This bitter dispute involves a commercial lease entered into between petitioner Mohammad A. Malik and respondent Toss 29, Inc., concerning the premises located at 628 Fulton Avenue, Hempstead, New York. Petitioner seeks to evict respondent for seeking a Yellowstone injunction in the Nassau County Supreme Court in violation of the Lease.

The Lease dated June 13, 1997, is a 10 year lease for a bar and grill consisting of 1300 square feet gross. Paragraph 81 of the Supplemental Rider grants the respondent a 5 year option to renew the Lease up to June 14, 2012. The Lease provides in paragraph 25 of the printed Lease entitled "Standard Form of Store Lease" that the respondent waived any right to assert a counterclaim of any type, kind or nature in an action instituted by petitioner:

It is further mutually agreed that in the event Owner commences any summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding.

Paragraph 42 of the Supplemental Rider provides that the respondent is prohibited from seeking declaratory judgment or injunctive relief. Paragraph 42 further states that violation of the foregoing constitutes a violation of the Lease and provides a basis for immediate eviction: [*2]

Tenant waives his right to bring a declaratory judgment action with respect to any provision of this lease, or with respect to any notice pursuant to the provisions of this lease, and expressly, agrees not to seek injunctive relief which would stay, extend or otherwise toll any of the time limitations or provisions of this lease, or any notice sent pursuant thereto. Any breach of this paragraph shall constitute a violation of a substantial obligation of the tenancy, and shall be grounds for the immediate termination of this Lease. It is further agreed that in the event injunctive relief is sought, or if a "Yellowstone" injunction (First National Stores, Inc. v. Yellowstone Shopping Centers, Inc., 21 NY2d 630) is sought, such relief shall be denied, and Landlord shall be entitled to recover the costs of opposing such an application or action, including its attorneys' fees actually incurred. The Landlord may not cancel this lease pursuant to the bankruptcy clause as long as the Tenant is not in default in the payment of his monthly rent.

A major dispute arose between the parties over sewage and waste flowing into respondent's premises over a number of years. As a result of the foregoing, respondent claimed a loss of business and good will. Respondent moved for a Yellowstone injunction before Justice Warshawsky on March 16, 2005 because the petitioner threatened to terminate the Lease for non-payment of the rent. Respondent claimed that the sewage and waste problem resulted from the strip mall's sewer line which was discovered in June of 2004. Respondent further claimed that petitioner has the responsibility to fix the sewer pipe because this [*3]constitutes a structural repair pursuant to the Lease.

Justice Warshawsky granted the Yellowstone injunction on April 15, 2005, in favor of respondent in spite of the said waivers in the Lease barring application for injunctive relief:

Toss 29 has established the criteria necessary for a Yellowstone injunction. Mohammad A. Malik's reliance upon various lease provisions in its attempt to defeat this application fails. The applicability and enforceability of the relied upon waivers in the lease is not clear at this juncture so as to preclude the maintenance of the status quo.

Justice Warshawsky notes in his decision granting the Yellowstone injunction in favor of respondent, that:

It alleges that a problem with the strip mall's main sewer line was ultimately discovered in June, 2004, and that pursuant to the lease, it asked Mohammad Malik to fix it as a structural repair. He refused. He did, however, plead guilty before the Village Court of the Village of Hempstead to causing raw sewage to discharge onto the floors of the stores at the strip mall, thereby endangering the welfare of the occupants and pedestrians in violation of section 74-24 of the Village Code.

Finally, Justice Warshawsky granted a joint trial of the issues raised by respondent with a related matter involving another tenant WCK Enterprises, Inc., located in the strip mall also experiencing sewage and waste problems from the sewer pipe.

These matters came on for trial before Justice Warshawsky in August of 2006. Justice Warshawsky issued an 18 page decision dated October 10, 2006 concerning his findings. The court [*4]concluded that petitioner willfully violated the Lease by failing to repair the sewer line (p.7 of decision):

Based upon the testimony and evidence, the court finds that the main sewer line was the problem causing the back up in the stores of both claimants. The court further finds that defendant landlord continually showed a callous disregard for his tenants and the need to repair the sewer line, allegedly believing the entire sewer line was the responsibility of tenants and that it was "new" and did not need to be repaired despite the obvious problems.

The court further found that petitioner breached the Nassau County District Court Stipulation of Settlement entered into between the parties in 2003. In this stipulation respondent agreed to pay petitioner $60,000 and petitioner agreed to maintain the sewer line:

Petitioner agrees, without admitting that he has not done so in the past, to maintain the sewer line and other services under the lease with respect to the common area maintenance and repairs to common or structural areas.

Justice Warshawsky ruled that (p.7 of October 10, 2006 decision):

The court finds that the defendant's continual failure to address this major health issue affected the business of both plaintiffs. It also breached the District Court order of June 5, 2003 with Toss 29. If defendant had made the major repair in June 2003, neither tenant would have had sewer problems in 2004.[*5]

On page 13 of the decision, the court denied any counsel fees to petitioner due to petitioner's breach. The court stated:

The application for attorney fees is denied in this case to defend the third-party action or to prosecute the counterclaims. The landlord's failure to repair or replace the main line on his premises was a failure to make a "structural repair." His actions are the basis of these two lawsuits. His conduct will not be rewarded by an award of attorney fees in any amount.

Justice Warshawsky did dismiss respondent's seventh cause of action for injunction stating (p. 11 of his decision) that, "There is no basis for such an order and it would be precluded by the lease".

In December of 2006, petitioner issued a notice of termination to respondent. The notice states that the Lease is being terminated because:

Re:Premises:628 Fulton Avenue, Hempstead, New York, which premises are occupies as a bar and grill

PLEASE TAKE NOTICE pursuant to clause "42" of the Supplemental Rider to the Lease [*6]between Mohammad A. Malik, as Landlord and Toss 29, Inc., as Tenant, covering premises 628 Fulton Avenue, Hempstead, New York, which Rider is part of the Lease between the aforesaid parties dated June 13, 1997, that in violation of said clause, which provides that you waived your right to bring a declaratory judgment action with respect to any provision of the Lease, or with respect to any notice pursuant to the provisions of the Lease, and expressly agree not to seek injunctive relief which would stay, extend or otherwise toll any of the time limitations or provisions of this Lease, or any notice pursuant thereto that you have done the following:

1.That you have sought injunctive relief which would stay, extend or otherwise toll time limitations or provisions of the Lease in that by Order to Show Cause under Nassau County Supreme Court Index Number 003113/05 dated March 8, 2005 you brought an application and sought injunctive relief to enjoin and/or otherwise stay the Landlord from terminating the subject Lease thus seeking to stay the provisions of Article "17" of the Lease, which is the "default" provision thereof pursuant to which, after providing a Notice to Cure in the event of a default under the Lease, the Landlord may terminate the Lease.

2.That in a Summons and Complaint that was part of the aforesaid Order to Show Cause you sought a declaratory judgment with respect to provisions of the Lease.

PLEASE TAKE FURTHER NOTICE pursuant to Article "43" of the aforesaid Rider to your Lease that a breach of said [*7]Article "43" constitutes a violation of substantial obligation of the tenancy and is grounds for the immediate termination of the Lease.

PLEASE TAKE FURTHER NOTICE based upon the foregoing your Lease is hereby terminated effective as of January 5, 2007.

PLEASE TAKE FURTHER NOTICE that you are hereby required to vacate the subject premises and surrender possession thereof to the Landlord on or before the aforesaid termination date of January 5, 2007, in default of which the Landlord shall commence summary judgment proceedings under the statute for your removal therefrom.

Dated:December 22, 2006

Based upon the grounds set forth in the said notice of termination, petitioner has commenced the within holdover summary proceeding to evict respondent.

This court grants the respondent's motion for summary judgment. Petitioner is barred from enforcing the provisions of Paragraph 42 allowing for eviction of respondent if respondent applied for injunctive relief. The Supreme Court Nassau County concluded that petitioner breached its agreement with respondent by failing to maintain the sewer pipe. Since petitioner willfully breached its own obligation under the lease agreement, the provisions of Paragraph 42 are not valid and [*8]enforceable against respondent. In DeCapua v. Dine-A-Mate, Inc., 292 AD2d 489, 744 NYS2d 417, the Second Department ruled that the restrictive covenant barring the publisher from competing was unenforceable where the plaintiff breached the contract by failing to make payments:

We conclude that the trial court erred in finding in favor of the plaintiff on both causes of action. The plaintiff was not entitled to enforce the restrictive covenant in the contract since he breached the contract first by failing to make royalty payments. When a party benefiting from a restrictive covenant in a contract breaches that contract, the covenant is not valid and enforceable against the other party because the benefiting party was responsible for the breach (see, Cornell v. T.V. Development Corp., 17 NY2d 69, 75, 268 NYS2d 29, 215 NE2d 349; Meteor Ind. v. Metalloy Ind., 149 AD2d 483, 539 NYS2d 972; Weintraub, M.D., P.C. v. Schwartz, 131 AD2d 663, 665-666, 516 NYS2d 946).

The Court of Appeals has held that a breaching party waives its right to enforce a contractual provision in its (his/her) favor when that party is responsible for the breach; see, Cornell v. T.V. Development Corp., 17 NY2d 69, 268 NYS2d 29 wherein the court held:

If the majority in the Appellate Division tacitly relied on the contract covenant against competition as the basis for limiting plaintiff's recovery, the majority was incorrect. Such a covenant is valid and enforcible, but not when the party benefited was responsible for the breach of the contract containing the covenant (Millet v. Slocum, 4 AD2d 528, 534, 167 NYS2d 136, 142 affd. 5 NY2d 734, 177 NYS2d 716, 152 NE2d 672; I. Edward Brown, Inc. v. Astor Supply Co., 4 AD2d 177, 179, 164 NYS2d 107, 108).

In Broad Properties v. Wheels Incorporated, Inc., 43 AD2d 276, 351 NYS2d 15, affirmed 35 NY2d 859, the court [*9]made clear that:

Likewise, where the covenants are dependent, the performance of one party's covenant is a condition precedent to the right of that party to recover for a breach of the covenant by the other party (id).

The court in Broad Properties refused to allow the landlord to recover taxes as additional rent because the landlord failed to have property separately designated as a separate tax lot.

Hon. Robert F. Dolan writes in Rasch's Landlord & Tenant, Fourth Edition that:

On the other hand, where the covenants are dependent, performance of his own covenants is a condition precedent to the right of either party to recover for breach of covenant by the other party.

Landlord and Tenant in New York, Section 10:8 supports this concept of no right to enforce the contract when the party has defaulted. [*10]

Since petitioner seeks the aid of the Court with unclean hands, this Court will not assist nor reward petitioner for its outrageous and willful violations of its contractual obligations. See, 55 NY Jur. 2d Equity § 115, wherein the following is stated:

One cannot take the benefits of a contract and, at the same time, refuse to perform the obligations imposed by the contract, seeking the aid of a court of equity in consummating the wrong.

A party to a contract who fails to perform a material obligation of the contract is not in court with clean hands and may not seek the aid of a court of equity in the protection of alleged rights arising out of or connected with the contract. Equity will not find grounds for granting relief to a party previously in default, nor will equity open its doors to one who seeks to enforce alleged rights arising from a contract which the petitioner has breached or violated.

In every contract there is a covenant of good faith and fair dealing. See, Gray v. Kramer, 184 AD2d 409, 585 NYS2d 46 (1st Dep't [1992]), wherein the court held:

In every contract there is a covenant of good faith and fair dealing preventing a party from doing anything to destroy or injury the right of the other party to receive the[*11] fruits of the contract (Gallagher v. Lambert, 74 NY2d 562, 549 NYS2d 945, 549 NE2d 136, rearg. denied 75 NY2d 866, 552 NYS2d 931, 552 NE2d 179; Black v. MTV Networks, 172 AD2d 8, 576 NYS2d 846, appeal dismissed 79 NY2d 915, 581 NYS2d 667, 590 NE2d 252).

In Landlord and Tenant Practice in New York, Section 10:11, it is made crystal clear that the implied covenant of good faith and fair dealing applies to leases:

Perhaps the most common mutual covenant, implied in all leases, is the implied covenant of good faith and fair dealing. This covenant requires both parties to deal honestly and fairly with the other, and encourages them to interpret and implement the lease in a manner that effects the agreement's spirit and letter.

Petitioner has violated the principals of good faith and fair dealing by allowing sewage and waste to be a major headache for respondent in direct violation of its contractual obligations to repair the sewer pipe. This type of behavior cannot be rewarded by enforcement of Paragraph 42.

Lastly, this Court finds that it would be unconsciousable to allow respondent to be evicted under these circumstances where the petitioner seeks to cause respondent to lose its entire investment in the leased premises because petitioner violated the Lease by allowing sewage and waste to partially evict respondent.

The doctrine of unconscionability is applicable to leases. See, Section 10:12 of Landlord and Tenant Practice in New York, wherein this principle of law is discussed: [*12]

A corollary principle to the implied covenant of good faith and fair dealing is the right of both parties not to be bound by unconscionable lease provisions. A provision may be found unconscionable when it was obtained without the meaningful consent of the party against whom it operates and when its terms are unreasonably favorable to the proponent. Upon finding a lease clause unconscionable, a court may refuse to enforce the entire lease, strike the violative clause, or modify the objectionable language to ensure that it does not operate inequitably.

NY Real Prop. Law § 235-c see Pine Top Associates v. Hirsch & Sons Deli World, Inc., 92 Misc. 29 470, 400 NYS2d 665 (J. Ct. 1977) ("Fortunately, the Legislature has provided a remedy in its enactment of [RPL § 235-c] whose purpose is to engraft the spirit of the Uniform Commercial Code into landlord and tenant relationships and to mandate a judicial policing against unconscionable results without strained construction of legal principles.").

See also, Section 6:13 entitled "Unconscionable Lease or Clause" of Rasch's Landlord & Tenant wherein the doctrine is discussed.

The doctrine of unconscionability has been applied to commercial situations. In Pyramid Centres and Co., Ltd. v. Kinney Shoe Corp., 244 AD2d 625, 663 NYS2d 711, the court struck down a liquidated damage clause in a lease as a penalty.

In Ultrashmere House, Ltd. v. 38 Town Associates, 123 Misc 2d 102, 473 NYS2d 120, the court struck a lease provision which prohibited the tenant from asserting a "defense to any action or proceeding," as unconscionable. The court further held that a clause prohibiting consolidation of actions was against public policy.[*13]

Based upon the foregoing, this Court rules that Paragraph 42 operates as a penalty and thus is unconscionable. The Supreme Court granted the Yellowstone injunction aware of the terms and conditions of Paragraph 42. Obviously respondent was afraid that it could lose its entire investment and thus sought a Yellowstone injunction to preserve the status quo. This Court is aware of the Supreme Court's language concerning the validity of Paragraph 42. However, this Court construes that language to be limited to the specific factual circumstances before the Supreme Court. Justice Warshawsky was not faced with an eviction of the respondent for bringing the Yellowstone injunction. In fact, this Court believes that the Supreme Court would have refused to evict the respondent because of the petitioner's willful default. This intent can be gleaned from the specific holding that petitioner was not entitled to counsel fees due to its breach.

Respondent is granted summary judgment dismissing the holdover proceeding with prejudice. The Court bases its decision upon the following:

1.Respondent breached its obligations to repair the sewer pipe causing sewage and waste to flow into respondent's premises. This breach by petitioner is a waiver of any right to [*14]enforce Paragraph 42 to evict respondent.

2.Petitioner has unclean hands and by its willful failure to repair the sewer pipe has violated the implied covenant of good faith and fair dealing.

3.Enforcement of Paragraph 42 would be unconscionable and cause respondent to lose its entire investment while petitioner has acted in complete disregard of its contractual obligations.

So Ordered:

/s/

DISTRICT COURT JUDGE

Dated:March 29, 2007

CC:Kera, Graubard & Litzman

Horing, Welikson & Rosen, P.C.

SF/mp