Key Decision Changes the Commercial Lease Negotiation Landscape

The issue decided by the Appellate Division Second Department in (150 MP Corp. v. Redbridge Bedford, 2018 N.Y. Slip Op. 00537, 2d Dept. Jan. 31, 2018) was whether a waiver of the right to declaratory judgment relief in a Commercial Lease was enforceable.

The Landlord in the case gave notice to the Tenant to cure certain defaults regarding obtaining permits, removing fire hazards, nuisances and noises within 15 days, or the Landlord would, pursuant to provisions in the Lease, terminate the lease. The Tenant sought declaratory relief to toll the expiration of the cure period, stop further action by the Landlord and litigate the validity of Landlords alleged defaults. Such relief is known as a “Yellowstone Injunction” (First Natl. Stores v. Yellowstone Shopping Ctr. 21 N.Y.2d 630 (1968). The Landlord responded that the Tenant waived its rights to request declaratory relief by signing the lease which contained a waiver of the right to declaratory relief.

The question for the Court was, is the waiver in the Lease overridden by public policy that abhors  forfeitures of commercial tenancies without the defendant having the opportunity to litigate the merits of the Landlord’s claimed defaults. The Court found that the waiver was valid barring Tenant from pursuing Yellowstone or declaratory relief.

The Court reasoned that “to hold that the waiver of declaratory judgment remedies in contractual leases between sophisticated parties is unenforceable as a matter of public policy does violence to the notion that the parties are free to negotiate and fashion their contracts with terms to which they freely and voluntarily bind themselves.”

Unless the Defendant appeals this decision to the New York Court of Appeals, the judgment in Redbridge is the law in Kings, Queens, Richmond, Nassau, Suffolk and Westchester Counties. Whether, the 1st, 3rd and 4th Departments will follow the lead of the 2nd Department remains to be seen.

Landlords will probably demand Yellowstone waivers in commercial leases in New York State. Tenants will need to understand the serious consequences such waivers portend.

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