Colony: No end in sight

Are you planning a barefoot wedding or a beachside family vacation in the next couple of years? You won’t be holding it at the Colony Beach & Tennis Resort.

The Colony is still vacant. Its structures are still decaying. And this summer, it became the subject of even more lawsuits. Here’s the latest on the shuttered resort:

Longtime owner Dr. Murray “Murf” Klauber no longer owns land at the Colony, and unit owners are now battling Colony Lender LLC in the courts.

Colony Lender is the entity that purchased overdue bank loans on Klauber-controlled properties, including an 80% interest in a 2.3-acre recreational property at the center of the resort. It later acquired an additional 15% interest in the 2.3-acre property.

Colony Lender received a judgment of more than $14.3 million in a September 2013 foreclosure trial.
Longtime unit owner Andy Adams, who owns approximately 27% of the 237 units at the resort, plus a 5% interest in the recreational property, placed a $15.2 million bid on the assets in a July auction. Colony Lender upped the bid by $1, placing a winning bid of $15,200,001 on the 80% interest plus 100% of the restaurant complex and Klauber’s former penthouse office. As a result, Colony Lender now holds a 95% interest in the recreational property.

The Colony Beach & Tennis Association insists that because Colony Lender bid more than the amount of the judgment, it now has no financial claim against unit owners and only holds title to the land.

Of course, Colony Lender begs to differ, insisting that it also acquired a recreational facilities lease when it purchased the land. (See sidebar, above.)

The Colony Beach and Tennis Association, which represents most unit owners, argues the Florida Legislature outlawed recreational facilities leases in 1975.

Chuck Whittall, whose Orlando-based Unicorp National Development Inc. has an agreement to purchase Colony Lender’s resort assets, urged unit owners in an August letter to accept his offer to purchase their units for $20,000 each or face future liability. He says he plans to transform the property into a new $450 million resort with the working name Hotel Armand and is prepared to spend $35 million to $40 million in litigation.

In October, Colony Lender filed a lawsuit in the 12th Judicial Circuit Court listing 174 defendants, representing owners of all 237 units except for Colony Lender principal David Siegal.

Chapter 7 Bankruptcy Trustee Douglas Menchise filed a motion seeking sanctions against Colony Lender LLC for its assertions that it controls a recreational facilities lease constituted a stay violation that Colony Lender insists doesn’t exist.

U.S. Bankruptcy Judge K. Rodney May is expected to rule on the motion Nov. 12, in his Tampa courtroom.
Nine Colony Beach & Tennis Resort unit owners and the Colony Beach & Tennis Association have also asked the 12th Judicial Circuit Court to stay Colony Lender LLC’s lawsuits against unit owners.

May expressed frustration with the case during an August hearing, comparing the case to “a Rubik’s cube, but someone squirted glue in the cracks.”

After Colony Lender filed its suits, Assistant Town Attorney Kelly Fernandez summed up the situation in a memo to the Longboat Key Town Commission:

“With the newest court action filed by Colony Lender against the individual unit owners, it seems that the various parties in interest remain potentially years away from resolving fractioned ownership issues.”

What is the recreational facilities lease?
At the crux of Colony Lender’s claims is a 99-year recreational facilities lease in which unit owners paid $650,000 annually for use of the tennis courts and other recreational facilities at the property to Klauber and other leaseholders. Colony Lender insists the lease came with the property it foreclosed upon and say unit owners owe $5.1 million for unpaid taxes and rent going back to October 2008 plus interest and could face up to $42.3 million for future liabilities through 2072.

The Colony Beach & Tennis Association contends that the interest Colony Lender LLC owns consists only of real property and does not include the recreational facilities lease.