Will the units remain at the Colony Beach & Tennis Resort?

STEVE REID
Editor & Publisher
sreid@lbknews.com

The action that used to play out at the Tennis Courts at the Colony Beach & Tennis Resort is now just as intense in the courthouses full of lawyers and witnesses. And soon that same fervor will enter Town Hall.

All sides are waiting for Bankruptcy Judge Rodney May to render a decision based on the ruling of U.S. Court of Appeals Judge Steven Merryday, who sided with former Colony Chairman Murf Klauber and the general partnership in a ruling last spring.

And on the local front another debate is imminent — whether the Longboat Key Town Commission will extend the grandfathering of the 237 units beyond the current Dec. 31 expiration.

The Colony Association of Unit Owners and the Colony Lender have asked for the continuation, while neighboring unit owners at the Aquarius condominium have recently opposed the measure. The hearing will occur on Sept. 4 in Town Hall.

The arguments to extend are numerous including avoiding the loss of value in the property if the unit count is reduced. Also, supporters cite that residents voted to enhance tourism on the Key in a referendum vote allowing 250 additional tourism units a few years ago. That vote was predicated on an operating Colony Resort and the loss of units would undermine that intent.

Also, the Town could face being drawn into a legal tangle if it appears to assert the provision capriciously or arbitrarily when it has stated the Town’s goal is to reopen the resort and the parties could argue that it cannot reopen due to “legal constraints.”

Furthermore, if the Town takes away the grandfathering, the outcome could be that the unit owners attempt to reopen in an ad hoc manner and qualify as a resort. Then they can close again and re-trigger the clock to preserve the units. Those in favor of grandfathering say such machinations will be detrimental and costly.

Those opposed to extending the reopening say conditions have so deteriorated at the once-famous resort that rats, vermin and health and sanitary risks are endemic as well as the possibility of squatters and vagrants entering the property.

They also wonder why the Town should continue a ‘favor’ to the owners who they see as committed to their own self interests with little hope of resolution. In short, ‘enough is enough’ is the sentiment.

 

Attorneys lays groundwork

On Friday, Town Attorney Dave Persson wrote a comprehensive letter to the Commission giving an analysis of what has changed legally since the Town granted its prior extension last May. His historical analysis ends with a very significant statement:

“As of this writing, the Association controls the condominium property but that right of control is obviously in jeopardy. ”

Additionally, the letter outlines the legal framework by which the Town Commission will make its determination in the quasi-judicial proceeding.

One of the main reasons for an extension by the Commission is for “legal constraints” according to Persson.

 

Please read Persson’s letter below, as the historical analysis is pertinent and comprehensive.

Below that is the ordinance for grandfathering by which the Commission must make its decision.

 

Town attorney Dave Persson’s historical  analysis of the Colony legal landscape:

“The Colony was built as a resort hotel in the early 1970’s.  It was constructed prior to the current federal, state and local flood regulations as well as the current Florida State building code.  The Zoning Code has subsequently changed not only regarding setbacks and height, but also and, most importantly, density.  The Colony is now zoned T6, which allows up to 6 units per acre rather than the 14 units per acre allowed at the time of its development approval

After it was built, approximately 15 acres were dedicated to condominium ownership and 237 condominium units were located on the property.  The remaining portions of the property (approximately three acres) were not dedicated to condominium ownership.  The interest in that property was transferred to various entities.  Presently, Colony Lender has a 15% interest, Breakpoint, LLC, has a 5% interest and Dr. Klauber’s related entities own the remaining 80%.

At the time the Colony was created, 232 of the 237 units were made part of a Limited Partnership Agreement (“the Partnership”).  The Partnership was the entity that ran the Colony Beach and Tennis Resort.

Disputes among the parties arose and various legal actions were filed.  Ultimately these matters were considered by the United States Bankruptcy Court in Tampa and, in 2010, the Bankruptcy Court ruled in favor of the Association on multiple significant matters. The Partnership went into reorganization and ultimately into Chapter 7 liquidation.  The tourism operations at the Colony ceased on August 15, 2010, and the Association by action of the Bankruptcy Court was placed in charge of the 15-acre condominium property.  The recreational lease on portions of the 3-acre parcel was determined by the Bankruptcy Court to be “unconscionable” and void.  The Trustee for the Partnership appealed some, but not all, of the issues to the United States District Court in Tampa.

The Association Board of Directors as the new entity in control of the condominium parcel met with Town staff in early October 2010 to discuss the future of the tourism resort development and to discuss efforts to reopen the Colony.  During this and subsequent meetings with the Town, multiple issues were discussed ranging from the pendency of the appeal by the Partnership, the requirements under the Zoning Code for recreational facilities, requirements under the State Building Code to provide safe transient accommodations, public health concerns regarding the potable water and sewer, flood regulations, building code regulations and other legal issues that impacted the Colony.  The Association began the process of selecting a developer to assist it in reopening the Colony.

It became apparent by April 2011 that it was unrealistic to believe that the Colony could be reopened prior to August 16, 2011, when its grandfathered status would terminate.  The Association filed a petition to extend the non-use deadline as provided under the Town’s Zoning Code.  Based upon the application, the Town conducted a quasi-judicial hearing, took public comment and reviewed the record.  At the hearing and after much discussion, there was no objection from any of the property owners within the Colony (the Association and the owners of the outparcels) to the request of the Association and the Town granted by resolution an extension until December 31, 2012, with the condition that a hearing be held in March 2012 to hear the status of the efforts to reopen the Colony.  That meeting, as you well know, occurred.

In July 2011, a little over two months after the Town granted the extension, the District Court reversed the Bankruptcy Court’s prior final judgments and remanded the matter back to the Bankruptcy Court for further deliberations.  In a pointed and lengthy decision, the District Court strongly disagreed with the findings of the Bankruptcy Court on key issues affecting the operation of the Colony.  It raised questions whether the Partnership or the Association should be in control of the condominium property and whether the Partnership was entitled to significant damages from the Association.  It also determined that the recreational lease was not unconscionable and not void.  The District Court remanded the issues to the Bankruptcy Court for further proceedings.

The Association then attempted to appeal the District Court’s ruling to the United States 11th Circuit Court of Appeals.  The 11th Circuit denied the appeal without prejudice basically saying the appeal was not ripe for adjudication by the Appellate Court.  The matter, therefore, went back to the Bankruptcy Court.

After the 11th Circuit’s ruling, the Trustee for the Partnership filed a motion in the Bankruptcy Court to return control of the condominium property to the Partnership Trustee.

Meanwhile, the Colony had continued its process of selecting a developer.  The Developer, who developed schematic plans for redevelopment of the property, had met on multiple occasions with Town staff and was involved in discussions with the unit owners of the Colony.  The Association and the developer terminated their relationship in May of this year after the rulings by the District Court, the 11th Circuit, and the filing of the petition by the Partnership Trustee.

In early July of this year, a full-day hearing was conducted by the Bankruptcy Court to consider, among other things, whether the Partnership or the Association should be in control of the condominium property and the amount of damages that should be awarded to either party. The District Court had remanded this to the Bankruptcy Court with the instructions to “… either (1) vacate, amend, or issue each order necessary and appropriate to return the partnership to possession of the Colony units and recommend an award of $7,751,470.00 to the Partnership or (2) leave the Partnership without the possession of the Colony units and recommend an award of $20,646,312.00 to the partnership.”  The District Court also allowed the Bankruptcy Court to reconsider the Association’s counterclaims against the Partnership.

The Bankruptcy Court has yet to rule.  Any ruling from the Bankruptcy Court would be subject to the rights of appeal through the federal system.  As of this writing, the Association controls the condominium property but that right of control is obviously in jeopardy. ”

 

Town Code and grandfathering

Below is the section of Town Code relevant to the grandfathering provision:

Abandonment of non-conforming uses and structures are governed by Section 158.138(B)(8) of the Town’s Zoning Code.  Section 158.138(B)(8)(a) states that if a non-conforming use or structure is not used within one year, it is deemed to be abandoned.  The Code then sets forth two methods by which that time period may be extended, but only one allows for an extension of a grandfathered use.

Section 158.138(B)(8)(b) provides that the time for abandonment may be extended if the period of non-use or vacancy is caused by “legal restraints”.  The Code states, “The time may be extended by the Town Commission for good cause shown.  The Town Commission may require the petition to decrease the non-conformity of the building or structure and one or more aspects of its non-conformity.”

The other manner in which the Colony may preserve its grandfathered status is to re-open the Colony as a resort hotel prior to December 31, 2012.