Don’t Rely on Curing to Get Off Hook for Breach

Don’t Rely on Curing to Get Off Hook for Breach

While some tenants take compliance with their lease terms very seriously, there are others who feel that they can undo any damage from a failure to comply by simply “curing” the breach—that is, fixing those infractions during a specific period of time. But there are times when this isn’t an option. A New York case highlights why it’s not a good idea to rely on curing a breach, rather not breaching the lease in the first place.

In that case, a nonprofit art corporation leased space from the owner of a building that was connected with another property. The owner agreed that the tenant could make improvements after getting written consent. After the tenant had altered the structure of the building’s basement, the owner asserted that the tenant had made changes that weren’t permissible and that interfered with a tenant that leased space in the adjoining building, among other claims.

The owner sent the tenant a notice to cure—that is, a notice specifying what the owner said were actions that breached the lease and giving the tenant a certain amount of time to fix those infractions.

The tenant claimed that the changes weren’t in violation of the lease and that the owner’s building also wasn’t zoned properly for the use of its space as it had planned. The owner and tenant argued about the issue for an extended period of time, with the owner extending the cure period a number of times. Eventually, the owner asked a trial court for a ruling that the tenant had breached the lease and was subject to remedies in it. The tenant asked the trial court for a Yellowstone injunction—a remedy available only in New York State. It also asked for a ruling regarding the zoning issues.

A New York trial court ruled in the owner’s favor, denied the Yellowstone injunction, and dismissed the tenant’s claims. The trial court noted that the lease expressly provides that the tenant “shall make no changes in or at the demised premises of any nature without the owner’s prior written consent.” Further, “alterations by the tenant, as per plans, specifications, and applications approved by the department of buildings, if required, shall be subject to the written approval of the owner before the tenant’s filing its alterations application,” the trial court continued. The trial court said that the language in the lease contract was clear and unambiguous.

It also specified that the purpose of a Yellowstone injunction is to stop the running of the cure period and maintain the status quo while the underlying dispute is litigated. A party seeking Yellowstone relief must establish that: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises. However, the tenant must demonstrate that “a basis exists for believing that a tenant has the ability to cure through any means short of vacating the premises.”

In this case, said the trial court, the parties don’t dispute that the tenant is a commercial tenant, has received a notice of termination, and requested injunctive relief prior to the expiration of the time set forth in the notice and agreed upon extension. The issue for the court to determine is whether the tenant has the ability to cure through any means short of vacating the premises.

While the tenant contends that it has “made efforts and cured some of the purported breaches and is continuing to take various steps to remedy the other alleged defaults,” a review of the record indicates that at least three of the defaults under the lease are incurable due to the tenant’s failure to obtain prior written approval from the landlord pursuant to the lease, the court noted. It determined that, prior to filing its application, the tenant performed construction work in the space that deviated from the project plans previously submitted to the landlord. This deviation was determined after inspection by the landlord’s engineer. Plans that the landlord signed off on were altered, added, or deleted by the tenant without the landlord’s approval, and submitted to the department of buildings at the wrong time.

The tenant argued that it “need not at this juncture prove its ability to cure”; rather, it takes the position that it can (and did) cure some of the alleged defaults set out in the notice to cure and that it was in the process of substantially curing the others. But the trial court agreed with the owner that it wasn’t possible to cure the defaults. The tenant had made changes without the owner’s consent and hadn’t properly filed the necessary paperwork with the department of buildings in accordance with the lease. The tenant couldn’t “unring the bell” [Art Factory Corp. v. 740-748 Hicks Realty LLC, November 2017].