Check Lease Before Requesting Declaratory Judgment

In some circumstances, a commercial tenant in a dispute with its landlord would ask a court for a declaratory judgment—that is, a judgment of a court which determines the rights of the parties without ordering anything to be done or awarding damages. But, before you go down that road, check your lease. If it contains a provision prohibiting you from seeking a declaratory judgment, you won’t be able to pursue that. Even worse, the provision might specify that if you do ask a court for a declaratory judgment, you’ll be in breach of the lease. That’s what happened to a tenant in a recent New York case. 

There, a landlord served a notice to cure on its tenant, claiming that the tenant had failed to have the space’s fire sprinklers inspected. A dispute as to responsibility for the sprinklers ensued between the landlord and tenant. The tenant asked a trial court to issue a Yellowstone injunction, which is an order in the state of New York that “tolls” the cure period so that the tenant can stay in its space while the dispute is settled. It also asked the trial court for a declaratory judgment regarding the sprinklers, stating that the tenant was not responsible and was not breaching its lease. A trial court ruled in the landlord’s favor. The tenant appealed.

A New York appeals court affirmed. The appeals court noted that the lease provided that the 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. Any breach of this paragraph shall constitute a breach of substantial obligations of the tenancy, and shall be grounds for the immediate termination of this Lease. It is further agreed that in the event injunctive relief is sought by Tenant and such relief shall be denied, the Owner shall be entitled to recover the costs of opposing such an application, or action, including its attorney’s fees actually incurred; it is the intention of the parties hereto that their disputes be adjudicated via summary proceedings.”

The appeals court said that the trial court did not err in ruling in the landlord’s favor and dismissing the tenant’s suit seeking a judgment declaring that it was not in breach of its obligations under commercial leases because the lease provision by which the tenant waived the right to declarative relief was enforceable. That was because: (1) the lease was negotiated “at arm’s length by commercial tenants” that were sophisticated parties that understood lease terms; and (2) the tenant waived its right to seek such relief in the lease. Additionally, the court did not err in denying the tenant’s motion for a Yellowstone injunction because such a preemptive action to have the court determine that the lease had not been breached was “in the nature of declaratory judgment” [159 MP Corp. v. Redbridge Bedford, LLC, January 2018].