Three Ways to Keep Yellowstone Injunctions from Derailing Your Eviction Actions

In many states, tenants who are in default of their lease can avoid immediate eviction by getting a court to issue an order granting them a temporary reprieve to cure the problem. These orders, called “Yellowstone Injunctions” in New York, are supposed to be a last resort measure that courts issue in the interest of fairness so that tenants who are ready, willing, and able to cure their violations can rescue their tenancy. But they’re also what New York real estate attorney Adam Leitman Bailey describes as “one of the most paralyzing tenant weapons that the judiciary has ever created.” The good news is that drafting the right lease provisions can enable you to take some of the sting out of the Yellowstone Injunction. Here’s how.

Four Things You Must Know About Yellowstone Injunctions

Landlords need to be conscious of the potential for a Yellowstone Injunction and factor it into the equation when seeking to evict tenants for material lease defaults. Four key things to keep in mind:

1. The Yellowstone Injunction postpones but doesn’t defeat eviction. A Yellowstone Injunction proceeding isn’t a ruling on the merits of an eviction action, only on its timing. If the injunction is granted, the court freezes or extends the running of the lease cure period, essentially giving the tenant more time without being evicted immediately. But once the injunction expires, the tenant still has to defeat the landlord’s eviction case in court. The problem is that this can take years. And while the litigation is pending, the injunction acts as a shield empowering the tenant to continue violating the lease—or commit new violations.

2. It’s hard for tenants to get a Yellowstone Injunction. To get a court to issue a Yellowstone Injunction, tenants must prove four things:

• They have a valid commercial leasehold;
• They received a notice of default from the landlord;
• They applied for the Yellowstone Injunction before the cure period expired and the lease terminated; and
•  They have the desire and capability to cure the alleged default by any means short of vacating the alleged default.

3. Failure to maintain insurance is a Yellowstone non-starter. More often than not, Yellowstone cases turn on the fourth prong—whether the default is curable. While each case is different, courts consistently hold that a Yellowstone Injunction isn’t available when the default is a tenant’s failure to carry and maintain the insurance the lease requires. Specifically, there are two things courts won’t let tenants get away with:   

• Getting an insurance policy that doesn’t provide the protection the lease language stipulates—there’s no such thing as a “good enough” substitute; and
• Getting extra time after the eviction notice to get the required insurance it didn’t obtain before the notice was issued.  

4. Tenants may still be able to cure after the lease cure period. In determining if defaults are curable, the key factors are fairness and likelihood rather than timing. In other words, courts may grant tenants extra time to address the problem and not hold them to the timetable set by the landlord or lease. Thus, for example, a New York landlord recently claimed that not paying the real estate taxes required by the lease in a timely manner was just as incurable as not carrying the required insurance. But the court rejected the argument and granted the tenant a Yellowstone Injunction.

Failure to maintain insurance leaves the landlord with no protection “against the unknown universe of any claims arising during the period of no insurance coverage,” the court reasoned. By contrast, even though the due date for paying taxes had passed, the tenant might still be able to go back and pay late without any harm accruing to the landlord. In other words, the tenant’s claim that the default was curable was legally viable and the tenant deserved the chance to prove it at trial [Fusulag Corp. v Bock Realty Corp., 2019 N.Y. Misc. LEXIS 6403, 2019 NY Slip Op 33549(U)].

Three Ways to Protect Yourself Against Yellowstone Injunctions

There are three lease strategies you can use to manage the risks of Yellowstone Injunctions. You can adapt our Model Lease Clause: Set Limits on Tenant’s Resort to Yellowstone Injunction, to put them into action.

Strategy 1: Eliminate cure period. The most effective strategy is to ensure that the lease provides for no cure period. This takes the threat of a Yellowstone Injunction out of play because there’s no cure period for the court to freeze or extend. While this might seem unduly harsh, courts have upheld the parties’ right to not have a cure period in the lease. For example, a New York court rejected a tenant’s claim that the absence of a cure period was unconscionable. Although the provision took away the tenant’s Yellowstone rights, “it was part of the fully negotiated contract . . . and not contrary to public policy to enforce” [New Eagle, Inc. v. H.R. Neumann Associates, Inc., 4 Misc. 3d 1005(A), 791 N.Y.S.2d 871 (2004).].

Strategy 2: Get tenant to waive Yellowstone rights. In the likely event that tenants are unwilling to accept a no-cure-period clause, include a waiver clause indicating the tenant’s agreement not to seek a Yellowstone Injunction after receiving a default notice from the landlord [Clause, Sec. 1].

Strategy 3: Set limits on Yellowstone actions. While less harsh than omission of a cure period, a waiver of Yellowstone rights may still be objectionable to the tenant. And even if the tenant does accept it, there’s a risk a court won’t enforce it, Bailey warns. Courts hate unnecessary forfeitures of lease interests and may find a way around the clause by inserting what’s called an “equitable” cure period into the lease in the interest of fairness.

That’s why Bailey recommends including backup language imposing time limits and “other handcuffs” on tenant Yellowstone rights in case the waiver is unenforceable (or where a tenant won’t accept the waiver at all) and an injunction is sought, including:

• The tenant’s agreement to place a substantial bond if a Yellowstone Injunction is granted [Clause, Sec. 2(b)];
• The tenant’s promise to meet its rent and other payment obligations after an injunction is granted and while the case is pending [Clause, Sec. 2(a) and (e)];
• The parties’ promise to cooperate to get the proceedings put on an expedited court schedule for purposes of securing an early pretrial hearing [Clause, Sec. 2(c)]; and
• Mutual agreement to limit the scope of discovery in the resulting litigation—for example, to no more than three depositions per side [Clause, Sec. 2(d)].