Khatari v Shami
Decided on April 16, 2012
Supreme Court, Kings County
Ahmed Khatari, Plaintiff,
Mussed Shami, Defendant.
Attorney for Plaintiff:
John T. Petrusky
417 Bay Ridge Parkway
Brooklyn, NY 11209
Attorneys for Defendant:
Angelyn D. Johnson
Wenig Saltiel & Johnson LLP
26 Court Street, Suite 502
Brooklyn, NY 11242
Carolyn E. Demarest, J.
Plaintiff Ahmed Khatari, a commercial tenant, moves, by order to show cause, for a Yellowstone injunction prohibiting his landlord, defendant Mussed Shami, from terminating his lease while this action is pending and tolling plaintiff's time to cure any defaults of the lease. Defendant contends that plaintiff has incurably defaulted on the lease by failing to maintain adequate insurance and altering the premises without his authorization. Defendant also argues that plaintiff has not [*2]demonstrated a good faith effort to cure any defaults and that plaintiff does not meet the requirements for a preliminary injunction. Accordingly, defendant asserts that plaintiff should not be granted the temporary relief he seeks.
This action involves the alleged breach of a lease agreement, signed on July 5, 2006, for the ground floor and basement of 486 Dean Street, Brooklyn, New York (the "Premises"), between defendant, the landlord and owner, and plaintiff, who operates a retail grocery store and delicatessen on the Premises (the "Store"). Plaintiff claims that defendant operated a grocery store at the Premises prior to signing the lease and that he paid defendant $175,000, in the form of a $75,000 down payment, followed by fifty promissory notes each in the amount of $2,000, upon which he tendered full payment over the course of four years, to take possession of the Premises. Plaintiff alleges that defendant visited the Store on a daily basis since plaintiff took possession to discuss ways that plaintiff could improve the Store and that defendant did not dispute his management of the Store or alterations to the Premises while plaintiff was still making payments pursuant to the notes.
On January 4, 2011, defendant served plaintiff with a notice to cure (the "First Notice"), which indicated that plaintiff had materially breached the lease by allowing his insurance to lapse and asserted that defendant could cancel the lease if plaintiff did not remedy the default by "reinstat[ing] the insurance pursuant to paragraph 48 of the lease." Paragraph 48 provides, in pertinent part, that:
Tenant, at all times during the term of this Lease and at Tenant's expense, shall provide and keep in force with insurers approved by Landlord comprehensive public liability and property damage insurance protecting Landlord against any and all liability occasioned by negligence, occurrence, accident, disaster and other risks included under "extended coverage" policies, occurring in or about the demised premises or any part thereof, in amounts approved from time to time by Landlord, which amounts at the date hereof shall be, in the case of public liability, $1,000,000.00 per person and $3,000,000.00 per accident, and $300,000.00 in the case of property damage, and insurance against such other hazards in such approved amounts as is currently and customarily carried by tenants in similar stores, as Landlord may reasonably request.
Paragraph 48 of the lease further provides that "[i]f at any time Tenant shall neglect or fail to provide or maintain insurance . . . Landlord may effect such insurance as agent for Tenant," to be paid "by Tenant to Landlord on demand."[FN1] Plaintiff admits that his insurance did lapse, but he claims that it was the result of intentional misconduct by defendant, who was purportedly seeking to regain possession of the Premises, and Yehad Abdel-Aziz, who, plaintiff claims, acted as an agent for both defendant and plaintiff's insurance carrier.[FN2] Plaintiff alleges that his insurance carrier sent a [*3]representative to inspect the Premises and forwarded a list of necessary repairs to Abdel-Aziz, who "failed to adequately apprise the carrier as to how [plaintiff] was working on the issues [that the carrier] raised," despite representations to plaintiff to the contrary, which resulted in the termination of plaintiff's insurance coverage. Plaintiff further claims that he was not informed, prior to being served with the First Notice, that the insurance coverage had lapsed.
Defendant served plaintiff with a notice of termination on January 18, 2011 and subsequently initiated a holdover eviction proceeding in the Civil Court. On May 31, 2011, defendant withdrew his petition for eviction "with prejudice as to all claims raised in the [First Notice], through May 31, 2011." Plaintiff alleges that, after withdrawing his petition, defendant further attempted to regain possession of the Premises by "charging more rent than is owed in the lease, failing to provide heat to the Premises, refusing to accept rent, and unlawfully locking [plaintiff] out of a portion of the basement [he is] entitled to occupy pursuant to the terms of the lease."
On September 21, 2011, defendant served plaintiff with a new notice to cure (the "Second Notice"), which states that plaintiff is in default of the lease for cooking on the Premises, altering the Premises without defendant's prior authorization, and failing to maintain adequate insurance coverage. The Second Notice specified that plaintiff installed an exhaust hood and duct in violation of the New York City building code, replaced floorboards in a negligent and unworkmanlike fashion, damaged the ceiling of the basement, and removed the radiator, all without first seeking defendant's approval. While Paragraph 54 of the lease states that "Tenant may at his own cost and expense make alterations, erect partitions, install trade fixtures, install floor covering, and make any changes to the [Premises] as are necessary to the business of the Tenant and the purposes of this Lease," Paragraphs 3 and 56 state that plaintiff may not make any such alterations without obtaining defendant's prior written approval. Paragraph 56 asserts that plaintiff's altering the Premises without obtaining such approval "stall be deemed a substantial breach of the terms and conditions" of the lease. The Second Notice also concluded that plaintiff's insurance is inadequate in light of the specific coverage amounts listed in the lease.[FN3]
On September 29, 2011, plaintiff filed a complaint with this Court seeking judgment declaring that plaintiff has not breached the lease, directing return of the portion of the premises from which plaintiff has been locked out, and awarding damages for breach of the covenants of quiet enjoyment and good faith and fair dealing. On October 4, 2011, plaintiff moved, by order to show cause, for a Yellowstone injunction prohibiting defendant from terminating the lease during the pendency of this action and tolling plaintiff's time to cure any breach of the lease; plaintiff requested and was granted a temporary restraining order pending the resolution of this motion. Defendant argues that plaintiff is not entitled to a Yellowstone injunction because his purported failure to maintain adequate insurance coverage and his alterations to the Premises without prior written authorization constitute incurable defaults of the lease. Defendant also contends that plaintiff has not made a good faith effort to stop cooking on the Premises. Furthermore, defendant asserts that plaintiff cannot meet the necessary elements of a preliminary injunction and thus the motion should be denied.
In his reply affirmation, plaintiff alleges that he previously provided defendant with [*4]inaccurate information about his insurance [FN4] and that he now believes that his liability policy, at least for the period after defendant withdrew his petition for eviction, is consistent with the lease. At Exhibits A and B, plaintiff attached documentation demonstrating that, starting January 28, 2011, he has carried both a general liability policy and an umbrella policy, together providing $3,000,000 per incident of coverage for third-party personal injury and property damage.[FN5] Plaintiff contends that, if his insurance is deemed insufficient, he could retroactively amend his coverage to cure any default of the lease. Moreover, plaintiff claims that defendant waived any default for insufficient insurance coverage because defendant had alleged that plaintiff's policy was deficient at the time he withdrew his petition for eviction based upon such allegations. Plaintiff further contends that defendant waived any default for cooking on or altering the Premises, as defendant has known about plaintiff's cooking for over four years, was aware of all of the alterations, and even suggested some of the repairs and improvements. Plaintiff also notes that his insurance carrier required him to replace the exhaust hood and duct and that he merely placed the radiator in storage at the Premises because defendant refused to provide him with heat. Defendant counters all of plaintiff's waiver arguments by noting that the lease states, at Paragraph 24, that "no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner."
Plaintiff moves for a temporary injunction staying defendant from terminating the lease and tolling the time to cure any defaults during the pendency of this action. "A Yellowstone injunction maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold" (Grubard Mollen Horowitz Pomerantz & Shapiro v 600 Third Ave. Assoc., 93 NY2d 508, 514 ; cf. First Natl. Stores v Yellowstone Shopping Ctr., 21 NY2d 630, 637  [holding that the courts are powerless to revive a lease once it is lawfully terminated by the landlord]). To obtain such injunction, a tenant must prove 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 (Grubard Mollen, 93 NY2d at 514, quoting 36th St. Garage Corp. v 221 E. 36th Owners Corp., 211 AD2d 420, 421 [1st Dept 1995]).
Moreover, a party seeking a Yellowstone injunction need not satisfy all the elements generally required for a preliminary injunction; the "threat of termination of the lease and forfeiture, standing alone, has been sufficient to permit maintenance of the status quo by injunction" (Post v 120 E. End [*5]Ave. Corp., 62 NY2d 19, 25-26 ; see Grubard Mollen, 93 NY2d at 514). Here, plaintiff holds a commercial lease, received a notice to cure, and sought injunctive relief on October 4, 2011, the last day before defendant could terminate the lease. Thus, plaintiff is entitled to a Yellowstone injunction if he is able to cure any claimed defaults on the lease.
Defendant argues that plaintiff's purported failure to carry sufficient insurance is an incurable default of the lease, as plaintiff is not able to amend its insurance policy retroactively. In Kyung Sik Kim v Idylwood, NY, LLC (66 AD3d 528, 529 [1st Dept 2009]), the Appellate Division held that failure to carry adequate insurance is a material breach of a lease and that a such a breach may not be cured by obtaining prospective insurance coverage (see also Kramer v Bohensky, 27 Misc 3d 1237[A], 2010 NY Slip Op 51089[U], *6). The court reasoned that such coverage "does not protect [the landlord] against the unknown universe of any claims arising during the period of no insurance coverage" (Kyung Sik Kim, 66 AD3d at 529).[FN6] In the case at bar, plaintiff has provided documentation sufficiently demonstrating that he carries, and has carried for the relevant period, the requisite amount of general liability and property damage insurance coverage. Because plaintiff's only lapse in insurance coverage occurred, and his current policy began, prior to defendant's withdrawal, with prejudice, of his claim against plaintiff pursuant to the First Notice, by which defendant waived such default under the lease, plaintiff may not be denied a Yellowstone injunction solely on the basis of his failure to carry adequate insurance.
Defendant also argues that plaintiff's alterations to the Premises without prior written approval is an incurable breach of the lease.[FN7] However, the Appellate Division has held that a tenant may demonstrate its ability to cure a default for unauthorized alterations to the premises by "stat[ing] its willingness to restore the premises to their prior condition, should the court find that [the landord's] permission was required" (ERS Enters., Inc. v Empire Holdings, LLC, 286 AD2d 206, 207 [1st Dept 2001]). Plaintiff stated that he is willing to cure any default, and thus, if his alterations to the Premises are found to be a default of the lease, he could cure such default by restoring the Premises and repairing any damage he made to defendant's property. Thus, plaintiff's request for a Yellowstone injunction is not defeated by any alterations made to the Premises.
Defendant further claims that plaintiff is not entitled to the relief he requests because he has [*6]not made a good faith effort to stop cooking on the Premises. A tenant's unwillingness to cure a purported default of a lease before a judicial determination of such default is grounds to deny a Yellowstone injunction only where the plaintiff affirmatively refuses to cure the default or flagrantly disobeys a clear provision of the lease (see ERS Enters., 286 AD2d at 207; TSI W. 14, Inc. v Samson Assoc., LLC, 8 AD3d 51, [1st Dept 2004]; Metropolis Westchester Lanes, Inc. v Colonial Park Homes, Inc., 187 AD2d 492, 493 [2d Dept 1992]; Cemco Rests. v Ten Park Ave. Tenants Corp., 135 AD2d 461, 463 [1st Dept 1987]). Here, plaintiff claims that defendant knew about his cooking on the Premises "since the inception of the lease over four years ago." Defendant does not allege that plaintiff is doing anything more than continuing a practice in which he has been engaging, with defendant's purported knowledge and without objection, since he initially took possession of the Premises. Accordingly, plaintiff is able and willing to cure any defaults of the lease and thus has demonstrated all of the elements necessary for a Yellowstone injunction.
Finally, defendant argues that plaintiff should not be granted a preliminary injunction because he cannot demonstrate a likelihood of success on the merits, irreparable injury, or a balance of equities in his favor. As addressed above, it is sufficient for a party requesting a Yellowstone injunction to show that there is a threat of termination of the lease and resulting forfeiture; the party need not meet the other elements ordinarily required for a preliminary injuction (Post, 62 NY2d at 25-26). Here, plaintiff has sufficiently established that defendant is seeking termination of the lease, as evidenced by defendant's two notices to cure and a prior eviction proceeding, and that plaintiff has invested a substantial amount of money in the Premises, which would be forfeited upon termination of the lease. Therefore, plaintiff's motion is granted.
Accordingly, plaintiff's motion for a Yellowstone injunction is granted. Defendant is enjoined from terminating plaintiff's lease, and plaintiff's time to cure any alleged defaults of the lease will be tolled, pending adjudication of the merits of this matter before the Court.
The foregoing constitutes the decision and order of the Court.
E N T E R :
HON. CAROLYN E. DEMAREST, J.S.C. Footnotes
Footnote 1: Because of this language, plaintiff claims that the failure to carry adequate insurance merely entitles defendant to purchase his own insurance at plaintiff's expense and does not constitute a material breach of the lease.
Footnote 2: Abdel-Aziz signed both the First Notice and the notice of termination as "Attorney-in-Fact" for defendant. Plaintiff also alleges that Abdel-Aziz collected rent for defendant.
Footnote 3: Moreover, defendant noted, at oral argument, that the insurance policy only names defendant as insured, while the lease requires the policy to name both parties.
Footnote 4: In the Civil Court proceeding, plaintiff produced for defendant a document, annexed to defendant's affirmation in opposition as Exhibit A, that appeared to demonstrate that plaintiff's liability insurance only covers a total of $1,000,000 per incident.
Footnote 5: Although the parties debate the meaning of the property damage insurance provision at Paragraph 48 of the lease, and plaintiff contends that it could refer to insurance protecting his own business assets or the Premises itself, the language of the lease, stating that plaintiff shall provide "property damage insurance protecting Landlord against any and all liability" clearly references third-party property damage liability insurance.
Footnote 6: However, this rule may not necessarily preclude a tenant who has continuously carried insurance from curing a breach by retroactively amending the terms of his coverage so that it is consistent with the lease (see Federated Retail Holdings, Inc. v Weatherly 39th St., LLC, 32 Misc 3d 247, 253-54 [Sup Ct, NY County 2011] [distinguishing Kyung Sik Kim and Kramer on the grounds that the tenants "always had insurance, and merely amended their existing policies to provide for greater insurance"]; see also Natl. Union Fire Ins. Co. of Pittsburgh, Pa. v Red Apple Group, 281 AD2d 296, 296 [1st Dept 2001]).
Footnote 7: The parties debate whether defendant has waived his right to contest plaintiff's alterations to the Premises, as well as his purported failure to maintain adequate insurance and his cooking on the Premises. However, to obtain a Yellowstone injunction, there is no requirement that the tenant show that he has not breached the lease; the tenant must instead demonstrate that, should the court determine that he did breach the lease, he would be able to cure any such breach without vacating the premises.