NY High Court Voids Commercial Tenant’s Traditional Safety Net – Here’s How Landlords Can Take Advantage of This Ruling

Commercial tenants in New York have traditionally been able to secure a stay of summary dispossess proceedings brought against them and remain in occupancy pending the outcome of tenant-commenced litigation challenging the existence of a landlord-alleged default. Thanks to a recent landmark decision by New York’s highest court, this may no longer be the case if the lease contains the waiver language set forth below.

When a landlord provides notice of an alleged default, tenants often seek a declaratory judgment as to the interpretation of the lease and whether a default exists, and also move for a Yellowstone injunction to toll any summary proceeding until the declaratory judgment action is completed. This effectively stays the summary dispossess proceedings.

In 159 MP Corp., et al. v. Redbridge Bedford, LLC, the State of New York Court of Appeals addressed the enforceability of a commercial lease provision that prohibited the tenant from commencing a declaratory judgment action against the landlord with respect to any dispute regarding the lease. The Court rejected the tenant’s argument that the clause was void against public policy, finding the clause enforceable, based in large part on the sophistication of the parties and the “strong public policy favoring freedom to contract.” The Court also determined that, based on the enforceable lease waiver prohibiting the declaratory judgment action, the tenant’s request for a Yellowstone injunction also would be denied.

This means a tenant, provided that its lease contains this waiver language, can no longer forestall a summary proceeding by seeking a declaratory judgment action. Instead, tenants may raise any substantive defenses in the summary dispossess proceeding. This should save landlords considerable time and money, as landlords will not have to address the declaratory judgment action first. The dissent forewarns that landlords will likely be amending their leases to include this waiver, eliminating from a tenant’s arsenal a judicially-created remedy that has been available for more than fifty years. Undoubtedly, this is the case.

The waiver clause adjudicated in the case included the following provision, elegant in its simplicity:

Tenant waives its right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the terms of this Lease . . . [I]t is the intention of the parties hereto that their dispute be adjudicated via summary proceedings.

New York landlords should strongly consider revising the remedial sections of their lease forms to include the same or similar language and to include an express waiver of the right to seek a Yellowstone injunction as well. Tenants, conversely, should expect that landlords will attempt to include such a waiver and do their best to knock any such provisions out of their leases.

Shepard A. Federgreen, A Director in the Gibbons Real Property Department, and Brendan J. Kelly, an Associate in the Gibbons Real Property Department, authored this post.
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