removed the front awning and front sign to the restaurant (also part of the notice of default) and is prepared to move the air conditioner to a location on the premises agreed to by a previous owner (Mr. Serafin).

The applicable law:

“It is well settled that in order 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 to cure the alleged default by any means short of vacating the premises”[.]

“A Yellowstone injunction maintains that 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”[.]

“The purpose of a Yellowstone injunction is to maintain the status quo so that the tenant may challenge the landlord’s assessment of its rights without the tenant, during the pendency of the action, forfeiting its valuable property interest in the lease. As such, it may be granted on less than the normal showing required for preliminary injunctive relief”[.]

Concluding that:

Here, it is undisputed that plaintiff meets the first three elements for a Yellowstone injunction. The only prong in dispute is whether plaintiff is prepared and maintains the ability to move the HVAC equipment. Plaintiff insists that it is willing to “take whatever steps are necessary to cure”…Plaintiff also contends that it has “removed the front awning and front sign to the restaurant . . . and is prepared to move the air conditioner to a location on the premises that was already agreed to by the landlord Mr. Serafin as indicated by documents on file with the DOB”…That is sufficient to grant plaintiff’s motion — plaintiff has allegedly cured two of the three issues raised in the notice of default and is able to move the HVAC equipment if required. Plaintiff is granted the opportunity to challenge the Landlord’s assessment that the location of the HVAC equipment breaches the lease without forfeiting the lease.

The Landlord’s opposition amounts to an opposition on the merits — the Landlord insists that plaintiff has breached the lease by continuing to have the HVAC equipment in the courtyard. The references to the merger clause in plaintiff’s lease also relate to the underlying merits of plaintiff’s complaint rather than whether plaintiff should be granted a Yellowstone injunction.

And denied the defendant’s application for an undertaking:

Although the Landlord insists that plaintiff has not shown a willingness to cure the default, this argument is based on the Landlord’s conclusion that the location of the HVAC equipment constitutes a breach. However, there may be a final determination that plaintiff has not breached the lease and does not need to move the HVAC equipment at all. In any event, plaintiff should not have to forfeit its interest in the restaurant while the Court considers the parties’ contentions.

The Landlord’s request that plaintiff post an undertaking is denied. As long as plaintiff continues to comply with the obligations in the lease, other than those in dispute in this litigation, there is no need for an undertaking. The Landlord has not demonstrated that it will suffer damages if plaintiff’s motion is granted. The Landlord’s vague reference to the fact that residential tenants of the property “may” have difficult exiting the property in an emergency situation is not enough to require plaintiff to post the requested $500,000 undertaking. An undertaking should not serve as a windfall for the Landlord.

Statler v. Dioguardi, 2017 NY  Slip Op 31185(U)  [Sup. Ct. Suff. Co. May 31, 2017]

Supreme Court addressed a request for a temporary restraining order pending the determination of an application for Yellowstone relief.

The Court summarized the background:

According to the plaintiff, it was agreed on or about April 12, 2016, with landlord that he would rent under a year-to-year tenancy whereby tenant would rent the premises to house his chiropractic office and practice ready for delivery and move in by April 15, 2016. Statler intended to utilize the entirety of the first floor as well as portions of the basement, half of which would be ready for move in by April 27, 2016, with the remainder ready by April 29, 2016. Further, plaintiff claims that his lease had a renewal option for an additional year if exercised on or before May 2, 2016. Statler additionally asserts that the lease provided that he could relocate, at his election, to a larger physical space located at 523 East Jericho Turnpike for a five year tenancy with renewal options. Statler states it was agreed pursuant to his lease agreement that he would pay $1,300.00 monthly rent, but if he exercised the option to relocate, then $2,600.00. A security deposit of $2,600.00 paid by Statler by two (2) money orders of $1,000 and $600 was paid by plaintiff and accepted by defendant on or about April 12, 2016.

Pursuant to this understanding, Statler moved in and took possession of the premises on April 21, 2016, having received the keys to the space on April 15, 2016. Based on this, plaintiff’s understanding was that rent would be due June 1, 2016. Upon taking physical possession, plaintiff claims that the downstairs or basement portion of the building was not emptied as previously agreed or in move in ready condition. As a result, plaintiff made use of a shed or storage container owned by defendant to house his possessions on premises in the parking lot until April 20, 2016. Because of this, plaintiff alleges that defendant breached his obligations owned to his tenant under the lease agreement. More specifically, Statler alleges that the defendant failed to empty the entirety of the basement as agreed; failed to provide keys for access to the basement; failed to repair the building HVAC system; failed to makes repairs to doors, windows, and floors. Additionally, Statler states that DioGuardi did not provide a separate water meter for the premises and that defendant had the power shut off to the premises, which plaintiff alleges required police intervention to resume the connection. In so doing, Statler alleges that both the Suffolk County Police Department and PSEG confirmed the validity and existence of his lease to the subject premises.

As a result of plaintiff’s allegations concerning breaches of the lease, Statler further claims that his landlord has constructively evicted him from the premises in part, and thus no rental payment is due to defendant. Statler argues that due to these difficulties, it has interfered with or prevented access to the internet and telephones at the premises, further interrupting chiropractic services to his patients. Thus, plaintiff has withheld rent payments due to DioGuardi due and owing for June and July 2016. However, Statler continues to maintain that he remains ready, willing and able to pay any and all rent due and owing…pending the outcome of this application.

The subsequent developments:

On or about June 1, 2016, defendant served what purported to be a lease termination notice on plaintiff at the premises. DioGuardi has represented that he intended to commence a landlord-tenant summary eviction proceeding in the Suffolk County District Court by July 31, 2016. In part based upon that representation, plaintiff made the instant Yellowstone application. For his part, Statler strenuously objects to the notice making both substantive and procedural arguments. In sum, plaintiff argues that the notice cites the incorrect leased premises, referring to 517A East Jericho Turnpike, rather than 517 East Jericho Turnpike. More important, plaintiff, by his affidavit, disputes proper service of process, arguing that substitute service on an employee at his office at the leased premises did not constitute proper service of process as required by statute: CPLR or RPAPL. Thus, plaintiff argues that because the notice was not properly served and incorrectly describes the leased premises, it is defective and is a nullity.

In addition to plaintiff’s perceived procedural irregularities alleged concerning the lease termination notice, Statler argues that it lacks the requisite notice to cure or curing provision and fails to particularize any specific breach of lease on tenant’s part. Lastly, plaintiff notes that the notice was sent by defendant’s counsel, rather than the landlord, absent a specific grant of such authority in the lease. Therefore, Statler brought this motion seeking the Yellowstone injunction, while simultaneously arguing that the notice is ineffective to terminate his tenancy.

In lieu of answering plaintiff’s Complaint, and arguing in opposition and response to the Order to Show Cause, defendant made a pre answer motion to dismiss the action pursuant to CPLR 3211.1 Succinctly summarized, DioGuardi has conceded that the putative lease termination is defective. Particularly, defendant has acknowledges the termination notice, by citing the incorrect physical address for the leased premises, is invalid. Accordingly, defendant in part argues the Complaint should be dismissed and the application for injunction denied in its entirety on mootness grounds. However, as argued by plaintiff, defendant to date has not withdrawn the now acknowledged invalid lease termination notice.

Additionally, defendant seeks dismissal disputing by sworn affidavit that any agreement towards year-to-year tenancy backed by lease agreement was ever reached by and between the parties. Rather, defendant argues that no written lease agreement was executed by either plaintiff or defendant, and thus at best, plaintiff has a month-to-month leasehold, which may be terminated under different and less stringent circumstances than an annual tenancy. Essentially, defendant argues that any putative lease agreement cited or relied upon plaintiff is invalid because it violates the Statute of Frauds.

And, after denying defendant’s cross-motion to dismiss on the ground of invalid service and mootness, the Court concluded that:

Based on the arguments presented in all of the moving papers constituting the record before the Court, it can be fairly said that essential questions of fact concerning whether or not a lease agreement was reached, and the material elements of the same between the parties is squarely before the Court. Plaintiff assets that it held a year-to-year tenancy with options to renew or enlarge into a five year tenancy at a larger premises with its own option for renewal. To the contrary, defendant disputes that any annual leasehold was agreed upon and that at best plaintiff possessed a month-to-month tenancy. Further defendant argues that the putative lease proffered by plaintiff violates the Statute of Frauds and cannot be considered as indicia of a bargained for agreement.

In opposition to defendant’s cross-motion to dismiss, plaintiff makes two salient points. First and foremost, plaintiff argues that the lease is valid and has been executed. In reliance for this proposition, plaintiff offers the following provision:

Confirmation of Lease: Receipt/Acceptance of the $2,600 security deposit, by the landlord, confirms acceptance of all conditions of the . . . lease agreement and that those conditions will be valid as is and/or incorporated into the full and final written lease. Terms of this agreement shall stand as the existing lease if a full and final lease is not signed by both parties…

In corroboration of this provision, plaintiff has tendered copies of the two money orders comprising payment by Statler and acceptance by DioGuardi, countersigned by DioGuardi on April 12, 2016, of the $2,600.00 security deposit. Although plaintiff acknowledges that his landlord failed to sign or execute the lease, he argues that by its express terms, the draft and unexecuted lease has ripened into a validly binding lease by operation of the instrument itself.

Secondly, plaintiff attempts to avail himself of the part performance exception to the Statute of Frauds, arguing that defendant, by accepting the security deposit, providing plaintiff with keys and tendering delivery of the premises has partly performed under the key and material terms of the draft lease, thus taking the agreement out of the Statute of Frauds.

New York courts historically have recognized that the central distinguishing characteristic of a lease is the surrender of absolute possession and control of property to another party for an agreed-upon rental[.]

In order for an agreement, oral or written, to be enforceable as a lease, all the essential terms must be agreed upon, including the area to be leased, the duration of the lease, and the price to be paid. Where any of these essential terms are missing and are not otherwise discernible by objective means, a lease has not been created[.]

And addressed the statute of frauds:

New York’s Statute of Frauds, codified at General Obligations Law § 5-703 provides as relevant here that:

A contract for the leasing for a longer period than one year . . . of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged…

A party’s admission of the existence and essential terms of an oral agreement is sufficient to take the agreement out of the statute of frauds. However, if the parties dispute “the very terms and conditions of the alleged oral” agreement, the statute of frauds applies[.]

The Statute of Frauds will not be a bar to specific performance of a lease where it has been demonstrated that there has been partial performance of the lease, although such performance must be “unequivocally referable” to the agreement. Mere payment of money is not enough to constitute part performance…”Unequivocally referable” conduct is conduct which is “inconsistent with any other explanation”[.]

Here, the unexecuted and unsigned writing proffered by plaintiff purporting to constitute the lease pertinent to the leased premises identifies the landlord, tenant, leased premises and sets forth the dates for performance or delivery of the premises, duration of the tenancy, as well as payment schedules for monthly rent and the security deposit. It further encompasses other significant issues with provisions including, but not limited to, utilities, maintenance obligations, parking, and the HVAC system.

Defendant, arguing in opposition that no lease exists has contended that the putative lease lacks a provision for commercial liability insurance. Thus Dioguardi states this is further evidence that the draft lease was a mere agreement to agree between plaintiff and defendant to formalize and execute a lease in the future.

Concluding that:

After reviewing the motion record presently pending before the Court, this Court is unpersuaded by defendant’s logic and thus determines that the Statute of Frauds does not bar consideration or operation of the unexecuted lease agreement proffered by Statler. Instead, this Court accepts plaintiff’s argument that part performance operates to ratify the lease on defendant’s part in plaintiff’s favor. Put differently, plaintiff has adduced sufficient evidence at this early stage of litigation sufficient for an inference that plaintiff’s payment and defendant’s acceptance of the $2,600 security, tendered in two separate money orders signed for by defendant on April 12, 2016, that plaintiff paid security as called for in the agreement. Thus, plaintiff’s security deposit and defendant’s delivery of the premises including providing keys for access were all conduct sufficiently specifically referable to the agreement as to constitute part performance.

Further, this Court finds and determines that the draft and unexecuted lease contained enough material terms and conditions as to take it out from underneath a “mere agreement to agree” that defendant has suggested.

538 Morgan Ave. Props. LLC v. 538 Morgan Realty LLC, 2017 NY  Slip Op 30906(U)  [Sup. Ct. K. Co. May 3, 2017]

The Court, addressing an application for Yellowstone relief, summarized the facts:

On March 3, 2015, Plaintiff NY STONE KITCHEN DEPOT INC. entered into a business sales contract with Defendant SD INT’L INC.…whereby NY Stone purchased SD’s business, including assets, for a total purchase price of $702,793.00. The “business” refers to the import and sale of stone, marble, tiles and counter tops. In association with the purchase of the business, the parties also entered into a separate real estate contract dated March 3, 2015, whereby Plaintiff 538 MORGAN AVENUE PROPERTIES LLC…purchased from Defendant owner 538 MORGAN REALTY LLC…real property known as 538 Morgan Avenue in Brooklyn, New York…, the location of the business at all relevant times. The real estate sales contract reflects a purchase price of $4,000,000.00.

According to Plaintiffs, on March 3, 2015, NY Stone made a $500,000.00 payment to SD for the purchase of the business. On the same day, Plaintiff Morgan Avenue made a down payment in the amount of $100,000.00 for the Property. Plaintiffs claim that, on the next day, March 4, 2015, Plaintiff Morgan Avenue made a second payment of $1,820,000.00 to Defendant Morgan Realty, all in cash.

By letter dated May 8, 2015, Defendant Morgan Realty cancelled the real estate sales contract asserting a material breach by Plaintiff Morgan Avenue for its “failure to pay the full amount of $202,793.00 as of date.” The letter further stated that “[s]aid payment should have been made on or before 6:00 pm of April 3, 2015, as provided under the Provision 18 of the Rider to the Premises Sale Contract.”

Plaintiffs’ contentions:

According to Plaintiffs, the $202,793.00 figure represented the balance for certain “goods en route” and is referenced in the business sales contract. Plaintiffs also state that on, March 3, 2015, the parties executed a written amendment extending the time to pay for the goods en route to 30 days after the last container arrived, which was on April 9, 2015. Further, that the time to pay for the goods was not made “time of the essence” and thus, Plaintiffs had a reasonable time to tender performance. Plaintiffs contend that, on April 21, 2015, it attempted to tender the full payment of $202,793.00, but that only $90,000.00, in the form of a personal check, was accepted. Plaintiffs further contend that on May 11, 2015, they procured a certified check for the remaining $112,793.00 but Defendants refused to accept payment. Based on the foregoing, it is Plaintiffs’ position that Defendants were in breach when canceling the contract by letter dated May 8, 2015.

With the instant motion, Plaintiffs seek an injunction enjoining Defendants from interfering with their tenancy at the Property. From March 3, 2015, when the parties entered into the subject contracts, NY Stone had been leasing the Property and paying rent to SD in the amount of $21,252.00 per month payable until the transfer of ownership of the Property from Defendant Morgan Realty to Plaintiff Morgan Avenue. However, since September 1, 2016, NY Stone has ceased paying rent. On October 7, 2016, SD served a 30-day Termination Notice upon NY Stone advising that its month-to-month tenancy would be terminated on November 30, 2016. Having filed the instant motion before November 30, 2016, Plaintiffs argue that their application is timely if construed as a Yellowstone injunction application. Plaintiffs also contend that they are entitled to a preliminary injunction because they would suffer irreparable harm if evicted since they would lose the goodwill built up at the location over the entire history of the business’ operation. Further, that NY Stone’s business is protected by a restrictive covenant which bans the seller from re-establishing, re-opening or in any way opening a business within a one-mile radius of the Property.

Defendants’ reply:

[D]efendants contend that their cancellation of the contract was proper due to Plaintiffs’ multiple breaches including its failure to pay for the balance for the goods en route, failure to record the contract with the county, and repeated late rental payments. Further, that based on a retained appraiser’s report, the fair market base rent of the Property is $33,333.33 per month. However, that since September 2016, Plaintiffs have not paid anything for use of the Property to the financial loss of Defendants who have been paying all costs associated with the Property such as mortgages, interest, real estate taxes, etc.

The applicable law:

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[.]

Concluding that:

Here, Plaintiffs failed to demonstrate the existence of a valid commercial lease. The business sales contract relied on by Plaintiffs is not akin to a commercial lease agreement and Plaintiffs do not otherwise provide legal support for their claim that their month-to-month tenancy should be construed as a commercial tenancy subject to Yellowstone relief. Thus, Plaintiffs’ application for a Yellowstone injunction must be denied.

However, the Court finds that Plaintiffs have established their entitlement to a preliminary injunction pursuant to CPLR 6301. A party seeking a preliminary injunction must demonstrate (1) the likelihood of ultimate success on the merits of the underlying pending action, (2) the prospect of irreparable harm if the request for said preliminary injunction is denied, and (3) the balance of equities tipping in the moving party’s favor…” The purpose of a preliminary injunction is to maintain the status quo pending determination of the action[.]

Here, it is undisputed that the parties have entered into two contracts concerning the sale of the subject business and associated Property. Although the exact sum paid by Plaintiffs may be in dispute, the evidence submitted on these motions indicates that Defendants have accepted at least $590,000.00 from Plaintiffs towards the contract price. While there may be some factual issues at this point in litigation, for purposes of granting provisional relief, Plaintiffs’ showing is sufficient to satisfy the first prong of likelihood of success on the merits. Moreover, Plaintiffs have amply demonstrated the prospect of irreparable harm if its request for an injunction is denied and that the balance of equities tips in its favor. Not only have Plaintiffs operated the business since March 2015, by entering into the subject agreements, they seek to purchase the goodwill of the business generated from the years of its existence. Certainly, the loss of goodwill constitutes irreparable harm…Finally, any potential prejudice to Defendants as a result of the injunction can be counteracted by a sufficient undertaking and the payment of use and occupancy.

And, as to use and occupancy and an undertaking, directing that:

[P]laintiffs are directed to pay monthly use and occupancy in the amount of $21,252.00 to Defendants. Plaintiffs shall also turn over the monies escrowed in their attorney’s account since September 2016 to Defendants for past due use and occupancy. In the event that Plaintiffs are ultimately successful in proving their causes of action against Defendants, they may receive a credit towards the contract price for the use and occupancy paid pursuant to this Order as adjusted and determined by the Court. In addition, in the event that it is finally determined that Plaintiffs were not entitled to an injunction, an undertaking is necessary to protect Defendants against damages and costs which may be sustained by reason of this injunction…Plaintiffs must therefore post an undertaking in the amount of $80,000.00 within 45 days of notice of entry.

Remedy Hospitality Group LLC v. Street Five 116 LLC, 2017 NY  Slip Op 30856(U)  [Sup. Ct. K. Co. April 24, 2017]

The Court addressed plaintiffs-tenants’ motion for a Yellowstone injunction and defendant-landlord’s cross-motion for a declaratory judgment and a preliminary injunction directing plaintiffs to cease all business at the premises.

The Court summarized the facts:

Plaintiff, Remedy Hospitality Group LLC, which is operated as a restaurant/bar known as Two Door Tavern, is one of two commercial tenants in the building located at 116 North 5th Street in Brooklyn, New York…Plaintiff became a tenant in January 2011 when it was assigned the lease dated November 2009 by the initial tenant with the consent of Plumbridge Realty Corp.…Defendant’s predecessor-in-interest. The initial lease was amended by an Amendment to Lease dated March 24, 2011, between Plaintiff and Plumbridge. Taking into account a one-year renewal option, Plaintiff’s lease expires on November 30, 2020.

The Notice to Cure:

Plaintiff received a Notice to Cure dated August 18, 2016, (“Default Notice”), which sets forth five alleged defaults under the lease:

(1) Pursuant to Paragraph 57 of the Lease as amended by Paragraph 6 of the Amendment, you must vacate Hallway A…and remove therefrom any and all closets built into the corridor which have narrowed the corridor and remove any and all compressors mounted on the top of the closets, as said closets and compressors narrow the width of the hallway…and…violates the NYC Building Code as this Hallway A is used as a means of egress.

(2) In violation of Paragraph 7 of the Amendment you constructed a mezzanine over and into Hallway B which has resulted in a reduction of the ceiling height of Hallway B . . . [y]ou must remove the mezzanine…so that it meets the egress requirements pursuant to the New York City Building Code[.]

(3) Pursuant to NYC DEP Sewer Use Regulations…grease interceptors shall be installed in the restaurant…as such you must remove the current grease interceptor from the basement and have it installed within the restaurant’s kitchen.

(4) There is currently no Certificate of Occupancy or letter of no objection associated with this building[.]

(5) On June 28, 2016, an ECB Violation…was issued for the subject premises for failure to maintain building wall(s) or appurtenances, as a result of your removal of the metal beams/signage from the front of the building. As such, you must take the necessary steps to comply and satisfy this violation[.]

The application for Yellowstone relief:

On September 30, 2016, Plaintiff filed the instant application for a Yellowstone injunction arguing that the Default Notice improperly seeks to have Plaintiff correct building conditions for which Plaintiff has no obligation, alleges that Plaintiff created conditions that are pre-existing and which the prior owner either created or waived, and alleges defaults that do not even exist. It is Plaintiff’s position that Defendant has engaged in a campaign to terminate Plaintiff’s leasehold interest and evict it from the Premises to make the Premises more attractive for sale, as evidenced by a sales listing marketing the Premises for over $10 million dollars.

Plaintiffs’ contentions:

With regard to items 1 and 2 in the Default Notice, Plaintiff argues that Defendant has failed to identify the specific rule, law or regulation that is allegedly being violated by reason of the existing closets, compressor or mezzanine. Further, that the closets, compressor and mezzanine were in use by the initial tenant under the lease and which Plumbridge acknowledged were part of the leased premises in the amendment to the lease. Moreover, that the mezzanine dates as far back as 1999 as evidenced by a printout of a 1999 ECB violation that was issued because the mezzanine had no railing. Plaintiff also states that neither “Hallway A” nor “Hallway B” is used for egress as “Hallway A” ends in a solid sheetrock wall and “Hallway B” ends in a sheetrock wall with a door leading to an area in the back of the building behind the restaurant that is vacant.

With regard to item 3 in the Default Notice, Plaintiff states that a grease interceptor is properly installed in its kitchen and that it did not install the one located in the basement. Plaintiff submits that the basement grease interceptor appears to be servicing the entire building but even if it was installed for the sole use of the Premises, the lease, at paragraph 46[c], specifically permitted such installation.

With regard2010, to item 4 in the Default Notice, Plaintiff contends that its use of the Premises as a restaurant is permitted by the Letter of No Objection dated August 10, 2010, (“LNO”) issued by the NYC Department of Buildings (“DOB”).

Lastly, Plaintiff contends that the ECB violation referenced in item 5 in the Default Notice, concerning repair of the front of the building, is Defendant’s responsibility. That although Defendant attempts to blame the Premise’s condition on Plaintiff’s removal of the subject metal signs and beams, such removal could not have caused the condition because the metal signs and beams were not affixed to the building. Further, that Defendant refused to cooperate with Plaintiff in its attempt to file a certificate of correction after Plaintiff removed the signs and beams and paid $5,800.00 in fines.

Although Plaintiff’s position is that it has committed no defaults under the lease, in the event that the Court determines that a default exists, Plaintiff expresses that it is ready, willing and able to cure any default.

The landlord’s opposition:

[D]efendant proffers a letter dated July 15, 2016, from the DOB rescinding its LNO. Defendant therefore argues that it is entitled to a preliminary injunction ordering Plaintiff to cease and desist its use of the Premises as a restaurant until it obtains a proper Certificate of Occupancy. Defendant also proffers the opinion of Benjamin Leonardi, an architect, who states, among other things, that the “means of egress have been compromised” by the mezzanine and closets which “illegally [narrow] the corridor width and [corrupt] the integrity of the corridors purpose.” Based on the foregoing, Defendant argues that Plaintiff must remove the closets and mezzanine.

The tenant’s reply:

[P]laintiff argues that Defendant should be prohibited from obtaining equitable relief because Defendant, in bad faith, engineered Plaintiff’s default by demanding that the DOB rescind the 2010 LNO. In support, Plaintiff proffers a copy of an undated letter by Jerry Lebedowicz, Defendant’s principal, to the DOB stating “I want the Letter of No Objection rescinded or revoked.” According to Plaintiff, Mr. Lebedowicz sent this letter along with an uncertified copy of the building’s 1930 Certificate of Occupancy listing the use of the property as a parking garage to the DOB to induce the revocation of the LNO. Apparently, the DOB did not have record of the 1930 Certificate of Occupancy when it issued the 2010 LNO. Plaintiff states that it has been operating a restaurant at the Premises for the past six years, and that before its occupancy, the space has been occupied by other restaurants since at least 2005. That accordingly, there is no reason to believe that the Premise’s use as a restaurant has suddenly become dangerous.

Summarized the controlling law:

The purpose of the Yellowstone injunction is to preserve the status quo such 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”…”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’”…Moreover, the “ability” to cure can be supplanted by a willingness to do whatever is necessary to cure the default paired with a potential means to cure said default[.]

Concluding that:

Here, it is clear that Plaintiff has met all of the requirements for Yellowstone relief. In fact, the Court finds that Plaintiff is not in default with regard to items 1 and 2 in the Default Notice. The affidavit of Defendant’s architect fails to cite a single statute or building code provision that Plaintiff has violated by virtue of the existing closets and mezzanine. The Default Notice suffers from the same defect. Merely stating that the closets and mezzanine are illegal without reference to any standard by which the Court can measure legality is woefully insufficient.

The Court additionally finds that Plaintiff is not in default with regard to items 3 or 5 in the Default Notice. Defendant does not dispute that Plaintiff has a grease interceptor installed in the kitchen of its restaurant. Thus, contrary to what is stated in the Default Notice, Plaintiff cannot be in violation of any regulation requiring a grease interceptor to be installed inside of the restaurant. Plaintiff also established that its removal of the subject metal signs and beams did not cause the building façade’s condition as they were never affixed to the façade in the first place. Moreover, Defendant fails to dispute that, under the lease, repair of the façade is the landlord’s responsibility.

Finally, as of July 15, 2016, pursuant to Defendant’s request, the DOB rescinded the 2010 LNO thereby rendering Plaintiff’s current use of the Premises as a restaurant invalid. However, all is not lost as Plaintiff has demonstrated its desire and ability to cure the freshly created default, which can be effectuated by obtaining a new Certificate of Occupancy or an amendment to the current Certificate of Occupancy…Moreover, the Court is confident that Defendant will cooperate with Plaintiff in obtaining the amendment to the Certificate of Occupancy that Plaintiff needs, if only to negate Plaintiff’s seemingly supported claims of bad faith and unclean hands against Defendant. Based on the foregoing, Plaintiff is entitled to a Yellowstone injunction staying the termination of its lease and affording it a reasonable period to complete a cure.

Rui Qin Chen Juan v. 213 W. 28 LLC, 2017 NY  Slip Op 02926 (App. Div. 1^st Dept. April 18, 2017)

The First Department addressed an Order of Supreme Court that denied plaintiffs’ motion for a Yellowstone injunction, summarily concluding that:

The motion court properly denied the tenant plaintiffs’ motion for a Yellowstone injunction because the sole source of support for the motion was the English language affidavit of the non-English-speaking Rui Qin Chen Juan, which is inadmissible for want of a translator’s affidavit, as is required by CPLR 2102(b) and Rule 14(a) of the New York County Supreme Court, Civil Branch, Rules of Justices. Thus, plaintiffs have provided no factual support for the motion.

Even were we to consider the affidavit, defendant’s arguments fall on the merits. Plaintiffs were clearly in default regarding provisions in the lease requiring insurance coverage. Most significantly, they failed to obtain continuous insurance coverage for the entire lease term…It is undisputed that there were two gaps in insurance coverage. The failure to obtain insurance is a material breach that may not be cured by the purchase of prospective insurance, as such insurance “does not protect defendant [owner] against the unknown universe of any claims arising during the period of no insurance coverage”[.]

US Sunergy Corp. & Rosewood, Inc. v. CH Gowanus, LLC, 2017 NY  Slip Op 30272(U) [Sup. Ct. K. Co. February 7, 2017]

Plaintiff made a motion for a Yellowstone injunction and defendant cross-moved to dismiss the complaint.

Supreme Court summarized the facts:

Plaintiffs are the tenants of the premises known as 94 9th Street, 1st floor, in Brooklyn, New York…Plaintiffs entered into a lease agreement with Defendant’s predecessor-in-interest on or around August 28, 2012, for a ten-year lease term ending on August 31, 2022. Plaintiffs sell kitchen cabinets and countertops to primarily wholesale customers which is the undisputed stated purpose in the lease for which the Premises were rented.

Plaintiffs received a Notice of Default dated May 11, 2016, which describes Plaintiffs’ breach of the lease agreement as follows:

(a)        In breach of Section 4(A) of the Lease, Tenant is manufacturing within the Demised Premises contrary to express provisions of Section 4(A) of the Lease which provides that the Demised Premises shall be solely used for wholesale and retail selling of cabinets and granite counters and for no other purpose.

(b)        In breach of Section 4(B) of the Lease, Tenant is using the Demised Premises contrary to Legal Requirements by engaging in the retail sale of merchandise from within the Demised Premises;

(c)        In breach of Section 4(C) of the Lease, Tenant is using the Demised Premises contrary to the certificate of occupancy which is for manufacturing use only.

Plaintiffs’ submissions:

Plaintiffs, in seeking the instant Yellowstone injunction, argue that they have at all times been in compliance with the terms of their lease which restricts their use of the Premises for retail sales only. They argue that Defendant’s Notice of Default is defective due to its contradiction — it alleges that Plaintiffs are violating the Certificate of Occupancy by occupying the Premises in accordance with the Lease while at the same time alleging that Plaintiffs are violating their Lease by occupying the Premises in accordance with the Certificate of Occupancy.

Plaintiffs further submit that, when they took occupancy of the building, only one tenant used its space for manufacturing purposes. The other uses by tenants include the displaying of art and the storage of food and beverage carts. Plaintiffs also argue that, despite filing applications with the Department of Buildings for construction permits, Defendant has never attempted to amend the Certificate of Occupancy even though, currently, there are no manufacturing tenants in the building. It is Plaintiffs’ position that Defendant is doing everything in its power to cause Plaintiffs to vacate the Premises before the end of their lease term because they are one of the few remaining tenants in the building.

Finally, Plaintiffs state that they are ready and willing to cooperate with Defendant to obtain an amendment of the Certificate of Occupancy and to do whatever is necessary in order to keep their leasehold interest.

Defendant’s opposition:

Defendant contends that the Certificate of Occupancy for the building, dating from 1954 and 1957, specifies that the building must be used for manufacturing purposes only and the fact that the lease restricts Plaintiffs’ use of the premises to retail sales is largely irrelevant. As such, Defendants argue that Plaintiffs’ “defaults” are incurable and therefore, the complaint must be dismissed.

The applicable law:

“A Yellowstone injunction 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 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’”…Moreover, the “ability” to cure can be supplanted by a willingness to do whatever is necessary to cure the default paired with a potential means to cure said default[.]

“In granting Yellowstone injunctions to avoid a forfeiture of the tenant’s interest, courts have generally accepted far less than the showing normally required for the grant of preliminary injunctive relief”…”The mere threat of termination and forfeiture of the lease has been held sufficient to justify maintenance of the status quo by injunction”…A Yellowstone injunction is appropriate in circumstances where there is not a sufficient basis to evaluate whether a tenant actually has violated its lease[.]

Concluding that:

Here, Plaintiffs have satisfied all of the aforementioned criteria in support of its application for a Yellowstone injunction. Moreover, based on the “Catch-22” nature of the Notice of Default, it is not clear whether Plaintiffs are even in default of the subject lease. To the extent that it can be said that Plaintiffs are in default of their lease because their retail business (which is the only permissible use pursuant to the lease) contravenes the allowed use under the Certificate of Occupancy, Plaintiffs may still cure said violation by obtaining a Letter of No Objection from the Department of Buildings or an amendment to the Certificate of Occupancy. Under these circumstances, Plaintiffs are entitled to a Yellowstone injunction.

Mid Atlantic Inc. v. 4250 Broadway Retail Owners LLC, 2017 NY  Slip Op 30770(U) [Sup. Ct. N.Y. Co. March 30, 2017]

The Court addressed the motion of plaintiff-tenant for a preliminary injunction tolling a 15-day notice to cure.

Supreme Court summarized the claimed violations of the lease:

The Notice to Cure claims that plaintiff is using portions of the cellar that is included in the leased premises as a residence and as an office, in violation of ¶ 2 of the lease and the Certificate of Occupancy of the building. Plaintiff’s owner attests without contradiction that she placed a cot in the cellar on which she naps during long hours working in her retail seafood store upstairs, but no one stays overnight or otherwise resides in the cellar, and that she performs accounting and other record keeping in the cellar attendant to the leased premises’ use as a retail store. Moreover, defendant has expressed a willingness to allow the occasional use of the cellar for ancillary office work.

The Notice to Cure claims that the sprinkler coverage in the leased premises is inadequate, in violation of the New York City Building Code…because the sprinkler heads are too far apart to protect all areas of the premises. Paragraph 42 of the lease governs the leased premises’ sprinkler system: “Tenant shall not be responsible for structural or extraordinary repairs…to the demised premises, including but not limited to, the fixtures,…equipment and installations,…and installation and maintenance of a sprinkler system.”…Defendant does not claim that plaintiff installed the sprinkler system in the leased premises. In fact plaintiff’s owner attests that defendant replaced several sprinkler heads in September 2015, without installing them closer together and curing the claimed Building Code violation. Thus plaintiff tenant is not responsible for the installation of sprinkler heads too far apart to provide adequate protection nor, under ¶ 42 of the lease, for repair to the sprinkler system to remedy this inadequacy. The cure requires the installation of a more comprehensive system of sprinkler heads, a remedy to be undertaken by defendant under ¶ 42.

The Notice to Cure claims that the leased premises also violate the Building Code because of the many holes in the walls and ceilings that create a fire hazard and the unprotected wood joists in the cellar. Depending on the cause and nature of the holes and of the unprotected joists, the repair of these conditions may be structural and thus defendant’s responsibility pursuant to ¶ 42 of the lease, or they may be plaintiff’s responsibility because plaintiff caused them or because they are non-structural such that it undertook to repair them pursuant to ¶ 8 of the lease. If plaintiff created the holes, or if the joists simply need covering with a fire protective material, for example, plaintiff would bear responsibility for the repair.

The Notice to Cure also claims two more violations of the Building Code: New York City Administrative Code…because the only means of egress from the cellar is unenclosed and of combustible material, and…because the plumbing fixtures for the toilet in the cellar are inadequate, and the toilet does not exhaust to the exterior. Plaintiff maintains that the former condition is insufficiently specific to inform petitioner what correction is necessary, although the only ambiguity, easily resolved by reference to [the Code] is whether the correction requires both an enclosure and non-combustible material or only one or the other. Plaintiff claims no lack of specificity in the latter condition, although defendant does not specify any insufficiency in the plumbing fixtures other than the failure to exhaust to the exterior.

Concluding that:

In any event, even assuming both these claimed conditions are sufficiently specific, again, depending on the extent of the necessary repair, it may be structural and thus defendant’s responsibility pursuant to ¶ 42 of the lease. On the other hand, if plaintiff constructed or renovated the cellar’s means of egress or installed the toilet in the cellar or the associated plumbing fixtures or exhaust system, their repair may be plaintiff’s responsibility because plaintiff caused the conditions or they are non-structural such that it undertook to repair them pursuant to ¶ 8 of the lease.

Summarized the remaining claims in the notice to cure:

The Notice to Cure then claims that the leased premises violate the New York City Plumbing Code because the drains from plaintiff’s equipment drain onto the floor without connecting to waste lines and thus may be damaging the building’s structure. Plaintiff maintains that this notice of a violation is insufficiently specific regarding what equipment defendant refers to and what provision of the Plumbing Code defendant claims plaintiff is violating, to inform it what correction is necessary. If the drain is from plaintiff’s fish displays, then plaintiff is responsible for correcting the drain’s connection to waste lines so that the drain does not cause unsafe structural damage. In response to the affidavit by plaintiff’s owner that plaintiff has connected its drain on the first floor to a waste line and is preparing to lay concrete to repair the surrounding floor, defendant does not identify any other drain from any other equipment. Although defendant refers only to Plumbing Code Subchapter 16, without a specific section, defendant’s reference to damage to the building’s structure suggests a claim that plaintiff is violating § 1600.6(x), requiring that “the structural safety of a building shall not be affected…as a result of the installation…of a plumbing system or any part.” Again, responsibility for the repair of any unsafe structural condition caused by a drain depends on whether the owner or tenant created the condition and the extent of the necessary repair to the plumbing system and the building’s structure. Plaintiff, however, has cured the cause of any such condition and demonstrates a readiness, willingness, and ability to cure any damage caused[.]

*     *     *

The Notice to Cure then claims that the leased premises violate the New York City Electrical Code due to electrical wiring hanging from the walls and ceiling. Plaintiff maintains that this notice of a violation is also insufficiently specific regarding what provision of the Electrical Code defendant claims plaintiff is violating, to inform it what correction is necessary. Insofar as defendant’s description of the offending condition informs plaintiff of the necessary correction, however, plaintiff’s owner again attests without contradiction that plaintiff has engaged an electrician to cure any hanging wires. Thus, even though plaintiff further maintains that the cure is a “structural or extraordinary repair…to…the fixtures, appurtenances, improvements, equipment and installations,”… plaintiff demonstrates it is ready willing, and able to cure, if not already in the process of curing, the claimed lease violation.

Concluding that:

In sum, the undisputed evidence demonstrates that plaintiff has not violated the parties’ lease by using the leased premises as a residence or as an office or by installing or maintaining an inadequate sprinkler system. Plaintiff has raised factual questions whether it is responsible for the other claimed Building Code violations because plaintiff caused them or undertook to repair them pursuant to ¶ 8 of the lease. These claimed violations are the holes in the leased premises’ walls and ceiling, the unprotected joists in the premises’ cellar, the means of egress from the cellar, and the toilet in the cellar and the associated plumbing fixtures and exhaust system. Plaintiff has cured, is curing, or is prepared to cure the drainage that has damaged the leased premises’ first floor and the hanging electrical wiring.

*     *     *

Insofar as the court may determine that defendant is responsible for any claimed violations of the lease, plaintiff is ready, willing, and able to permit defendant to enter the leased premises to repair these offending conditions. Insofar as the court may determine that plaintiff is responsible for any violations of the lease, plaintiff is ready, willing, and able to repair these offending conditions. No evidence indicates the violations are incurable[.]

With the admonition that:

Until the court determines which party bears responsibility for any lease violation that plaintiff has not cured, part of the ultimate relief sought by the complaint, plaintiff is entitled to a preliminary injunction tolling the cure period in the Notice to Cure dated December 30, 2015. This injunction maintains the status quo and protects plaintiff’s leasehold while challenging its responsibility for the violations claimed by defendant[.]

This injunction, however, is conditioned on plaintiff’s provision of an undertaking in the form of timely ongoing payment to defendant of all charges due under the parties’ lease and, within 10 days after entry of this order, payment to defendant of any outstanding arrears in such charges[.]  Therefore the court grants plaintiff’s motion for a preliminary injunction, but, if plaintiff fails to make any such payment, the preliminary injunction will be vacated[.]

Worldwide Gifts, Inc. v. 20 W. 33’d Prop. Owner, LLC, 2017 NY Slip Op 30214(U) (Sup. Ct. N.Y. Co. January 31, 2017)

Supreme Court outlined the pending application:

In this action seeking, inter alia, a declaration regarding its rights pursuant to a lease, plaintiff , Worldwide Gifts, Inc., a commercial tenant at 20 West 33^rd Street, New York, New York, moves, by order to show cause: 1) for a Yellowstone injunction tolling plaintiff’s time to cure the alleged breach of its lease during the pendency of this action pursuant to First National Stores, Inc. v. Yellowstone Shopping Center, Inc.… 2) enjoining defendant 20 West 33rd Street Property Owner, LLC, the owner of the premises, from taking any further action to terminate plaintiff’s tenancy based on a notice to cure served on plaintiff by defendant dated April 4, 2016; and 3) for such other relief as may be just and proper. Defendant opposes the motion[.]

The facts:

Pursuant to a lease dated December 4, 2000, (“the 2000 lease”), Empire T & G, Inc. (“Empire”) predecessor-in-interest to plaintiff Worldwide Gifts, Inc., rented Store #2 at 20 West 33^rd Street, New York, New York, then owned by Thirty Third Equities Company LLC (“TTE”), predecessor-in-interest to defendant 20 West 33^rd Street Property Owner, LLC, for the purpose of operating a gift and souvenir shop…Jong Ho Park, President of plaintiff, formed Empire for the purpose of operating the gift shop…The term of the 2000 lease was 10 years, expiring on October 30, 2010 and was for “store #2” at the premises[.]

Article 53 of the 2000 lease…entitled “Estoppel,” stated in pertinent part:

Tenant shall, without charge, at any time and from time to time, within ten (10) days after request by Landlord, execute and deliver to Landlord a written declaration in recordable form…Such declaration shall be executed and delivered by Tenant from time to time as may be requested by Landlord at no cost or expense to it.

On January 31, 2001, TTE and Empire entered into an agreement amending the 2000 lease to provide Empire additional basement space in exchange for an additional $150 rent per month[.]

On August 1, 2004, TTE and Empire entered into a second amended lease which extended the term of the 2000 lease from October 30, 2010 until October 30, 2018 and designated the base tax year for the calculation of real estate tax payments July 1, 2008 through June 30, 2009…On December 5, 2005, the 2000 lease was amended again, this time to award Empire a monthly credit of $4,000 to be applied against the fixed minimum rent provided for in the 2000 lease and to change the base tax year to July 1, 2012 through June 30, 2013[.]

In October of 2008, Park formed a new corporation, Oasis Tee, Hat & Cap, Inc. (“Oasis”), to be tenant pursuant to the 2000 lease.  TTE permitted Empire to assign the lease to Oasis.…In January of 2011, Park again formed a new corporation, plaintiff Worldwide Gifts, Inc., and TTE permitted Oasis to assign the lease to plaintiff[.]

In 2013, plaintiff encountered a slump in sales due to a proliferation of other gift stores in the area, and wished to convert the premises into a liquor store…To do so, however, plaintiff needed to form a new corporate entity and apply for a liquor license…Steven Levy, managing member of Kamber Management Company LLC…’managing agent of the building…advised plaintiff that it had TTE’s permission to operate a liquor store in the building…Park then formed yet another corporation, Empire Wine and Liquor, Inc. (“Empire Wine”) to operate a liquor store at the premises[.]

On June 20, 2013, TTE entered into a lease agreement (“the 2013 lease”) with Empire Wine for Store #3 at 20 West 33^rd Street, New York, New York…The term of the lease was for 13 years, expiring on June 30, 2026…At the time Park executed the 2013 lease on behalf of Empire Wine, he did not realize that the demised premises consisted of Store #3 and not Store #2[.]

On July 2, 2013, Park wrote to Levy and asked the latter to countersign a letter granting plaintiff permission to continue to use Store #3 even in the event it was unable to obtain a liquor license. Levy countersigned the letter granting such permission…According to Park, after he advised Levy that Empire Wine could not obtain a liquor license, Levy advised him that plaintiff could be the tenant under the 2013 lease…and Kamber continued to issue monthly rent invoices to plaintiff[.]

By correspondence dated July 2, 2015, Park, on behalf of plaintiff and Empire Wine, signed a letter to TTE advising the latter that, since Empire Wine had failed to obtain a liquor license, the 2013 lease was “of no force and effect.”…Soon after he signed this letter, Park learned that the building had been sold[.]

On August 12, 2015, Levy sent plaintiff a hand delivered letter to Park requesting that the latter execute an estoppel certificate pursuant to the terms of the 2000 lease by August 21, 2015…When plaintiff failed to sign the estoppel certificate, defendant sent plaintiff a notice of default by Federal Express on April 4, 2016…The notice of default demanded that plaintiff cure the default by executing and delivering the estoppel certificate no later than April 11, 2016[.]

The prior proceedings:

On April 11, 2011, plaintiff commenced the captioned action by filing a summons and complaint against defendant seeking: l) a declaration that it is not required to execute the estoppel agreement pursuant to the 2000 lease since TTE permitted it to assume the rights and obligations of Empire Wine pursuant to the 2013 lease; or, in the alternative 2) in the event it is determined that its rights and obligations arc governed by the 2000 lease, an extension of time to cure its default pursuant to the 2000 lease by executing the estoppel certificate[.]

The contentions of the parties:

Plaintiff maintains that it is entitled to a Yellowstone injunction because it has established that it holds a commercial lease, that it has received a notice to cure a default, that it requested injunctive relief before the termination of the lease, and that it has the ability to cure the alleged default. Asserting that the 2013 lease remains in effect with plaintiff, and not Empire Wine, as tenant, Park maintains that he was tricked by Levy into signing the July 2, 2015, letter admitting that the 2013 lease was “of no force and effect.”…In support of this contention, plaintiff relies on the affidavit of Joseph Kang, an individual with whom he had a “business relationship.”…In his affidavit dated April 11, 2016, Kang states that, on July 2, 2015, he saw a man, whom he later learned was the superintendent of the building, pressuring Park to sign a letter immediately[.]

In an affidavit in opposition, Levy states that the 2013 lease was conditional upon Park obtaining a liquor license. He maintains that, since Park never obtained a liquor license, the 2000 lease remains in full force and effect despite the execution of the conditional 2013 lease.  He vehemently denies that he or anyone else on his behalf pressured Park to execute the July 2, 2015, letter admitting that the 2013 lease was of no force and effect. He further maintains that Park’s letter dated July 2, 2013,…in which Park requested consent to use plaintiff’s “current lease” in the event he (Park) could not obtain a liquor license, supports defendant’s claim that the 2000 lease was to remain in effect if no such license could be obtained. Finally, Levy denies that he ever granted plaintiff consent to operate as a gift shop pursuant to the terms of the 2013 lease.

In an affidavit in opposition, Kevin Chisholm, a principal of defendant, asserts that the 2000 lease is the only agreement governing plaintiff’s tenancy at the premises.

In reply, Park argues that the fact that Levy sent him rent invoices c/o Empire Wine confirms that plaintiff’s tenancy at the premises was based on the 2013 lease. He also reiterates that his signature on the July 2, 2015, letter was obtained by deceit and fraud.

The applicable law:

A [Yellowstone] injunction 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 the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.” Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assocs.…The Court of Appeals has noted that, in routinely granting Yellowstone applications to further this State’s policy disfavoring forfeitures, the courts accept “far less than the normal showing required for preliminary injunctive relief.”[.]

In order to obtain a Yellowstone injunction, a party must establish 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.”[.]

Concluding that:

This Court has examined the foregoing factors and concludes that plaintiff is clearly entitled to a Yellowstone injunction. Initially, plaintiff demonstrates that it holds a commercial lease for either Store #2 pursuant to the 2000 lease…or Store #3 pursuant to the 2013 lease…Next, plaintiff received a notice of default from defendant dated April 4, 2016…Further, plaintiff requested injunctive relief on April 11, 2016, prior to the termination of the 2000 lease, which lease, by the terms of the notice of default, was to be terminated that day…Finally, as Park states in his affidavit, plaintiff is prepared, and maintains the ability to, cure the alleged default, i.e., failing to execute the estoppel certificate, should this Court determine that the 2000 lease, and not the 2013 lease, governs the tenancy.

At The Bar, LLC v. 622 W 47 LLC, 2016 NY  Slip Op 32439(U)  [Sup. Ct. N.Y. Co. December 9, 2016]

Supreme Court addressed a motion for an Order directing plaintiffs, At The Bar (“ATB”), to pay rent and post an undertaking should the previously-granted Yellowstone injunction be maintained.

The Court summarized the facts:

Plaintiffs are New York limited liability companies and affiliates created for the purpose of operating a cabaret and gentlemen’s club at 622 West 47th Street (“Subject Premises”). Landlord is a domestic limited liability company located in New York. Impagliazzo is a resident of the State of New York.

OW entered into the primary lease, dated January 2013, with Landlord to rent the Subject Premises for a twenty (20) year term, with an option to renew for an additional ten (10) years. Shortly thereafter, the members of OW formed 622 and entered into subsequent leases with the landlord for the Subject Premises (collectively the “2013 Leases”). At Impagliazzo’s direction and in accordance with Section 6.3.1 of the 2013 Leases, OW deposited $150,000 in escrow prior to the commencement of tenant’s work of building out the Subject Premises. Subsequently, OW commenced work on the cellar of the Subject Premises. I.M.P. Plumbing & Heating Corp. (“IMP”), which is solely owned by Impagliazzo, performed significant plumbing work on the Subject Premises. According to the complaint, Impagliazzo was present during OW’s construction and did not object to any portion of the work. In January 2015, ATB entered into yet another lease with Defendants (“ATB Lease”). The terms and conditions of the ATB Lease as well as the 2013 Leases are substantially identical (collectively the “Leases”).

Section 2.5 of the Leases provides, in relevant part, as follows:

The obligation of Tenant to pay Rent hereunder shall commence upon the Rent Commencement Date. The Rent Commencement Date shall be the earlier of (i) the date when Tenant opens for business or (ii) 90 days following the “Possession Date”.

Section 6.1 of the Leases indicates that the Possession Date is when the Landlord provides written notice of the substantial completion of Landlord’s work (“Landlord’s Work”) (“Substantial Completion Notice”). Exhibit 6.1, which is annexed to the Lease, provides, in part, that Landlord’s Work shall mean the following:

1. Replace floors 2, 3, 4 and 5. This will include replacing the beams going across and installing plywood on-top
2. Provide waste, water, and a vent on each floor to a tie-in location
3. Provide electrical panel on each floor
4. Replace the roof
5. Sprinkler riser-provide a tie-in location at each floor Outlet valve. Landlord will install sprinkler

Once Landlord’s Work is completed and in accordance with building specifications and regulations, Landlord is to provide a Substantial Completion Notice, thereby putting tenants in possession and obligating them to pay rent. As of the date of the submission of this motion, Landlord has not provided the Substantial Completion Notice.

In addition, Plaintiffs allege to have spent approximately $4,000,000 in performing tenants’ work and improving the Subject Premises, including, but not limited to, $200,000 on the HVAC system, over $500,000 on flooring, over $450,000 on audio visual equipment, and over $100,000 on glass work. Part of the above mentioned work was funded by a $1,200,000 investment that Impagliazzo made in ATB.

The subsequent developments:

In December 2013, Defendants demolished the top three stories of the Subject Premises. The south, west, and east walls were leveled down, but the north wall was left intact. In the summer of 2014, Defendants began to reconstruct the top three floors of the Subject Premises. Prior to construction, Defendants submitted permit applications to the Department of Buildings (“DOB”) dated October 8, 2013, April 23, 2014, and October 9, 2014.

Plaintiffs tendered two $25,000 payments to Landlord. Plaintiffs subsequently tendered a check to Landlord in June of 2015 for $40,000, which purportedly did not clear. Plaintiffs also made at least three additional payments to Landlord: (i) Check #1019, dated December 11, 2014, for $56,230.91; (ii) Check #1054, dated February 17, 2015, for $75,000; and (iii) Check #1063, dated February 25, 2015, for $102,000.

On May 22, 2015, Plaintiffs, except ATB, provided an estoppel certificate, purportedly to allow Defendants to secure a loan (“Estoppel Certificate”). The Estoppel Certificate provides, among other things:

(c) As of the date of Tenant’s execution hereof, Tenant is occupying and paying rent on a current basis for the following portions of the Property pursuant to the Lease: all of the Property.

(d) Tenant has accepted possession of the Leased Premises, and all items to be performed by Landlord have been completed.

(g) No default on the part of Landlord exists under the Lease in the performance of the terms, covenants, conditions of the Lease required to be performed on the part of Landlord.

(n) Tenant has no defense as to its obligations under the Lease and asserts no setoff, claim or counterclaim against Landlord under or with respect to the Lease.

On June 16, 2015, Landlord was issued DOB Permit Number: 122229178-01-EW-SP (the “6/16/15 Permit”). The 6/16/15 permit was renewed commencing on June 16, 2016.

The notices to cure:

On April 19, 2016, Defendants served ATB with a notice for rent (“Rent Demand”) purportedly due, demanding fourteen (14) months of unpaid rent and three (3) unpaid real estate tax payments…The Rent Demand was served simultaneously with a notice to cure (“Notice to Cure”)…In response to the Notice to Cure, all Plaintiffs have brought a motion seeking a Yellowstone injunction. Defendants subsequently withdrew the Notice to Cure, but filed a separate Notice to Cure on August 9, 2016. Plaintiffs filed a new motion for a Yellowstone injunction, which this Court granted…After the Court granted Plaintiff’s Yellowstone injunction, Defendants filed the instant motion seeking rent.

Analyzed the conflicting arguments with respect to the lease:

As per Section 6.1 of the Leases, the prevailing issue is whether Plaintiffs are deemed to have “accepted possession” of the Leased Premises, thereby triggering the obligation to pay rent. Defendants argue that Plaintiffs’ initial payments of $25,000 constituted rent and therefore confirm Plaintiffs’ obligation to pay. According to Defendants, if Plaintiffs contested that rent money was due, they should not have made those initial payments.

In contrast, Plaintiffs argue that, because of the informal relationship between the parties, Plaintiffs made voluntary payments to Defendants when it appeared they were having financial difficulties. To Plaintiffs, these good faith payments do not constitute rent, as they were never invoiced for rent. Further, the payments were all in different amounts; none of them were for $40,000.00, the initial rent due under the Leases.

Aside from the April 19, 2016, Notice to Cure, Defendants have yet to provide Plaintiffs with a single invoice documenting the rent monies owed. Defendants do not explain why they never sought to collect rent prior to April 2016 if it was due and owing.

Plaintiffs assert that Defendants are not entitled to rent money because the Leases create a condition precedent to the obligation to pay rent, as the Landlord’s work must be substantially complete…According to the terms of the Leases, Defendants are not entitled to rent money until Landlord’s Work is “substantially complete.” To Plaintiffs, since Defendants have not yet remedied the three floor demolitions, the construction cannot be considered substantially complete. Further, Plaintiffs maintain that the work that has been completed at the Subject Premises, such as the plumbing, was negligently performed, thereby requiring additional repairs to receive DOB certification.

Concluding that:

Defendants are unable to demonstrate that Landlord’s Work is substantially complete, as they fail to present evidence disputing Plaintiffs’ assertion that the demolition has not yet been adequately restored. Further, the Court rejects Defendant’s contention that the Estoppel Certificate satisfies the Substantial Completion Notice requirement because it was not executed by ATB, Landlord’s construction is not yet complete and the Estoppel Certificate appears to be submitted simply to facilitate the procurement of a loan made by First Bank and Trust of Illinois (“First Bank Loan”) and not to satisfy the Substantial Completion Notice requirement[.]

Defendants argue that, as explicitly stated in the Estoppel Certificate, the Landlord’s construction was complete, Plaintiffs accepted possession of the Subject Premises, and are therefore obligated to make rent payments. According to Plaintiffs, the Estoppel Certificate cannot satisfy the Substantial Completion Notice requirement because it contains many factual misrepresentations and ATB was not privy to the document. The Court finds Defendants’ arguments unpersuasive.

Plaintiffs should not be penalized for their willingness to cooperate with Defendants and to assist them in securing the First Bank Loan. Regardless, the Court finds that the Estoppel Certificate will likely be deemed ineffective because ATB was not privy to such agreement.

This Court determines that the condition precedent to paying rent has not yet occurred, as the Landlord has not established that the Landlord’s Work is substantially complete and has not complied with the Substantial Completion Notice requirement.

And, as to constructive eviction, stating:

Plaintiffs also argue in the alternative, that even if the Landlord fulfilled the notice  requirement, Defendants are not entitled to rent because their conduct amounts to a constructive eviction. Constructive eviction occurs when there is a “wrongful act by the landlord which deprives the tenant of the beneficial enjoyment or actual possession of the demised premises”…In order to recover under a constructive eviction theory, the tenant must actually abandon the premises[.]

Here, Plaintiffs argue that the Landlord’s structural alterations to the Subject Premises combined with the Landlord’s failure to obtain proper permits rendered the Subject Premises unfit for Plaintiff’s intended use, which was memorialized in the Leases. Defendants do not address this issue in their papers.

Nonetheless, this Court determines that the doctrine of constructive eviction is inapplicable to the current matter as the plaintiffs have not yet taken possession of the Subject Premises, and therefore cannot be said to have abandoned it.

In conclusion, since the Landlord has not provided Plaintiffs with written notice that Landlord’s Work was substantially complete, nor has it been established that the work is, in fact, substantially complete, Plaintiffs cannot be said to be in possession of the Subject Premises and therefore rent is not currently due. As such, Defendants request for prospective rent should be denied.

The Court required that Plaintiffs post an undertaking in the amount of $40,000:

Finally, Plaintiffs argue that an undertaking is unnecessary because Defendants are adequately protected the $4,000,000 worth of improvements Plaintiffs made to the Subject Premises[.].

One month’s rent is considered an appropriate undertaking, as it is rationally related to the potential damages should an injunction be deemed unwarranted and therefore is not excessive[.]

Here, it is undisputed that Plaintiffs made $4,000,000.00 in improvements to the Subject Premises. Defendants assert that such improvements to the flooring, audio/visual equipment, the kitchen, and glass work do not serve to “increase the value of the property in any way”…However, Defendants failed to present evidence supporting this argument.

While the amount of improvements made by Plaintiffs do not eliminate the need for an undertaking, they do serve to minimize the amount.  Here, a $2,000,000 undertaking, demanded by Defendants, would clearly be excessive, given Plaintiffs’ substantial improvements and the monthly rent of $40,000.00. As such, the Court finds that the appropriate amount of the Plaintiff’s undertaking is $40,000.

Puremore Movement, LLC v. 2374 Concourse Assoc., LLC, 2016 NY Slip Op 32262(U) (Sup. Ct. N.Y. Co. November 4, 2016)

The Court addressed tenant’s motion for a Yellowstone injunction seeking to toll the period to cure an alleged violations of a commercial lease.

The Court summarized the facts:

The lease for the premises, is for a term of three years, which commenced on or about October 25, 2011, and expired by its own terms of on or about September 25, 2014. Notably, the tenant has the sole right to renew the lease in accordance with two options. Option 1 refers to the renewal of the lease for years four through six and Option 2 refers to years seven through nine.

On or about, January 16, 2015, the landlord served a notice to cure…that demanded the tenant correct certain alleged defaults relative to paragraphs 3, 6, 14 and 15 of the lease, as well as, paragraphs 11, 19, and 21 of the rider to the lease. This fifteen day notice further states that plaintiff built and was operating an unlicensed, uninsured gymnasium in violation of the New York City Administrative, Building and Fire codes; resulting in, inter alia, a violation of the building’s certificate of occupancy. Plaintiff denies the allegations recited in the notice and asserts that the landlord was acutely aware of the efforts being made by plaintiff to “obtain the necessary approvals and permits to operate a physical culture establishment well before the [notice to cure] was served.” Plaintiff has also provided proof of insurance…Significantly, the lease itself identifies the use of the premises to be that of a “Fitness Center and for no other purpose.”

It is undisputed that on or about December 7, 2014, the New York City Department of Buildings issued a violation to the landlord. The violation alleged that the[re] was a “physical culture establishment (gym)” operating without the necessary permits and approvals. This violation resulted in a $1,200.00 fine being assessed against the landlord.

The competing arguments:

Plaintiff argues that the landlord has intentionally refused to expeditiously cooperate in the process of obtaining the necessary permits to operate a gym from the City of New York…Plaintiff also contends that the current landlord took advantage of the fact that the principal of the prior owner died, and could not continue the process of bringing the gym into compliance with the City’s codes.  Finally, plaintiff argues that it’s business would be destroyed if it were forced to move from the premises.

The landlord claims that the legal use of the premises, (a gym), was predicated upon plaintiff’s possession of all the necessary approved permits and plans to operate a gym. Moreover, plaintiff has been operating illegally for a number of years.

The purpose of, and grounds for, a Yellowstone injunction:

“The purpose of a notice to cure is to specifically apprise the tenant of claimed defaults in its obligations under the lease and of the forfeiture and termination of the lease if the claimed default is not cured within a set period of time.  [Yellowstone] and its progeny established a four prong test for determining  whether a “Yellowstone” injunction prong should be granted.  The requirement for obtaining Yellowstone relief be granted are as follows: The (1) plaintiff holds a commercial lease, (2) the landlord has served a notice to cure, (3) the referenced cure period has not expired, and ( 4) plaintiff has to demonstrate an ability and willingness to “cure[.]”

A Yellowstone injunction 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 the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture of the lease…Additionally, the very nature of this kind of injunction is designed to “forestall the cancellation of a lease to afford the tenant an opportunity to obtain a judicial determination of its breach, the measures necessary to cure it, and those required to bring the tenant in future compliance with the terms of the lease[.]

To obtain Yellowstone relief a tenant need not show a likelihood of success on the merits[.]  It can simply deny the alleged breach of its lease[.]

Yellowstone relief is available to protect against leasehold forfeiture, provided that the tenant has the ability to cure by means short of vacatur in the event the tenant is found to be in default of its obligations under a lease…This rationale is in line with this State’s public policy against the forfeiture of leases…This disinclination against leasehold forfeitures serves to promote the economy and business in our City.

This public policy concern takes on greater weight when a tenant has asserted that it will diligently and in good faith attempt to cure the defect, but through no inaction of its own, cannot do so without the cooperation of defendant[.]

The Court of Appeals has acknowledged that Courts routinely grant Yellowstone relief to reflect this State’s previously described policy against forfeiture, and the Courts have done so by accepting “far less than the normal showing required for preliminary injunctive relief”[.]

A Yellowstone injunction to stay proceedings in response to landlord’s notice to cure is a provisional remedy, and the purpose of interlocutory relief is not to determine the ultimate rights of the parties but to maintain the status quo until a full hearing on the merits can be held[.]

Concluding that:

Plaintiff has shown that it is prepared and it has the ability to assist in curing the alleged defaults…Consequently, and for the reasons set forth herein, the motion is granted.

Repony Corp. v. R F Realty Co., 2016 NY Slip Op 31644(U) [Sup. Ct. N.Y. Co. August 26, 2016)

Supreme Court addressed the motion of plaintiff/tenant for a Yellowstone injunction enjoining and restraining defendants/landlords from terminating their sublease.

Supreme Court summarized the facts:

On December 4, 2009, plaintiff and defendant R& F REALTY CO., entered into a 15 year sub-lease agreement for premises located at 140 Fifth Avenue a/k/a 2 West 19th Street, Unit 1C, New York, N.Y. The premises are to be “used as a bakery and café”. Plaintiff would additionally “be allowed to brew coffee, prepare soups, sandwiches, salads and heat prepared foods brought in from outside. . . .”…Paragraph 73 of the Rider further states that … “Except as set forth in the foregoing sentence, baking and cooking is not permitted . . .” Plaintiff operated the bakery and café at the premises without incident until he was served with a 15 day notice to cure by defendant R & F Realty Co., for violating, in essence, the provisions of Paragraph 73 of the sub-lease. R & F Realty Co., had previously been served with a 30 day notice to cure by the Proprietary Lessor Fifth Avenue Loft Corporation, for its violation of the lease agreement by permitting Plaintiff’s use of the premises contrary to what is contemplated in paragraph 73 of the sub-lease.

The prior proceedings:

Plaintiff served the defendants with a summons with notice commencing a declaratory judgment action seeking a judgment “declaring that the subject lease and master lease are not violated by plaintiff’s use of the subject premises.” Plaintiff simultaneous[ly] therewith brought this motion by order to show cause seeking a Yellowstone injunction tolling the cure period. Plaintiff alleges that the premises comply with all New York City Department of Buildings and Fire Department requirements, that there are no violations, all permit requirements have been met and that premises are being used in the same manner since 2010 when the lease commenced.

Landlord’s contentions:

Defendant R & F Realty Co., alleges that the motion should be denied because there are violations that need to be cured, more specifically those prohibited by Paragraph 73 of the Sub-lease, and that plaintiff has not stated that it has the desire and ability to cure the violations by any means short of vacating the premises. Defendant Fifth Avenue Loft Corporation alleges that since plaintiff commenced an action for declaratory relief by serving a summons with notice, defendants are without proper notice of the action which divests this court of jurisdiction. They further argue that they served a 30 day notice on R & F Realty Co., not on plaintiff and plaintiff has no standing to stay the cure period, finally they argue that plaintiff has failed to state that it has the desire and ability to cure the violation by any means short of vacating the premises.

The applicable law:

A Yellowstone injunction is appropriate to preserve the status quo pending the determination of the underlying dispute. A Commercial tenant must satisfy the following criteria in order to obtain an injunction staying termination of the leasehold while the propriety of the underlying default is litigated: (1) tenant holds a commercial lease, (2) tenant has received a notice of default, notice to cure, or threat of termination of the lease, (3) tenant has requested injunction relief prior to the termination of the lease, and (4) tenant is prepared and has the ability to cure the alleged default by any means short of vacating the premises…A Yellowstone injunction is not conditioned on Tenant’s likelihood of success on the merits of the underlying action[.]

The purpose of a Yellowstone injunction is to toll the cure period. To allow a Commercial tenant faced with a threat of termination of its lease to protect its investment in the leasehold by tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture[.]

A plaintiff is entitled to bring a declaratory judgment action that it is not in default under the lease and also to seek a Yellowstone injunction.  [F]urthermore, when plaintiff has represented neither that it is unable to cure the alleged default nor by its challenge to defendants’ claims, that it is unwilling to cure, this will be deemed to have satisfied the fourth requirement for obtaining a Yellowstone injunction.

Plaintiff’s contentions:

Plaintiff alleges that it is not in default under the lease because it has been operating in  the premises as it has always done since 2010. It brings a declaratory judgment action for a judgment declaring that it is not in default under the sub-lease, and makes this motion for a Yellowstone injunction to prevent the termination of its valuable leasehold. There is yet to be a determination that plaintiff is in violation of the terms of the sub-lease and if it is found that there is a violation, these are of a nature that can easily be cured[.]

Concluding that:

Plaintiff has met the requirements for obtaining a Yellowstone injunction. It has a Commercial lease, (2) has received a notice of default, to cure or threat of termination, (3) has requested the relief prior to the termination of the lease, and (4) has the ability to cure the alleged default by means short of vacating the premises. Accordingly, the motion for a Preliminary injunction is granted.

And, as to the payments of rent and posting a bond:

Defendant requests that if the court grants the motion for a preliminary injunction, that it be conditioned on the paying of past rent, use and occupancy and the posting of a bond or undertaking. Defendant R & F Realty Co., claims that there is owed on the premises approximately $44,586.72 dollars which plaintiff should be required to pay. It argues that the court should condition the granting of the preliminary injunction on paying rent arrears for the premises. Plaintiff argues that it is current on the payment of rent.

A court, in the exercise of its discretion, can order the posting of a bond or undertaking and the payment of use and occupancy as a condition of a Yellowstone injunction…The amount ordered deposited must be rationally related to the quantum of damages the landlord would sustain in the event that the tenant is later determined not to have been entitled to an injunction[.]

*     *     *

Defendant R & F Realty Co., has provided this court with proof that plaintiff is in arrears on the payment of rent and additional rent in the amount of $37,086.00 dollars. The remaining $7,500 are for attorneys’ fees.

Steve Madden Retail, Inc. v. 720 Lex Acquisition LLC, 2016 NY Slip Op 31522(U) (Sup. Ct. N.Y. Co., August 5, 2016)

Plaintiff/tenant sought a Yellowstone injunction to toll the period to cure plaintiff’s alleged violations of a commercial lease.  Defendant/landlord cross-moved for an Order directing plaintiff to pay rent and additional rent and/or use and occupancy.

The Court summarized the facts:

The lease for the premises, is for a term of 10 years, which commenced on or about January 3, 2007. The lease was amended on or about February 1, 2007, and again, in August 2007. The annual rent for the premises, is currently $1,539,920.64. In addition, the tenant is liable for 100% of the real estate taxes “appurtenant to the building to the extent the same exceed those payable in the fiscal tax year July 1, 2007, through June 30, 2008.”

On or about September 2, 2015, the landlord served a 5 day Notice to Cure, relative to the tenant’s alleged failure to pay the a portion of the rent due and owing under the lease. The 5 day notice stated that in the event the tenant did not pay the rent arrears within the cure period, the tenant would be deemed in default under the terms of the lease, and thereafter, the lease would be deemed terminated. The parties do not dispute that the lease provides that the landlord can, and may, terminate the lease if the rent and additional rent are not paid timely, during the lease term.

Tenant’s assertion:

The tenant asserts that it has been “partially constructively evicted from the premises.” Plaintiff alleges, inter alia, that there are hazardous conditions in the basement of the premises, that include, among other things, a mold condition that has resulted from water infiltration, structural cracks to the foundation and walls of the premises. According to plaintiff, such conditions endanger the health [of the] general public who enter the premises and thus, “pose a substantial danger of spoilage and deterioration to Tenant’s valuable inventory located in the premises.”

Consequently, according to plaintiff, it is relieved from paying the amounts allegedly due and owing to the landlord and is entitled to a rent abatement. Notwithstanding, plaintiff’s claim that the amount allegedly due is incorrect, plaintiff states that it is “ready, willing able to cure, if necessary.”

Landlord’s response:

The landlord states that the tenant’s claims of constructive eviction are completely baseless. Moreover, that Article 14 of the lease sets forth a very specific process the tenant was contractually obligated to utilize, in the event any condition existed that the landlord was responsible for repairing. Section 14.1 states in pertinent part as follows:

Tenant shall give to Landlord prompt notice of any damage to, or defective condition in, any part of the Structural Elements (a term defined in the lease), and the damage or defective condition shall be remedied by Landlord with reasonable diligence; provided, however, that if such damage or defective condition (other than any such damage with respect to which tenant is relieved from liability pursuant to SECTION 12.2) was caused by, or is attributable to, Tenant Changes or unreasonable or improper use of such system…

It is undisputed that the tenant made an attempt to take advantage of the notice provisions recited herein, but in fact sent the notice to the wrong address.

Summarized the applicable law:

First Nat. Stores, Inc. v. Yellowstone Shopping Ctr., Inc.…and its progeny established a four prong test for determining whether a “Yellowstone” injunction should be granted. The requirements for obtaining Yellowstone relief are as follows: (1) plaintiff holds a commercial lease, (2) the landlord has served a notice to cure, (3) the referenced cure period has not expired, and (4) plaintiff has to demonstrate an ability and willingness to “cure”[.]

A Yellowstone injunction 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 the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture of the lease…Additionally, the very nature of this kind of injunction is designed to “forestall the cancellation of a lease to afford the tenant an opportunity to obtain a judicial determination of its breach, the measures necessary to cure it, and those required to bring the tenant in future compliance with the terms of the lease[.]

Furthermore, “[t]he purpose of a notice to cure is to specifically apprise the tenant of claimed defaults in its obligations under the lease and of the forfeiture and termination of the lease if the claimed default is not cured within a set period of time[.]

Finally, to obtain Yellowstone relief a tenant need not show a likelihood of success on the merits…It can simply deny the alleged breach of its lease[.]

Concluding that:

In light of the foregoing, tenant has set forth a prima facie case for a Yellowstone injunction, and therefore, plaintiff’s motion is granted.

And stating, as to use and occupancy, that:

A court has broad discretion in awarding use and occupancy…Because discovery must be concluded to determine the credibility of the tenant’s allegations of constructive eviction, the landlord is awarded temporary rent/use and occupancy pendente lite, without prejudice, in the amount recited in the lease for rent and additional rent, for the year 2016.

Although the court may look to the amount of rent paid under a prior lease between the parties in setting use and occupancy…prior rent is only probative, not dispositive, on the issue[.]

Nevertheless, to the extent that plaintiff is ultimately successful at trial, it may be provided with a refund or rent credit…Moreover, a landlord may be entitled to an award of use and occupancy based upon that fair market rental value of the leased premises…Consequently, the landlord’s cross-motion is also granted, in part.

The Court granted plaintiff’s motion for a Yellowstone injunction and directed plaintiff to pay past due rent in the amount of $1,155,000, without prejudice, within 45 days (subject to a credit if it is the prevailing party at trial).

New York City Constr., Inc. v. Morgenstern Bros. Realty Inc., 2016 NY  Slip Op 50776(U)  (Sup. Ct. K. Co. May 11, 2016)

The Court, addressing a motion for Yellowstone relief, summarized the background:

Plaintiff (“Tenant”), a commercial leaseholder, brought this action by Order to Show Cause (OSC) on March 6, 2015, seeking [Yellowstone] injunctive relief…Defendant (“Landlord” or “Owner”), the title-holder of the disputed property located at 281(a/k/a 281-285) North 7 Street in the Williamsburg section of Brooklyn (the “Premises” or “Property”), served plaintiff with a Notice to Cure (“NTC”) on February 24, 2015, in which it alleged certain enumerated defaults under the terms of the lease agreement, including, inter alia, failure to maintain the premises in good repair and the conversion of the premises from commercial to residential use without first obtaining a certificate of occupancy for such use, resulting in applications by Tenant’s own tenants (“Occupants”) for coverage under the Loft Law. Plaintiff was granted a Temporary Restraining Order (TRO) by Justice David Schmidt (now retired) staying the termination of the Leasehold and commencement of a summary proceeding pending the hearing of the OSC.

The operative facts:

Defendant is the legal owner of the Premises, having taken title by deed dated March 7, 1997. The Property was covered by a commercial certificate of occupancy at the time of defendant’s acquisition thereof and had been previously used by the family of the principals of defendant as a warehouse for the storage of groceries in their business, Morgenstern Bros. Wholesale Grocers, Inc. Plaintiff’s president, Paul Joffe (Joffe), assumed possession of the Premises from defendant, pursuant to a forty-year net net net “Agreement of Lease” (the “Lease”) on May 1, 1997. The Lease provided for annual rent of $100,000 for the first ten years of the lease term, and incremental increases of $10,000 every ten years thereafter until the termination date of April 30, 2037. By separate agreement titled “Assignment and Assumption of Lease,” Joffe transferred his “right, title and interest” in the leased Premises to plaintiff on June 18, 1997, (“Assignment”).

Pursuant to the terms of the Lease, Tenant agreed to “use and occupy the building for that use permitted by the Certificate of Occupancy for the building,” and further agreed “not to commit any act or thing which shall violate the Certificate of Occupancy”…The Lease further provided (at ¶4(b)):

Tenant will be allowed to amend the current Certificate of Occupancy so as to obtain a final Certificate of Occupancy for a commercial use building. Tenant will be responsible to file for, and obtain, all zoning and variance changes that may be needed to obtain a final commercial Certificate of Occupancy. Landlord agrees to cooperate in such filing and to execute such documents as are required provided the same do not subject the Landlord to personal liability.

Pursuant to the Lease, Tenant agreed “promptly to comply with any and all laws ordinances or orders of all municipal, State and Federal authorities, bureaus, commissions and other governmental agencies with respect to the demised premises” and “at its own cost and expense, [to] promptly comply with any such orders or ordinances involving the alterations or additions to the demised premises”…The Lease provided for a ten day period in which Tenant could begin to cure any alleged defaults, the expiration of which would trigger Landlord’s right to serve a written notice of cancellation of the lease[.]

On December 3, 1997, Peachy Construction filed an application with the DOB on behalf of Owner, Morgenstern Bros Realty, Inc., to convert the building from commercial use to mixed commercial and residential use. That application was disapproved on December 31, 1997, and was ultimately withdrawn on December 31, 2011. According to the Affidavit of defendant’s principal, Carol Morgenstern (Morgenstern), because the Lease would have “prohibited” the conversion to residential use, on June 8, 1999, the Landlord and Tenant executed a “Second Modification of Lease” in which, inter alia, paragraph 4(b) of the Lease was amended such that the reference to a Certificate of Occupancy for a “commercial” use building would “include a residential apartment building”…The modification does not restrict or define such “residential apartment building” in any manner.

Defendant, through its principal Morgenstern, states that in the spring of 2014, it learned that the Tenant’s subtenants at the Premises had filed for coverage under the New York State Loft Law on the grounds that “they had been using various portions of the Property for residential purposes despite the lack of a residential Certificate of Occupancy.”…On February 13, 2015, the Occupants of seven units at the Premises moved for summary judgment before Administrative Law Judge Ingrid Addison…seeking a finding of coverage under the Loft Law…Affidavits and supporting documentary proof of occupancy from the building’s residents from 2008 to the present, and a printout from the DOB indicating that no residential certificate of occupancy was on file for the Premises, were submitted in support of the Occupants’ motion…As noted, by Memorandum Decision dated May 1, 2015…that motion was denied and a hearing was subsequently held. The decision of the Administrative Law Judge is pending.

The notice to cure:

Defendant served plaintiff with its NTC on February 25, 2015, alleging various defaults in failing to maintain the Property, as well as the failure to legally convert the building to residential use prior to permitting such occupancy, in violation of the terms of the Lease, citing paragraph 26 of the Lease providing for a ten day window to cure. Plaintiff filed its summons and complaint in the instant action, dated March 3, 2015, seeking a declaration as to the rights of the parties. On March 6, 2015, Justice Schmidt entered the OSC containing the TRO staying termination of the Lease and prosecution of any proceeding based upon the NTC and tolling plaintiff’s time to cure. Defendant opposed the granting of a Yellowstone injunction claiming that “Tenant’s undisputed failure to timely, properly and legally convert the subject premises from commercial use to residential use before subletting it for such use, with one of the results being that the building is subject to rent regulation, instead of being free market rentals” is incurable. Defendant contends that subjecting the Property to rent regulation under the Loft Law so diminishes the value of “Owner’s residual estate” that the breach of the Lease cannot be cured. The Court has taken substantial testimony regarding the issues raised in the NTC and, while the hearing has never been concluded, upon the agreement of the parties, all alleged defaults have been resolved except the status of the Premises as an Interim Multiple Dwelling covered under the Loft Law, and the curability of Tenant’s failure to obtain a residential certificate of occupancy.

The governing law:

The purpose of the Yellowstone injunction…is to preserve the status quo such 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.”…In order to obtain a Yellowstone injunction, the moving party must show the Court 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.”…Plaintiff has met the first three of these requirements. The remaining dispute is whether plaintiff maintains the ability to cure the alleged default with respect to the modification of the certificate of occupancy. Defendant argues that plaintiff’s failure to legally convert the Premises from commercial to residential use before permitting the Occupants to reside in the Premises is incapable of being cured given that the Occupants’ application for coverage under the Multiple Dwelling Law, now pending before the Loft Board, will indelibly subject the Premises to rent regulation, thereby creating a degree of financial and legal exposure on the part of the Owner that cannot be undone. Plaintiff, on the other hand, contends that it is entitled to a Yellowstone injunction as it is now taking the appropriate steps to obtain a residential certificate of occupancy, thus curing the alleged default.

Concluding that:

The Occupants’ leases…indicate that the units were all leased as “Art Studio” or “Dance Studio” or for other commercial purpose, beginning in July, 1997, shortly before the filing of the application to convert the certificate of occupancy from commercial to mixed commercial and residential use, apparently with Owner’s consent. Many of the leases contain an express prohibition against living or sleeping in the premises. The earliest leases provide for a delay in occupancy in order for plaintiff Tenant to complete construction of renovations. It appears from the application for a change in the certificate of occupancy that the building had never been occupied for a purpose other than commercial use and that the proposed change would effect an upgrade in use consistent with the purpose of exempting such properties from rent stabilization…” Because the purpose of the exemption from rent stabilization based on the substantial rehabilitation of a building is to encourage landlords to renovate buildings and add new residential units to the housing stock…the conversion of a purely commercial space into an almost purely residential space, …is a substantial rehabilitation so as to exempt the building from rent stabilization”…While Occupants’ eligibility for coverage under rent regulations will depend on the facts of the case…which presumably are the subject of the hearing before the Loft Board, there appears to be a possibility that Owner’s premise, that these Occupants and their units will become subject to rent regulation, thereby depriving Owner of value, may be a false premise and the building may be exempt from such regulation. At the very least, a question of fact is raised that cannot, and should not, be determined upon this motion for a Yellowstone injunction.

As Landlord appears to acknowledge…such illegal tenancies as exist at present can be made legal…and the occupancy of a leased premises in violation of the certificate of occupancy is not, therefore, per se, incurable…Landlord relies on Lease paragraphs 15, 24(a) and 4, as amended by the Second Modification, to argue, however, that the permitted modification of the certificate of occupancy to include residential use was required to be effected before such occupancy occurred. Paragraph 15 generally provides that Tenant will comply with all laws applicable to physical maintenance of the Premises, but does not specifically address a certificate of occupancy or mention the intended use and occupancy of the building. Paragraph 4(a), however, expressly states:

Tenant shall use and occupy the building for that use permitted by the Certificate of Occupancy for the building, and Tenant agrees not to commit any act or thing which shall violate the Certificate of Occupancy.

There is no question that the Occupants’ use of their units for residential purposes, while in violation of their own leases, also constitutes a violation of MDL §301 and thus, concomitantly, created a default in Tenant’s obligations under the Lease. Such default is clearly curable, however. As noted above, paragraph 4(b), as modified, authorized Tenant to amend the certificate of occupancy to allow for residential use and it is apparent that Tenant’s alteration of the Premises to permit legal residential occupancy was intended by the parties. Contrary to Landlord’s claim that it will suffer permanent loss of value because Interim Multiple Dwelling designation will deprive it of economic value in contravention of its right to have a free-market, unregulated residential building at the end of the Lease term, there is no such provision limiting the character of the residential property in the Lease.

Landlord also contends that paragraph 24(a) of the Lease requires that amendment of the certificate of occupancy precede any residential occupancy. Paragraph 24(a) provides:

This lease may not be assigned without the written consent of the Landlord. The Landlord agrees to not unreasonably withhold its consent to said Assignment. In the event Tenant completes its alterations and renovations to the building and obtains a commercial Certificate of Occupancy, Tenant may sublet portions of the building to various subtenants without the prior consent of the Landlord.

With the admonition that:

While this provision speaks to the need to obtain Landlord consent to subletting prior to completion of alterations and renovations and permits subletting without consent after the completion of such renovations, it does not require an amendment to the certificate of occupancy before subletting may take place. In fact, an application for such amendment, though disapproved, was pending at the time such residential occupancy commenced and was not withdrawn until 2011, for reasons not disclosed to the Court. Whether the illegal occupancy in violation of the certificate of occupancy was known to Landlord, or to Tenant, throughout the several years it allegedly continued, or was even commenced with Landlord’s consent, raises questions of fact that cannot be properly resolved upon this application for Yellowstone relief[.]

While it is true that an incurable breach of the Lease will preclude the granting of a Yellowstone injunction…and it is Tenant’s obligation to demonstrate that it is capable of curing the alleged breach without removing itself from the premises…Yellowstone injunctions have been routinely granted where there is even a minimal demonstration of efforts to cure and the willingness to do so. “The threat of termination of the lease and forfeiture, standing alone, has been sufficient to permit maintenance of the status quo by injunction”[.]

Multiple Dwelling Law §282 confers upon the Loft Board authority to determine IMD coverage and related statutory coverage such as rent stabilization, claims for rent adjustment, compliance with minimum housing maintenance standards and other related controversies. There is currently pending before that Board, Occupants’ application for IMD status. It has been the pendency of that application that has caused the Court to defer decision on the request for Yellowstone relief since it is entirely possible that such status may be denied, potentially rendering moot the Owner’s claim that rent regulation will diminish the value of the Property…Moreover, as there remain 21 years on the Lease term, the probability that the present Occupants will remain in possession throughout the remaining term is slight. It is noted that rent stabilization coverage under the Loft Law can be extinguished in a number of ways, including abandonment, sale of the tenant’s fixtures at fair market value, purchase of tenant’s rights by landlord or proof of hardship…Under these circumstances, the Owner’s claim is speculative. It is probable that the alleged breach in failing to amend the certificate of occupancy in advance of Occupants’ residential occupancy will be cured within the Lease term, without any resulting loss of value to Owner. In any event, the Lease does not guaranty that the Premises, upon conversion to residential occupancy, will not be subject to rent regulation.

Tenant has taken steps both to obtain the necessary amendment to the certificate of occupancy to permit residential use and to cure any physical deficiencies in the habitability of the building for residential purposes. Evidence at the hearing clearly supports a finding that Tenant is seeking to cure the physical and structural defects in building maintenance that were cited in Owner’s NTC, including insufficiencies in the sprinkler system. Given the pendency of the administrative proceedings, which will determine some of the factual questions regarding Occupants’ status under the Loft Law, it would be error to fail to grant the requested Yellowstone injunction pending the determination of the Loft Board…Accordingly, plaintiff Tenant’s motion for a Yellowstone injunction is granted, staying the termination of its lease and affording it a reasonable period to complete a cure, which is not within its control as both the Loft Board and the DOB must act before a cure can be accomplished.

And concluding with respect to an undertaking that:

However, upon granting the requested relief, it is necessary that the Court direct the filing of an undertaking sufficient to secure any losses the defendant may incur as a result of the stay…Defendant Landlord has suggested that a bond in the sum of $250,000 would be appropriate, citing Tenant’s liability for legal fees it has incurred both with respect to the instant litigation and before the Loft Board, as well as any costs to be incurred in converting the Property to residential use. The Court agrees that this is an appropriate sum. Accordingly, in addition to continuing to promptly pay rent and additional rent, if any, Tenant shall post a bond with the Clerk of the Court in the sum of $250,000 on or before June 1, 2016[.]

Front St. Rest. Corp. v. 27 Old Fulton St. LLC, 2016 NY  Slip Op 30817(U)  (Sup. Ct. K. Co. April 13, 2016)

Supreme Court, addressing a motion for Yellowstone relief, summarized the prior proceedings:

On November 20, 2015, 27OFS served plaintiff with a ten-day notice of default upon plaintiff for “failure to pay rent and additional rent.” The notice, dated November 17, 2015, stated that should plaintiff fail to pay the amounts set forth therein by December 10, 2015, an “event of default” shall occur and 27OFS will pursue its rights under the lease including the issuance of a notice of termination. Upon the alleged failure of plaintiff to comply with the ten-day notice of default, 27OFS served plaintiff with a five-day notice of termination, dated December 11, 2015, stating that the lease shall terminate on December 31, 2015.

*     *     *

Plaintiff commenced this proceeding seeking injunctive relief and damages for conversion, breach of contract, interference with business relations and harassment. On July 1, 2008, plaintiff and 27OFS entered into a ten-year commercial lease for the premises located at 1 Front Street in Brooklyn. 27OFS served upon plaintiff a thirty-day notice to cure, dated June 10, 2015, stating that plaintiff violated the lease by assigning, subletting or permitting others to use the premises without the written consent of 27OFS, creating safety violations and making unauthorized alterations to the premises. The notice provided that the defaults must be cured by July 31, 2015, or the lease will be terminated. 27OFS served a separate notice to cure on plaintiff, dated June 30, 2015, wherein 27OFS states that plaintiff violated the lease by failing to maintain sprinkler repair service and by failing to maintain workers’ compensation insurance. The June 30, 2015, notice to cure directed plaintiff to cure the defaults by July 31, 2015, or the lease will be terminated. By extension agreement dated July 29, 2015, 27OFS agreed to extend the cure periods in both notices to August 3, 2015. On said extended cure date, plaintiff presented an ex parte order to show cause and temporary restraining order (TRO), to Justice Kenneth P. Sherman, who granted the TRO enjoining 27OFS from terminating the lease or commencing any summary proceedings until the hearing and determination of the order to show cause.

On August 7, 2015, the return date of plaintiff’s order to show cause, this court extended the TRO through August 14, 2015, “subject to” plaintiff’s delivery of $10,000.00 to 27OFS’s attorney by 5:00 PM on August 10, 2015. On August 14, 2015, this court issued an order vacating the TRO based on plaintiff’s failure to comply with the August 7, 2015 order. In the meantime, on August 12, 2015, a five-day notice of termination was served on plaintiff by 27OFS based on plaintiff’s failure to comply with the cure requirements in the notices to cure. The notice of termination states that the lease shall terminate on August 19, 2015. On August 17, 2015, plaintiff filed a second order to show cause wherein it sought, essentially, vacatur of the August 7, 2015, and August 14, 2015, orders and a Yellowstone injunction enjoining 27OFS from terminating the lease and commencing summary proceedings. On September 11, 2015, this court issued an order granting plaintiff’s motion to vacate the August 7, 2015, and August 14, 2015, and “reinstating” the TRO issued on August 3, 2015. By order dated November 19, 2015, this court granted plaintiff a Yellowstone injunction and enjoined 27OFS from “terminating the lease pursuant to the notices to cure” pending the resolution of this action.

Summarized the applicable law:

“A Yellowstone injunction 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 the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture”…”To obtain a Yellowstone injunction, the tenant 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 both the termination of the lease and the expiration of the cure period set forth in the lease and the landlord’s notice to cure, and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises”…”Since courts cannot reinstate a lease after the lapse of time specified to cure a default…, an application for Yellowstone relief must be made not only before the termination of the subject lease — whether that termination occurs as a result of the expiration of the term of the lease, or is effectuated by virtue of the landlord’s proper and valid service of a notice of termination upon the tenant after the expiration of the cure period — but must also be made prior to the expiration of the cure period set forth in the lease and the landlord’s notice to cure”[.]

Concluding that:

A rent nonpayment proceeding is separate from a holdover summary proceeding and carries its own distinct cure provisions, thus obviating the need for Yellowstone relief …Where the landlord serves the tenant who has not paid rent with a notice of default or notice to cure, the tenant may obtain a Yellowstone injunction[.]

The November 17, 2015, notice served by 27OFS is not a simple demand for rent but a notice of default and/or notice to cure containing a threat of termination of the lease. Therefore, plaintiff may seek a Yellowstone injunction in this instance. The December 30, 2015, order to show cause was brought following the expiration of the cure period specified in the November 17, 2015, notice and following the service of the notice of termination. However, the court finds the November 17, 2015 notice to cure is deficient in that it did not provide sufficient detail, i.e. specific paragraphs in the lease with which plaintiff had allegedly failed to comply, to alert plaintiff of its alleged defaults…Specifically, no lease provisions or other detail is provided which spells out plaintiff’s obligation to pay the sum allegedly due to “MGNY Consulting Corp.,” the three separate unspecified charges for legal fees in the amounts $9,122.12, $7,560.00 and $10,396.64 or the additional “attorneys’ fees for Brian Kennedy, Esq.” in the amount of $7,489.00. Insofar as the notice to cure is insufficient to appraise plaintiff as to the contractual basis for these charges, this court finds that plaintiff’s application for a Yellowstone injunction was timely made[.]

Lesson learned:

Receipt of a “notice to cure” under a commercial lease — where the alleged “default” is contested and curable — triggers the right to, and need for, Yellowstone relief.