Hotel operators at North Beach Carillon lose ‘dictatorship’ over unit owners

The war on the shore is going badly for a mega-wealthy asset manager at the iconic Carillon, a three-tower complex in North Beach that in its early heyday hosted the likes of Sinatra and Dean Martin. And it could have implications for other mixed-use developments where hotel rooms and condos are intermingled in one complex.

An outfit called Z Capital, run by James Zenni Jr., took over the Carillon complex in 2015 amid bankruptcy. It infuriated condo owners in the process by ousting Canyon Ranch, an acclaimed health and wellness company that oversaw many of the amenities.

Since then the Carillon has been the subject of a drawn-out legal battle pitting the unit owners against the governing body for the resort, restaurant and spa — called the Hotel Lot — over everything from who runs the onsite restaurant to the number of wellness classes offered to the cost of upkeep of shared spaces — lobbies, elevators, hallways and such — which is divided among the three condo associations, one for each tower.

In a summary judgment released Monday, a Miami-Dade circuit judge ruled that the parts of the contract between the Hotel Lot (HLO) and the associations are illegal and an overreach.

The statutes leave “no doubt” that “condominium property must be owned and operated by the unit owners collectively, through their association, wrote Judge Michael Hanzman, the same judge who handled the litigation over the collapse of Champlain Towers.

Until now, unit owners had no say over how to operate or maintain the common areas or the amount of budget reserves for these spaces, despite paying into those reserves.

“As the Court ruled, Florida law prohibits a developer from stripping away from condominium residents ownership and control rights over required condominium property — the mechanism abused here by Z Capital to mismanage the Carillon campus as a dictatorship,” said Jason Koslowe, an attorney at Stearns Weaver Miller who represented the associations in the litigation, in a statement to the Herald.

Hanzman’s ruling, Koslowe said, could impact other similar mixed-use developments, of which there are many in Florida..

The charges the HLO imposes on owners in the three towers through their associations are on top of the individual towers’ own association fees.

Up until Z Capital and CEO Zenni took over operations of the hotel and thus the fourth governing body, unit owners were content. But they say they saw their amenities deteriorate — including services at the hotel spa, which had previously been run by Canyon Ranch — and their fees increase and they began to question where their money was going.

When they tried to take a look at the books, they were denied access. In the lawsuit, filed in March of 2016, the unit owners alleged that Z Capital claimed the prior owner left the books and records “in a state of disarray,” which caused delays. Then, Z Capital insisted only board members could see the numbers, the unit owners said.

Six years after the lawsuit was filed, unit owners received a letter saying they would be issuing a $7.7 million assessment to cover legal fees Z Capital had incurred fending off litigation by the towers. That meant the unit owners were being charged the cost of defending against their own lawsuit. Judge Hanzman stopped that from happening, a decision that Z Capital has appealed.

In December of last year unit owners scored another victory when Hanzman ruled that Z Capital would have to pay $16.3 million in damages to the Carillon’s unit owners for overcharging the associations for years in spa, electricity and hotel fees.

In an email to unit owners, the three building associations called Hanzman’s decision “extremely well-reasoned” and said it reflected “how seriously and thoroughly the judge considered all aspects of this dispute and concluded that significant provisions of the Master Declaration are illegal and unenforceable under Florida law.”

The Master Declaration is what grants the hotel owner ownership and control over the shared spaces.

The two victories for unit owners, the associations wrote, “demonstrate that the HLO and Z Capital’s egregious and unlawful control over our community these past seven-plus years must end.”

Hanzman’s ruling noted that though the part of the Master Declaration is illegal it does not make the contract itself void.

“While we respectfully take issue with the Court’s decision, we think the relief the Court grants is explicitly limited by its own terms,” said a spokesperson for the hotel in a statement emailed to the Herald. “We appreciate the Court not accepting the Associations’ invitation to create complete chaos for the Carillon, the residents, its employees and suppliers by invalidating the Master Declaration.”

“These hotel-mixed use developments are in wide use not only in Florida but also throughout the country. Residents are free to choose to live at the Carillon and enjoy the benefits of access to a world-class spa and resort and its amenities or to live at any other hotel-mixed used development,” the spokesperson added.

A letter to the unit owners from the overseers of the hotel added that “this ruling does not change our mission. In practice, the Carillon Hotel will continue managing this property in the award-winning manner we have done for years.”

Still on the list of issues to be settled by Hanzman is whether the associations can purchase the Carillon’s recreational facilities — the pools, for instance — and whether they can terminate the agreement with the spa, “which has forced Carillon’s residents to pay Z Capital close to $100 million to operate it,” said Koslowe, the attorney for the associations.