ATN Fulton, LLC v Deep Dale Grocery, Inc.
Annotate this CaseDecided on February 21, 2013
District Court of Nassau County, First District
ATN Fulton, LLC, Petitioner(s)
against
Deep Dale Grocery, Inc. dba STOP & SHOP, XYZ Corp., Respondent(s)
LT-006376-11
Michael L. Cirrito, Esq., White, Cirrito & Nally, LLP, of Counsel to Attorney for Petitioner, 58 Hilton Avenue, Hempstead, New York 11550, 516-292-1818; Ezratty, Ezratty & Levine, LLP, Attorney for Petitioner, 80 E. Old Country Road, Mineola, New York 11501, 516-747-5566; Horing, Welikson & Rosen, P.C., Attorney for Respondent, 11 Hillside Avenue, Williston Park, New York 11596, 516-535-1700.
Scott Fairgrieve, J.
Petitioner ATN Fulton, LLC (hereinafter referred to as ATN) has commenced this commercial holdover proceeding against Deep Dale Grocery, Inc. d/b/a Stop & Shop (hereinafter referred to as Deep Dale) located at 618 Fulton Avenue, Hempstead, New York. ATN alleges that Deep Dale is a month to month tenant pursuant to an oral tenancy. ATN contends that it properly terminated Deep Dale's tenancy on October 31, 2011 by the notice dated September 16, 2011.
Deep Dale contends that it is not a month to month tenant. Deep Dale claims that it has a valid lease dated February 26, 2010, entered into between Mohammed Malik (prior owner) and Deep Dale (tenant). The lease runs for a ten year term with two 5 year options to renew through February 28, 2030. The February 26th lease was executed by Mr. Malik and his brother Nicholas Galafano, the President and owner of Deep Dale.
ATN attacks the validity of the February 26th lease on numerous grounds concerning its onerous clauses.
ATN draws considerable attention to paragraph 14 of the lease which states in full that: [*2]
Owner shall have no right to terminate this Agreement of Lease for any reason whatsoever, including but not limited to nonpayment of rent and additional rent or for breach of any covenant of this Agreement of Lease, and shall have no reason to recover possession of the Premises until such time as this Agreement of Lease expires by its own terms, and Owner expressly waives any and all right to regain possession of the Premises, whether by self-help, summary or other special proceeding, dispossess proceeding, ejectment, eviction, or other action or remedy. Owner's sole remedy against Tenant shall be to commence a plenary action to recover damages or unpaid rent and additional rent and to enforce any judgment so obtained, but nothing contained herein shall be deemed to give Owner the right to levy on this Agreement of Lease, the Premises or any portion thereof, or on Tenant's interest therein in Owner's efforts to enforce or collect any such judgment. It is expressly understood and agreed Owner is prohibited, among other things, from resorting to summary proceedings under Article 7 of the New York Real Property Actions and Proceedings Law (or any successor statute) to recover possession of the Premises for any purpose.
In addition to said paragraph 14, the lease has the following significant provisions which ATN contends are part of the fraudulent scheme agreed to between Mr. Malik and his brother Nicholas Galafano to defraud ATN:
1.rent remains the same at the rate of $44,000 from 3/01/10 to 2/28/15
2.rent remains the same at the annual rate of $48,000 from 3/1/15 to 2/29/20
3.paragraph 4 allows Deep Dale to make any alterations or improvements to the interior of the premises without landlord's consent
4.paragraph 6 makes the landlord responsible for maintenance and repair both structural and nonstructural for the building
5.the landlord has unlimited liability to the tenant for loss of income, diminution in the value of the leasehold to tenant, consequential damages, loss of profits and injunctive relief
6.paragraph 16 allows tenant to assign or sublet without consent of landlord
The lease was never recorded with the Nassau County Clerk.
In the fall of 2010, ATN's principals Mahfuzur Rahman and Mohammed Siddiqui spoke with Mr. Malik about purchasing the property located at 626 Fulton Avenue, Hempstead; 618 Fulton Avenue, Hempstead, New York is the address of Deep Dale located within the strip mall known as 626 Fulton Avenue, Hempstead, New York. ATN planned to build a hotel or possible housing for college students. ATN claims that Mr. Malik was told about the plans, but Mr. Malik denies being told about the plans of ATN. [*3]
Mahfuzur Rahman entered into a contract of sale with Mohammed Malik, dated November 11, 2010, for the purchase of 618 Fulton Avenue, Hempstead, NY The purchase price was $2,400,000. The sum of $150,000 was deposited as down payment. The purchaser agreed to purchase the property subject to a purchase money note and mortgage of $1,650,000. The balance of $600,000 was to be paid at closing. The name of Mahfuzur Rahman was crossed out and substituted with the name of ATN Fulton LLC. Mohammed Malik executed the contract for the seller. Stanley Kalathara, Esq. represented Mahfazur Rahman/ATN. Mr. Kalathara executed the contract of sale as attorney-in-fact for Mahfuzur Rahman.
The said contract contains the following key provisions concerning the purchase of the premises:
1.Rider paragraph 2 states:
The purchasers represent that they have examined the premises and that the seller has made no representations or warranties and that the purchasers agree to accept the premises in as [sic] "AS IS" condition in all respects, normal wear and tear, between now and closing expected.
2.Rider paragraph 17 states:
Premises are subject to the following tenancies. PREMISES TO BE DELIVERED IN ITS "AS IS" CONDITION, SUBJECT TO ALL TENANCIES, CONTENTS AND NOT BROOM CLEAN AT CLOSING.
3.Printed form paragraph 28(a) states:
(a)All prior understandings, agreements, representations and warranties, oral or written, between Seller and Purchaser are merged in this contract; it completely expresses their full agreement and has been entered into after full investigation, neither party relying upon any statement made by anyone else that is not set forth in this contract.
The contract of sale did not require Malik to provide copies of any leases regarding the commercial tenants nor did the real estate contract make the closing contingent on providing said leases. Instead, ATN purchased the property "AS IS" subject to the tenancies.
ATN introduced two rent schedules during trial which Mr. Malik allegedly gave to ATN concerning the tenancies. Exhibit 15 states that Stop & Shop has 1 year and 3 months left on its lease. Stop & Shop is also known as Deep Dale. Mr. Malik denies giving the two rent rolls to ATN. Based upon the testimony and the court's examination of the documents, the court disregards the exhibits as unreliable.
In January of 2011, the parties extended the closing date until February of 2011 because [*4]ATN was unable to close. A writing extending the closing date was introduced. This agreement states that an additional $90,000 was put into escrow with Asaf Dror, Mr. Malik's attorney. This agreement is not signed by Mr. Malik. The agreement makes no mention of the leases or having the closing contingent upon the leases being provided.
ATN's attorney, Stanley Kalathara, testified that it was not his responsibility to ascertain the leases but that of ATN. Mr. Rahman testified that it was attorney Kalathara's responsibility to obtain the leases.
The evidence demonstrates that both Mr. Rahman and Mr. Siddiqui knew of the tenants at the premises but never inquired with Deep Dale (Stop & Shop) about its lease. The evidence further demonstrates that Mr. Galafano never dealt with ATN or its principals at any time before the closing of title in February of 2011.
This court is constrained under the facts of this case to hold that ATN failed to exercise due diligence by not obtaining the lease held by Deep Dale. ATN entered into a contract of sale without requiring production of the leases. ATN agreed to take the property "AS IS" subject to existing tenancies. ATN and its principals never made proper inquiry concerning Deep Dale's lease even though it knew that Deep Dale (Stop & Shop) occupied the premises. Thus, ATN is estopped from trying to void the Deep Dale lease. See 1426 46 St., LLC v. Klein, 60 AD3d 740, 876 N.Y.S.2d 425 (2nd Dep't 2009), wherein the court stated:
Although a lease for a term exceeding three years is a conveyance which may be recorded (see Real Property Law § 290[2]), an unrecorded conveyance is void only as against a subsequent good faith purchaser for value (see Real Property Law § 291). Moreover, "[a]ctual possession of real estate is sufficient notice . . . to all the world, of the existence of any right which the person in possession is able to establish" (Phelan v. Brady, 119 NY 587, 591-592, 23 N.E. 1109; see Ward v. Ward, 52 AD3d 919, 921, 859 N.Y.S.2d 774; Nethaway v. Bosch, 199 AD2d 654, 605 N.Y.S.2d 135).
The Court of Appeals held in Phelan v. Brady, 119 NY 587 that actual possession is notice to the world of the tenant's rights in the real estate:
It may be true, as has been argued by the plaintiff's counsel, that when a party takes a conveyance of property situated as this was, occupied by numerous tenants, it would be inconvenient and difficult for him to ascertain the rights or interests that are claimed by all or any of them. But this circumstance cannot change the rule. Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world of the existence of any right which the person in possession is able to establish. (Governeur v. Lynch, 2 Paige, 300; Bank of Orleans v. Flagg, 3 Barb. 318; Moyer v. Hinman, 14 NY 184; Tuttle v. Jackson, 6 Wend. 213; Trustees of Union College v. Wheeler, 61 NY 88, 98; Cavalli v. Allen, 57 id. 517). [*5]
Thus, ATN took the premises subject to the said Deep Dale lease. Failure to provide leases is not fraud.
Although this court has held that petitioner is subject to the lease of Deep Dale, this court is convinced that the Deep Dale lease was contrived to provide an unfair advantage for Deep Dale. Paragraph 14, which blocks any eviction of Deep Dale and restricts ATN's rights against Deep Dale, is unconscionable. This court has the power to void this clause as unconscionable. See 74 NY Jur. 2d, Sec. 57, Landlord and Tenant, wherein the following is stated:
Upon finding, as a matter of law, that a lease or any clause of a lease was unconscionable at the time it was made, a court may choose one of three options:
refuse to enforce the lease
enforce the remainder of the lease without the unconscionable clause
so limit the application of any unconscionable clause as to avoid any unconscionable result
Paragraph 14 of the lease is declared unconscionable and void.
Conclusion
1.ATN cannot evict Deep Dale as a month to month tenant. ATN took the premsies subject to the Deep Dale lease when it purchased the property. That lease remains in effect in accordance with its terms.
2.Paragraph 14 of the lease is declared unconscionable and not enforceable.
So Ordered:
/s/ Hon. Scott Fairgrieve
DISTRICT COURT JUDGE
Dated:February 21, 2013
cc:Michael L. Cirrito, Esq., of Counsel to
Ezratty, Ezratty & Levine, LLP
Horing, Welikson & Rosen, P.C.
SF/mp
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