Trustee proposes $625,000 Colony rec lease settlement

The Colony Beach & Tennis Resort Association reached a three-way settlement last week with parties involved with a longtime disputed Colony recreational facilities lease.

U.S. Bankruptcy Chapter 7 Trustee Douglas Menchise — who controls everything regarding the rec lease and a rec lease judgment for $2.5 million — filed a motion June 19 asking U.S. Bankruptcy Judge K. Rodney May to approve a settlement that involves the association paying $625,000 in cash for all of Menchise’s rec lease rights.

The settlement, if approved, sets up a future showdown between the association and Colony Lender LLC over who owns the resort’s disputed rec lease.

Colony Lender has claimed for years the lease came with property it foreclosed upon in 2008 (see sidebar) and has attempted to get unpaid taxes and rent for the lease going back to October 2008, plus interest. Recently, Colony Lender and Unicorp National Development were issued sanctions they are appealing in regard to lawsuits filed against all Colony unit owners, in which they sought $5 million in damages for unpaid rent plus interest on the lease.

The association, meanwhile, has contended for years the interest Colony Lender owns consists only of real property and does not include the rec lease.

If the settlement is approved by May, Menchise will transfer his lease rights with respect to 80% of the rec lease property and other leases involved with the recreational property.  

If approved, the association steps into Menchise’s shoes and takes over his position, which also contends he controls the rec lease outright.

Colony Lender, which owns 95% rights to the rec lease land that includes the tennis courts and surrounding recreational property, claims its acquisition means they bought the next 60 years of the rec lease and they can try to collect rent from the lease.

If this settlement is approved, the trustee is removed from the mix and the association will claim it owns the rec lease and it has the right to bury the lease and the disputed $2.5 million rec lease damages claim.

Colony Beach & Tennis Resort Association President Jay Yablon informed unit owners of the settlement last week in a meeting with unit owners.

“If approved, the dispute is directly between us and Colony Lender and we would have legal standing to take on the matter,” Yablon said.

By approving a settlement with Menchise, it allows the trustee to have funds to pay creditors involved with the rec lease, which includes three longtime Colony owner Dr. Murray “Murf” Klauber debtor entities. The cash settlement also includes paying Sarasota law firm Icard Merrill $302,439.61 to satisfy secured claims it has in regard to rec lease legal services for which it was never paid.

“The proposed settlement between the trustee, the association and Icard Merrill would allow these estates to avoid the uncertainty, expense, inconvenience and delays associated with further contested proceedings and provide an opportunity for the trustee to resolve the claims of the association and Icard Merrill on terms favorable to the debtor’s estates and their unsecured creditors, make prompt distributions and close these cases,” the motion states.

The association and the trustee are asking May for a hearing in the next 30 days to approve the settlement.

Colony Lender will argue against the settlement.

Meanwhile, an auction for Chapter 7 Trustee William Maloney’s $23 million judgment against unit owners will be scheduled in September.

Maloney, who doesn’t anticipate a settlement among Colony unit owners, wants an auction of a judgment that Klauber won on appeal against unit owners. He seeks to sell the judgment to Unicorp President Chuck Whittall, who offered $3.5 million for the judgment, or a higher bidder with a better offer at auction.

It’s likely the association will also make an offer for Maloney’s judgment to quash the $23 million judgment that could be used against them if it’s controlled by a developer.

In a hearing last week association attorney Jeff Warren revealed the association is likely interested in bidding on Maloney’s judgment; he asked for and received approval for Maloney to consider offers that include both cash and/or a combination of parties agreeing to a waiver of claims to resolve issues. 

“If approved, the dispute is directly between us and Colony Lender and we would have legal standing to take on the matter."

— Colony Beach & Tennis Resort Association President Jay Yablon