Morrison Cohen Makes New Law after Yellowstone Injunction Granted to Subtenant

October 1, 2020 - In a decision that could be the first of its kind, our attorneys persuaded the Supreme Court of the State of New York to grant a Yellowstone injunction under a hotly-contested issue: whether our client, a subtenant, could seek relief against a landlord threating to terminate the master tenant's lease.  

A Yellowstone injunction prevents a commercial landlord from terminating a lease and grants a tenant an opportunity to dispute the existence of a default and time to cure it without risking a loss of the premises.  

After a sizable battle, in which the court requested additional briefing, it became apparent that there was a near-complete lack of case law on the topic.  The landlord argued that a subtenant cannot seek relief under a Yellowstone injunction because the law does not require a landlord to accept a subtenant's performance of lease obligations.  Plaintiff's primary counters were twofold: 

(i)     that by addressing the notice of default to the subtenant, landlord was demanding the subtenant's performance of master lease obligations, which should give rise to Yellowstone rights; and

(ii)    that by consenting to the sublease through a master lease modification that imposed an indirect obligation on the subtenant -  to provide a personal guaranty running to landlord - landlord implicitly gave the subtenant the right to challenge a termination based in part upon a failure to provide that guaranty.

After hearing both sides, the court granted a Yellowstone injunction in favor of our client.  Moreover, the court continued its prior order permitting our client to suspend disputed rent payments to the landlord.

Our Real Estate Litigation team was led by Christopher Milito.  

The case is SMG Automotive Holdings and Zacahry Schwebel v. AAF Real Estate, LLC, Kings Automotive Holdings, LLC, Gary Flom and Veniamin Nilva, Case No. 510650/20, in the Supreme Court of the State of New York, County of Kings.

A copy of the decision can be accessed here.