New Legislation Bans Waivers of Declaratory Relief in Commercial Leases on Public Policy Grounds
Last summer, we discussed a decision by the Court of Appeals that upheld the use in commercial leases of waivers of declaratory relief. In response to that decision, the New York Legislature enacted Real Property Law Section 235-h, which now voids waivers of declaratory relief in commercial leases as against public policy.
The Court of Appeals’ decision, 159 MP Corp. v. Redbridge Bedford, LLC, 33 N.Y.3d 353 (2019), involved a waiver clause in two commercial leases which barred the tenants from seeking declaratory relief in response to the landlord’s notice of default and which stated that the parties’ intent was that disputes would be adjudicated in summary proceedings in the Civil Court, not in the Supreme Court. The tenants nevertheless brought suit for declaratory relief and a temporary injunction, known as a Yellowstone injunction, seeking to maintain the status quo during the course of the litigation and arguing that the waiver clause was against public policy. In a 4-3 decision, the Court of Appeals affirmed the lower courts’ rulings that the waiver clause was enforceable and not against public policy, even if that ruling had the effect of eliminating not only the declaratory action, but also the availability of a Yellowstone injunction based on the declaratory action (such injunctive relief would be unavailable in the Civil Court).
Thereafter, on December 20, 2019, the Governor signed into law RPL 235-h, which states:
No commercial lease shall contain any provision waiving or prohibiting the right of any tenant to bring a declaratory judgment action with respect to any provision, term or condition of such commercial lease. The inclusion of any such waiver provision in a commercial lease shall be null and void as against public policy.
This new law abrogates the central holding of 159 MP Corp. and declares that such waivers are against public policy. The supporting memoranda in both the Assembly and Senate, as well as the debate in the Assembly, identified the 159 MP Corp. litigation as the impetus for the enactment of RPL Section 235-h.
The legislative history of RPL Section 235-h mentions Yellowstone injunctions expressly. It recites that “[t]o allow waiver clauses of the Yellowstone injunction will be disruptive of commerce, unfair to commercial tenants and allow landlords to use minor lease issues as a method to remove and replace tenants in the middle of lease terms,” but the law does not specifically ban waivers of Yellowstone injunctions or other injunctive relief, only waivers of declaratory judgment actions. This ambiguity leaves open the possibility that a landlord could include a waiver of Yellowstone injunctions in a commercial lease. However, the policy behind RPL Section 235-h (and its legislative history) would give weight to a tenant’s argument that such waivers are also against public policy.
 The Assembly and Senate memoranda are identical. See https://assembly.state.ny.us/leg/?term=2019&bn=A02554 (last visited January 29, 2020) and https://www.nysenate.gov/legislation/bills/2019/s5614 (last visited January 29, 2020). A transcript of the June 4, 2019 Assembly debate on the bill, A2554, is available here.