New York City Constr., Inc. v Morgenstern Bros. Realty Inc., Index No. 502527/2015, 5/11/16 (Demarest, J.)

Yellowstone Injunction; Certificate of Occupancy; Loft Law; Lease

By: Douglas Ma | Staff Writer

Plaintiff signed a forty-year commercial lease Defendant. The lease provided that Plaintiff would be responsible for converting the building from commercial use to mixed commercial and residential use. In addition, the lease provided a notice to cure provision of ten-days in which Plaintiff could cure any alleged defaults before the Defendant could declare a cancellation of the lease. Plaintiff leased the building to subtenants, who had been illegally living in the commercial building. Later, Defendant discovered that subtenants occupied its building illegally when they filed for coverage under the New York State Loft Law on the grounds that they had been using various portions of the building for residential purposes despite the lack of a residential certificate of occupancy. Subsequently, Defendant served Plaintiff with a ten-day notice to cure Plaintiff’s failure of obtaining a residential certificate of occupancy.

Plaintiff then commenced an action seeking a Yellowstone injunction to stay the termination of the lease and toll Plaintiff’s time to cure. In opposition, Defendant argued that Plaintiff’s failure to obtain a residential certificate of occupancy prior to permitting residential subtenants was incurable because said failure could have diminished the value of the building by being subject to rent regulation under Loft Law. Plaintiff, on the other hand, argued that it was able to cure its default by obtaining a residential certificate of occupancy from the Department of Buildings.

The Court held that Plaintiff proved the elements under the Yellowstone injunction and additionally could cure its default. The purpose of the Yellowstone injunction is to preserve the status quo such that a commercial tenant may protect its investment in the leasehold by tolling the period to cure defaults. In order to obtain a Yellowstone injunction, a moving party must satisfy four elements. First, a tenant must hold a commercial lease. Second, the landlord must provide a tenant notice of default, a notice to cure, or a threat of termination of the lease. Third, the tenant must request injunctive relief prior to the termination of the lease. Fourth, the tenant must demonstrate the ability to cure the alleged default without removing itself from the premises. Here, Plaintiff had a commercial lease. Pursuant to such lease, Defendant provided a notice to cure. As to the fourth element, Plaintiff demonstrated its ability to cure the default by showing that the lease explicitly authorized Plaintiff to amend the certificate of occupancy for residential useAdditionally, the Court acknowledged that there was no lease provision limiting the character of the residential property to be free of rent regulation and that subtenants’ pending application for coverage under the Loft Law could be denied by the Loft Board, thereby potentially rendering Defendant’s claim that Plaintiff’s default was incurable moot.

New York City Constr., Inc. v Morgenstern Bros. Realty Inc., Index No. 502527/2015, 5/11/16 (Demarest, J.).