Surfside Condo Owners Win a Round in Fight Against Redeveloper

Peter Valori, with Damian & Valor, and Mike Marcil, with Gunster.

Five owners of residences in a Surfside condominium who have been battling a developer intent on buying them out and replacing the 1966-built oceanfront building will get to keep their units, at least for now.

Miami-Dade Circuit Judge Michael Hanzman ruled a plan to dissolve the condominium ownership structure at the Surf House Condominium, a plan that included the possibility of a forced buyout, is illegal.

Hanzman disagreed with Circuit Judge Rodolfo Ruiz, who had previously upheld the dissolution. The order was issued Tuesday but amended Thursday, although the changes didn't affect the outcome.

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The case illustrates an issue that's arisen from the booming South Florida real estate market. As the region runs short of developable oceanfront land, builders are targeting older condominiums, pushing out longtime owners through condo dissolutions and buyouts, said plaintiffs attorney Mike Marcil.

"For sure developers are targeting older buildings and hoping they can build new luxury condominiums they can sell for millions of dollars," said Marcil, shareholder at Gunster in Fort Lauderdale. "It's a trend where developers are forcing people out of their homes to try to make a buck."

His clients bought their units years ago likely for a fraction of the price of condos now and want to keep their homes, Marcil said.

The issue at Surf House started about three years ago when state-registered corporation Surf House Ocean Views LLC bought 32 of the 36 units at the condominium at 8995 Collins Ave.

New York-based developer Jason Halpern, who is the founder and managing partner at JMH Development, is listed as manager of Surf House Ocean Views by the state Division of Corporations.

On Nov. 2, 2015, the Miami Herald reported that JMH planned to build a 12-story condominium in place of Surf House.

The owners who didn't sell the four remaining units sued in 2016—with a second amended complaint in 2017—alleging Halpern and four others who don't own units became directors of the Surf House Condominium Association Inc. and illegally voted for the termination and buyout plan over the objections from the holdouts.

The plaintiffs — Carol and Ignatius Adams, who own one unit; Thomas Bainbridge, who owns one unit; and Stephen and Peggy McKnight, who own two units — in their second amended complaint sued the association, Halpern and the four members of the board directors.

Surf House Ocean Views joined the case as an intervenor on the side of the defendants shortly after the first complaint was filed.

The plaintiffs argued in part that a unanimous vote by unit owners was needed to approve the dissolution.

Surf House Ocean Views had 88.8 percent of the vote because it owned that many of the units and the plaintiffs had the remaining 11.2 percent of the vote, which they said was enough to stop the dissolution approval. The plaintiffs also argued that state law mandates that once a condominium is dissolved, the tenants become tenants in common, according to Hanzman's order.

Tenancy in common means that former unit owners now own part interest in the property.

But Surf House Ocean Views said that the association directors legally voted to amended the condo association documents and push down the approval threshold from unanimous to 80 percent of unit owners, making the dissolution legal, according to Hanzman's order.

Ruiz, the circuit judge first to rule on this, agreed with Surf House Ocean Views, ruling in an August 2017 order that the plan is "valid and effective," and it may provide for a forced buyout of owners.

But Hanzman said Ruiz erred, reasoning in part that although unit owners knew that the condo governing documents could be changed to require less than a unanimous vote for a dissolution, they also have the right to keep ownership as tenants in common and a sale could be done only through a partition under state law.

The dissolution plan is therefore illegal because "it purports to force plaintiffs to sell not in the open market through partition — but to SHOV (Surf House Ocean Views) itself at a 'price' calculated through use of statutory appraisal criteria adopted by the legislature ... long after plaintiffs acquired their property interests," Hanzman wrote.

Lawyers debated the ultimate impact of Hanzman's decision.

"I don't know what his (Halpern's) business plans are going to be but the whole plan he had to terminate the condo and force us to sell to him is dead," Marcil said.

Not so fast, said Peter Valori, attorney for the association and its directors, including Halpern.

Hanzman's order leaves the door open for a dissolution in the future — including a dissolution under the plan already approved, said Valori, managing partner at Damian & Valori in Miami.

He pointed to a footnote in Hanzman's order that says although the court concluded the dissolution and its forced buyout provision violate state law, the court "leaves for another day the question of whether this illegality voids the plan in its entirety or whether the illegal buy-out ... provisions may be severed with the termination remaining intact."

"My reading of the court's order is that the court made a determination that the association may be terminated ... whether it's terminated pursuant to the current plan or whether it's terminated pursuant to a future termination," Valori said. "The result, according to the court's order, would be that any owner could seek partition" under state law.

Here's how, according to Valori, tenancy in common and a partition sale would work: If the condo ownership is dissolved, then unit owners would get ownership interest in the building, and once the property is sold, each unit owner gets proceeds equivalent of his or her ownership interest.

"Here, if there were a sale of this property let's say for $1 million, then $888,000 would go to the majority ownership and the remaining $112,000 would be divided and given to the unit owners based on their individual ownerships," Valori said.

Surf House Ocean Views' attorney, Greenspoon Marder partner Chad Tamaroff in Fort Lauderdale, and Halpern didn't return a request for comment.