Are you a commercial landlord looking for a reason to evict a problematic tenant? Are you a commercial tenant seeking to avoid an incurable breach of your lease? If you fall into either category, a word of caution: resist the urge to glaze over the provisions in your lease governing insurance coverage. A tenant’s failure to comply with the lease’s insurance requirements could result in an incurable breach, lease termination, and eviction.
Although details vary from lease to lease, a typical commercial lease will obligate a tenant to obtain and maintain insurance for the premises at all times during the lease term above some set amount and according to specific terms for the benefit of both the landlord and the tenant. This is because the tenant is in control of the premises and is in the best position to keep the premises in a safe and orderly condition, and the landlord justifiably wants to avoid any liability in the event of a trip-and-fall injury or some other similar occurrence at the premises.
Unlike many other breaches of a commercial lease that can usually be cured by a tenant within some fixed time period as set by the lease, a commercial tenant’s failure to insure the premises as required by the lease – even for a gap period of one day – is incurable as a matter of law and may entitle the landlord to terminate the lease and evict the tenant despite any after-the-fact remedial efforts by the tenant.
Generally, if a tenant breaches its lease, the landlord will serve a notice of default providing the tenant with time to cure the breach. If the tenant disagrees with the landlord over the alleged breach, it will at least possess the opportunity to go to court to preserve the status quo and avoid lease termination until the parties’ dispute is resolved. Such an application to the court by a tenant to preserve the status quo following the landlord’s service of a notice of default is commonly referred to as a Yellowstone injunction.
But New York courts have confirmed that a commercial tenant cannot obtain a Yellowstone injunction and cannot forestall or avoid lease termination where the tenant has failed to comply with lease requirements to obtain and maintain insurance coverage for the premises. As the Appellate Division has noted, a commercial tenant’s failure to previously and continuously maintain insurance coverage as required by the lease is a material and incurable breach of the lease, and a tenant’s “attempt to demonstrate their ability and readiness to cure the alleged violation by procuring, during the cure period, insurance coverage prospectively for the remaining 10 months of their lease term is unavailing, as such policy does not protect [the landlord] against the unknown universe of any claims arising during the period of no insurance coverage.” Kyung Sik Kim v. Idylwood, N.Y., LLC, 66 A.D.3d 528, 529, 886 N.Y.S.2d 337, 337 (1st Dep’t 2009).
So pay close attention to the insurance provisions in your commercial lease. A tenant’s failure to comply with its lease requirements regarding insurance coverage could spell the end of the lease and cause significant liability on the part of the tenant.