In a monumental May, 2019 decision, the New York State Court of Appeals in 159 MP Corp. v. Redbridge Bedford, LLC affirmed the lower court holding that a commercial lease provision which waives the right to commence a declaratory judgment action as to the terms of the lease or any notice sent under the lease is valid and enforceable.
The lease provided: “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 provisions of this Lease….[I]t is the intention of the parties hereto that their disputes be adjudicated via summary proceedings.” After the tenant was served with a default notice and commenced an action seeking Yellowstone injunctive and declaratory relief, the Supreme Court granted the landlord’s motion to dismiss [affirmed by the Appellate Division] holding that there is a strong public policy supporting freedom of contract and, therefore, parties are free to waive a range of rights “observing parties here are ‘sophisticated entities that negotiated at arm’s length’ and entered contracts that defined their obligations ‘with great apparent care and specificity.’”
The Court of Appeals noted that while there may be some public policy limits that the Legislature has identified as being so important that they are non-waivable [by statute, constitution or are illegal] this “does not violate the type of public policy interest that would outweigh the strong public policy in favor of freedom of contract”.
What this means for owners and commercial tenants is that with this language, owners are no longer dragged into Supreme Court for what has become a rubber-stamp granting of a Yellowstone injunction and the resulting protracted and expensive litigation after which the tenant would still have a right to cure. Now, the issues will be resolved relatively quickly in a Civil Court summary proceeding, and should the owner prevail and establish the lease defaults that were not cured within the timeframe set forth in the lease, the tenant will have no right to cure, and no right to have the terminated lease revived, and the owner will recover possession.
However, the Court of Appeals noted that while the Legislature has made certain rights non-waivable in the context of landlord-tenant law (e.g., waiver of personal injury damages (GOL§5-321), warranty of habitability (RPL §235-b)), it has not done so for interim Yellowstone relief. Given the recent anti-landlord changes made by the City Council, proposed anti-landlord changes to the rent regulatory laws, and progressive efforts for commercial rent control, it would not be surprising to see this issue addressed by the Legislature in the near future.
Whether it is drafting a commercial lease or litigating a commercial tenant’s default or breach, the attorneys at BBWG are here to help.
Jeffrey L. Goldman, Esq.
Litigation Department Head and Co-Managing Partner