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Adam Leitman Bailey, P.C. Recovers Substantial Rental Arrears From A Commercial Tenant Which Violated The Payment Condition Of A Yellowstone Injunction

It seems like an unremarkable principle: a commercial tenant, which is in breach of its lease and has been served with a Notice to Cure, cannot then sue its landlord, and stop paying rent during the pendency of the action. This is especially true when the tenant seeks and receives a Yellowstone Injunction which tolls the running of the Notice to Cure and thwarts the landlord from terminating the tenancy. However, a sympathetic judge believed otherwise until Adam Leitman Bailey, P.C. appealed his ruling to the Appellate Division, First Department.

The tenant had received the benefits of a Yellowstone Injunction, which had been granted without conditions, for three years. Consequently, the firm moved to vacate the injunction or to modify it to condition its continuation upon the immediate payment of all rental arrears and rent going forward.

Initially, notwithstanding the tenant’s vociferous objections, the court agreed with the firm’s arguments and modified the injunction and directed that arrears be paid and that future rent be paid as it accrued. The tenant did not comply. The firm then brought a second motion seeking a money judgment and other relief. In response, the tenant indicated that it was going to surrender and consented to the vacatur of the injunction. However, it claimed that a money judgment could not be entered because it allegedly had valid defenses to the landlord’s rent claims. The court, employing sympathy, rather than the law, agreed with the tenant and denied the landlord’s motion.

On appeal, the Appellate Division soundly reversed the trial court and granted the landlord’s motion for substantial rental arrears. To achieve this result, the firm set forth a detailed history of how the courts have consistently found that the advent of litigation provides no basis to stop paying rent. We also demonstrated that this rule applied with particular force when a Yellowstone Injunction was in place. Further, we showed that there was no valid excuse to avoid payment as the lease had a “no set-off” clause. Finally, we showed that in a commercial tenancy, the landlord and tenant have independent covenants so that an allegation that the landlord has breached an obligation under the lease did not excuse the tenant from complying with its payment obligations.

As a result of the firm’s efforts, the landlord not only recovered possession but obtained substantial arrears as well.

Jeffrey R. Metz represented the landlord before the Appellate Division.  Vladimir Mironenko represented the landlord in the Supreme Court.

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