Many residents bought their condos at the Carillon Miami Wellness Resort because living in a luxury hotel had an obvious allure. The branded oceanfront property is actually a condo-hotel, a complex for both residents and visitors with two restaurants and two cafés offering beachside dining, four pools, a gym and spa.
Yet, the paradise is actually a “dictatorship” for residents, they claim in court.
New York-based merchant bank Z Capital Group owns and manages nearly the entirety of the three-tower condo-hotel in Miami Beach. Its purview extends to the 74 hotel rooms, amenities and common areas such as hallways, lobbies and elevators, and it has the right to assess the owners of the over 500 condos for the maintenance and renovations of these areas. Z Capital can also charge them a spa access fee that can increase 10 percent annually.
Condo owners “have no say in how the recreational and other commonly used facilities are maintained, what price they are charged or how their money is spent, decisions that are all within [Z Capital’s] complete and authoritarian control,” residents said in a court filing.
The bitter litigation between Carillon residents and Z Capital has dragged on for eight years.
The Carillon is hardly the only condo-hotel embroiled in lawsuits. Across South Florida, residents have taken issue with the complexes’ commercial lot owners, firms like Z Capital that control nearly the entirety of the properties except for the individual condos.
This year, Florida lawmakers attempted to settle the issue. But the legislation they approved, which took effect four months ago, has become a major setback for unit owners, their attorneys say.
The governing documents, or master declarations, have laid out commercial lot owners’ enormous control for decades, and as it turned out, the new law sealed their power by codifying it into the Florida Condo Act.
Lawmakers “really need to repeal that amendment,” said Eugene Stearns, an attorney for the Carillon condo associations. “There’s no part of it that makes any sense. It is anti-consumer.”
There are other problems: One loophole allows commercial lot owners to skirt structural integrity requirements imposed on condominiums, potentially creating safety risks at condo-hotels, residents’ attorneys say. Another tenet of the law is that it applies retroactively to condo-hotels, including existing properties with pending litigation, giving commercial lot owners ammunition when they argue for their ownership power in court.
Commercial lot owners’ attorneys counter that the legislation clarifies their existing legal rights. For years, they have argued that commercial lot owners need to have the power to control the majority of real estate at condo-hotels in order to maintain them to the standards of high-end hotels. Aside from the Carillon brand, other condo-hotel flags in South Florida include Ritz-Carlton, St. Regis, W Hotels and Kimpton Epic.
“Hopefully, [the legislation] will bring an end to what I see is just really a lot of abusive litigation” by condo owners, said Brian Dervishi, an attorney representing Z Capital. “It will be like the era that’s now being brought to an end by the statute.”
The opposite may turn out to be true, and residents’ attorneys say amendments are likely in the next session.
Setback
At the Carillon, much of the acrimony has been over common areas such as lobbies, hallways and roofs. The three condo associations (one for each tower) take issue with Z Capital’s authority over these spaces, arguing they should have a say on maintenance and assessments as well.
Last year, Judge Michael Hanzman issued a scathing order saying Z Capital’s control of common areas amounts to “overreach” that reduces unit owners to “nothing other than long-term hotel guests.” He declared the portion of the declaration that gives Z Capital authority over common areas illegal. After that, Judge Jennifer Bailey took over the case and dealt a bigger blow to Z Capital. In a final judgment, she ordered the firm to transfer ownership to the condo association for 13 common areas, including roofs, balconies, lobbies, hallways, utility equipment and air conditioning systems.
The landmark orders marked a major victory for Carillon residents, paving the way for them to take over common areas.
But then, state lawmakers approved the new law, setting back residents’ victory. In August, Judge Thomas Rebull, a third judge to oversee the Carillon case, invoked the legislation in an order that stayed the transfer of the 13 common areas to the condo associations.
“Lawmakers ‘really need to repeal that amendment. There’s no part of it that makes any sense. It is anti-consumer.’”
That’s an indication that the law could swing things in favor of Z Capital in the appeals court, which is where the case is now pending.
“When the Third District Court of Appeal eventually gets to this issue, whether it’s in ’24 or ’25,” Dervishi said, “I’m sure that the law will factor into the appellate decision.”
Not so fast, Stearns, the condo associations’ lawyer, countered. The legislation says that it does not apply to condo-hotels where commercial lot owners lost their rights in litigation that is “fully and finally adjudicated.”
Because Bailey’s decision was a final judgment, the Carillon case essentially is fully adjudicated, he said.
“We’re not worried about the effect of the law on Carillon,” Stearns said.
Safety risk?
After the deadly Surfside collapse in 2021, the state and some counties imposed strict and costly requirements on condo associations, including to complete structural integrity studies and repairs and to fund reserves. Previously, condo boards could waive funding reserves.
But the condo-hotel law created an unforeseen loophole that could pose structural safety risks at condo-hotels, Stearns said. Because the law grants commercial lot owners control of the complexes, then they are not subject to the structural safety mandates imposed on condo associations. And commercial lot owners are likely to avail themselves of this exemption, Stearns said.
“Anytime you can have somebody that can avoid having to make capital expenditures and increase their profits in the short term, that’s what they’re going to do,” he said.
This is particularly troubling because condo-hotels tend to be oceanfront and have pool decks on the upper floors, which puts them in bigger structural peril, he added.
Proponents of the law vehemently deny that commercial lot owners would try to wiggle out of structural mandates, as they would want properties well-kept to protect their investment.
“The hotel operator has the incentive to make sure the hotel is kept up to those proper standards,” said Mark Grant, a consultant to attorneys defending Z Capital in the Carillon case.
The law also mandates that residents have access to financial records and imposes disclosures to unit buyers that they won’t own common areas but will be assessed for them.
Gary Saul, an attorney with a decadeslong practice writing condo-hotels’ declarations, said that these disclosures were already part of purchasing materials. Residents at condo-hotels have been filing suits because they simply grow discontent with the governing structure.
“When people bought, they were happy with having someone else” be in control, he said. Now, “they want to come back after the fact … and say, ‘I really don’t like what I bought.’”
Condo buyers are presented with hundreds of pages of documents and disclosures can get lost in the fine print, Stearns countered. The new law’s additional disclosure requirement isn’t much help in shedding light on the governing structure, he said.
A developer’s job is to build projects, earn a profit from selling condos, introduce a hotel brand and then move on. Instead, they stay on as commercial lot owners, or middlemen of sorts between residents and the hotel brand, Stearns said.
“You don’t get to keep making your money year after year after year after year for doing nothing,” he said.
The future
Florida lawmakers’ approval of the condo-hotel law this year caught condo association attorneys off guard.
At first, the legislation was its own independent bill that fizzled early on during the session. But the language was later tacked on to a separate, 154-page bill that dealt with unrelated issues such as heightening oversight of condo associations’ board members and imposing criminal penalties if they are convicted of fraud.
The condo-hotel bill’s supporters “were like, ‘Here’s a moving train. Let’s put our stuff on that,’” said Travis Moore, a lobbyist for condo associations group Community Associations Institute.
But boosters didn’t reveal its full effects to lawmakers, including that it would apply retroactively and to condo-hotels with pending suits, he said.
“They were told, ‘This is just going to help clarify who’s going to pay for what,’” Moore said. “On its face, it kind of made some sense, but they did not provide all of the information. … That’s just not fair to those residents that are in the process of going through the courts to try to get redress.”
Real estate attorney Peggy Rolando countered the notion that the legislation was somehow snuck in at the last minute in front of lawmakers, saying there was an extensive analysis of the bill. And the law is necessary considering recent court orders against commercial lot owners.
Even before the Carillon case, a similar lawsuit unfolded at the Icon Brickell condo-hotel in Miami. In 2020, the court sided with a unit owner who had sued over the commercial lot owners’ control of common areas, even though residents are on the hook for assessments on these spaces. An appeal court upheld the ruling later that year.
The outcome put commercial lot owners on alert that they could start losing property rights for common areas to condo associations.
“It’s kind of a land grab,” said Rolando.
After all, commercial lot owners pay “major bucks” for their holdings at condo-hotels, including common areas, and losing these properties also would pose major issues for their mortgages and title insurance on the spaces, Rolando said.
At the legislative session, the Florida Land Title Association was among the advocates for the condo-hotel law, said Rep. Vicki Lopez, a sponsor of the bill.
“It’s a big issue for them. They have a professional responsibility to ensure that whatever they entitle actually belongs to you,” Lopez said. “They would be in trouble if they are not doing their job.”
Still, Lopez plans to bring up amendments to the condo-hotel law at next year’s session, though she is still speaking with stakeholders to hammer out exactly what the changes will include. She is unsure if amendments will address the law’s retroactivity, but she does want to ensure more protections for unit owners.
Over the years, commercial lot owners’ greater power at condo-hotels has opened the door for them to abuse their authority through excessive assessment hikes and mismanagement, Lopez said.
“We have to put a little more structure in the statute that clarifies the [common areas], what they are,” Lopez said, “and a process so that condo owners can in fact dispute some of these expenditures that are either fraudulent or don’t have property accounting.”