The Colony Beach & Tennis Resort Association, which consists of the Colony’s 232 unit owners and its board of directors, filed a bankruptcy reorganization plan last month. However, the Colony’s owner and some of its unit owners object to the plan.
Members of the association’s board of directors, who are also unit owners of the resort, filed for Chapter 11 bankruptcy on behalf of the association in December 2008.
The reorganization plan asks the Tampa-based U.S. Bankruptcy Court’s Middle District of Florida to reject the resort’s 1984 Agreement and Condominium Declaration, which acts as a bridge between the hotel and the resort’s unit owners, who are also investors in the hotel.
The plan also calls for the rejection of a recreational-facilities lease that the association is required to submit funds to and outlines a maintenance program to keep the resort operational until a final resolution is reached in court.
More than 75% of the club’s unit owners submitted ballots to the court in favor of the reorganization plan. However, a decision on the reorganization plan and a review of the ballots cast is not expected until late June.
Colony Chairman and owner Dr. Murray “Murf” Klauber, who has repeatedly objected to the association being allowed to file for bankruptcy, has also objected to the reorganization plan.
Some unit owners have joined with Klauber in opposing the bankruptcy in court, despite the fact that the association’s board of directors’ actions represent the association as a whole.
The objection filed April 15 by the Colony Beach & Tennis Club states that the association repeatedly suggests that the association can file for bankruptcy because its unit owners only have 30 days of exclusive use of their units.
The association claims that unit owners should only be responsible for up to one-twelfth of the association’s costs and expenses if they are only allotted one month out of every year of rent-free use.
Such a claim, the objection states, “would restructure the entire hotel enterprise through the bankruptcy of an administrative body entrusted to oversee the common areas of only one part of the hotel.”
The objection also states that all of the unit owners agreed to the current arrangement when they bought their units and can either meet their contractual obligations to pay for certain expenses or sell their units.
Colony President and General Manager Katie Moulton says she doesn’t know why the association wants to dismiss the 1984 agreement, which she says “calls for the hotel operations to fund any of the association’s expenses.”
“We’re talking about a group of people who paid an average of $80,000 for property on Longboat Key that are now complaining about a business relationship that they agreed to,” Moulton said.
Meanwhile, both sides are gearing up for a three-week trial that begins Monday, May 18, in Tampa, during which Klauber and Moulton will make their case as to why the association is required to pay $14.1 million in repairs needed to fix up buildings and repair damage from the 2004 hurricane season.
It’s those repair costs that led to the now four-year-old dispute that went public in April 2007, when Klauber filed a Sarasota County civil lawsuit alleging that the association failed to assess its unit owners to fund the repair costs.
Klauber and Moulton will also ask the court for damages for lost business and lost opportunities that have occurred since the association refused to pay the monies.
Moulton, who stressed that the resort continues to run as normal, says the association is only paying for their own property insurance and taxes associated with the units.
Colony Association Board Vice President Jay Yablon said that the court has repeatedly justified the association’s bankruptcy claim.
“But we don’t have the authority to ask the court to restructure the hotel,” Yablon said. “We can only ask the court to restructure our relationship with the hotel and give us protection in relation to our relationship with the hotel.”
But Yablon admitted that a different relationship with the hotel would force the hotel to restructure the entire way it does business.
“It’s a complicated mess that may take years to resolve,” Yablon said.
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