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Posted: April 21, 2016

Client Q&A: My Business Just Got A Notice Saying That The Landlord Will Terminate Its Lease!

Help! My Business Just Got A Notice Saying That The Landlord Will Terminate Its Lease!

By Niall D. O’Murchadha

Conflict with a landlord is a common problem faced by businesses both large and small. The standard New York commercial lease follows this pattern: (1) if the landlord claims that the tenant has breached the lease, either by failing to pay rent or by other means, he can send a “notice to cure” or a “notice of default;” (2) the notice will say, in effect, that if the alleged breach is not cured within a short time (usually ranging between 7 and 30 days), the lease will terminate automatically; (3) if the problem is not fixed within the set time, the lease terminates; and (4) the landlord can then file an action in Civil Court to have the tenant evicted.

The Duty to Cure.

The most important issue here is point (3); if the problem is not fixed within the allotted time, the lease terminates automatically, and any subsequent attempts to cure cannot restore it. This means that, if you get a “notice to cure” or some similar document from your landlord, time is of the essence. If you don’t take legal action before the allotted time runs out, it may be too late.

The automatic termination rules put you as a commercial tenant at a serious disadvantage, which can manifest in two ways. First, if you want to contest the alleged violation—if you want to argue that, say, the failure to repair the elevator, or to fix a leak is the landlord’s responsibility, not yours—you can do so in court, but by the time the case has been decided, the time to cure will inevitably have expired. This leaves you with a dilemma: either you can try to cure the violation, or you can deny that a violation ever took place, but not both. Second, many violations, like the aforementioned repair problems, or loss of necessary permits or insurance, can be cured, just not in the short time permitted by the lease. Getting the Department of Buildings to issue a new permit in 7 days (or even 30 days) is a tall order.

The Yellowstone Injunction.

Fortunately, the New York courts have recognized this problem and have created a mechanism to protect commercial tenants from losing their leases, known as the “Yellowstone injunction.” Named after the Court of Appeals case that first acknowledged the existence of a problem, the Yellowstone injunction allows a commercial tenant to go—run!—to Supreme Court and get an order extending the cure period until the entire dispute can be worked out in court. This allows the tenant to contest the existence of a violation and then, if the court rules the other way, to try to cure it later. Practically, applying for a Yellowstone injunction also gives tenants a great deal more time to cure any known violations, because they can work on a cure while the lawsuit is pending, which will inevitably last far longer than 7 to 30 days.

Yellowstone injunctions are much easier to get than just about any other kind of injunction—you only have to show that (1) you have a commercial lease; (2) you received a notice of default or termination, or a similar threat to terminate your lease; (3) the cure period has not expired; (4) you are willing and able to cure any alleged violation of the court rules against you.
As before, point (3) is the most important by far. The Yellowstone injunction only extends the time to cure, so if the time to cure has already run out, you are too late. Accordingly, if you get a notice to cure or a notice of default, time is still of the essence. You must take immediate legal action before the allotted time runs out.

There are other circumstances in which a Yellowstone injunction is not available, but those are more technical—they sometimes don’t apply in non-payment of rent cases, and sometimes, the violation is so severe that it could never be cured—and should be discussed with your lawyer. Your response to any notice of default or notice to cure a commercial lease should still be to consult a lawyer immediately.

Yellowstone Injunctions In Residential Cases.

Yellowstone injunctions are usually issued in commercial cases, but they can be gotten in residential cases as well. The New York Legislature passed a law granting residential tenants in New York City an automatic 10-day time to cure any violations of their lease even after they lose in court, so residential tenants can contest the existence of a violation in court and then try to cure it if they lose their lawsuit. However, if (1) you do not live in New York City, or (2) your alleged violation will take more than 10 days to cure (for example, if you’ve sublet your apartment, or have started running a business out of your apartment, or made unauthorized alterations, or will need more than 10 days to re-home your dogs) you can still apply for a Yellowstone injunction. But again—time is of the essence. You must apply for the injunction before your time to cure runs out.

Conclusion.

Schlam Stone & Dolan has a great deal of experience with getting Yellowstone injunctions (and with commercial real estate disputes in general) including success in complex, highly-contested cases where landlords have gone all-out to prevent a Yellowstone injunction from being issued. If you get a notice to cure or a notice of default, or a similar threat to terminate your lease, contact us immediately—your time to act will run out very quickly.

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