Court’s decision in Two Roads’ buyout case won’t kill all condo deals, experts say

Developers were on edge Thursday after a Florida appeals court issued its long-awaited opinion in a lawsuit over a complicated condo buyout in Miami’s Edgewater.

Yet, a consensus of attorneys contacted by The Real Deal agreed that the controversial ruling won’t kill all potential buyout deals, but how condo documents are worded is key.

The Third District Court of Appeal ruled in favor of a group of eight holdout owners who have been fighting the buyout of their condo building, Biscayne 21, for years. In 2022, Two Roads Development, led by Taylor Collins and Reid Boren, paid about $150 million for the majority of units at the bayfront 192-unit building at 2121 North Bayshore Drive in Miami.

That year, Two Roads hired Douglas Elliman to launch sales of Edition Residences, a luxury condo project planned for the Biscayne 21 site. In 2023, the holdout owners sued, alleging the developer-controlled condo association illegally amended the condo declaration to lower the requirement for a condo termination to 80 percent of owners, from 100 percent.

Condo terminations are a legal part of the process required to eventually redevelop a site that’s home to an existing condominium. Developers that complete majority purchases of units in buildings that they plan to redevelop have to go through the process.

The Third DCA’s opinion reaffirmed and doubled down on its previous ruling, setting a legal precedent that will be used in future legal battles.

Language matters

Some attorneys were disappointed but not surprised. Last year, when the Third DCA issued its initial opinion, attorneys said the ruling would make condo buyouts, already a difficult task, even more challenging. And Two Roads, in its statement to The Real Deal on Thursday, said the initial decision “has already caused billions of dollars in disruption and damage to the real estate industry across Florida.”

Other attorneys disagree.

“Will it be the death of terminations?” said Dickinson Wright attorney Charles Brecker. “Not at all, because there are many of those buildings that have been drafted with a little more perspective of not requiring 100 percent vote [for a termination].”

Still, Brecker and others believe the court reached the wrong conclusion. Bilzin Sumberg attorney Joe Hernandez, who previously represented sellers at Biscayne 21, but is not involved in the litigation, said the decision creates more uncertainty for potential condo terminations.

“This is making terminations for condos with similar language almost impossible to do unless you buy 100 percent of the units,” Hernandez said. “Any holdouts know they have [developers] by the short hairs.”

The Third DCA found that Biscayne 21’s original condo declaration gave each unit owner an effective veto over any termination, which means that the developer-controlled association’s vote amending the declaration is invalid.

The Third DCA also clarified the Kaufman language issue, which refers to the phrase “as amended from time to time.” That phrase is used to bring condo declarations up to current state law. In its latest opinion, the court found that the developer misapplied the Kaufman language. Biscayne 21’s language didn’t include “from time to time” and the “as amended” was related to a subsection of Florida’s Condominium Act, not the law in its entirety, said Shubin Law Group attorneys Juan Farach and Jamie Katz.

Farach said the Third DCA’s opinion “clarified what constitutes Kaufman language and what does not constitute Kaufman language.” Katz said it’s helpful because the judges analyzed the declaration’s wording. The provisions included in Biscayne 21 aren’t in all condo declarations, she added.

Next steps for Two Roads, holdout owners

Two Roads says it plans to take the issue to the Florida Supreme Court. Whether the court decides to hear the case is not certain, and the developer has been racking up millions of dollars in interest for the 2022 acquisition loan. In its statement, Collins of Two Roads said he is encouraged that the Third DCA certified the question to the Supreme Court.

“We remain confident in the strength of our position and committed to achieving a result that restores clarity and stability to the industry,” Collins said.

But now, the holdout owners have more leverage.

Still, the building has been vacant and exposed to natural elements for more than a year. It seems unlikely the holdouts would be able to live in the property again.

Brecker, who is not involved in the litigation, said the developer either gets the decision reversed by the state’s highest court, which experts say is unlikely, or it has to cut a big check to the holdout owners, possibly totaling tens of millions of dollars.

Two Roads’ lender in the deal, Bank OZK, likely doesn’t want to foreclose, “because what’s the lender going to do?” Brecker asked.

Two Roads did not respond to additional questions on its future plans if the Supreme Court does not hear the case.

Condo buyouts are inherently risky. Typically, one buyer is working with dozens, if not hundreds, of individual sellers with different motivations and needs. Layer into that that some of these sellers live in these properties and are being displaced.

Industry experts say that developers, associations and their attorneys should pay extra attention to how an association’s condo declaration is worded.

“In every condo buyout, there is risk,” said BH Group developer Isaac Toledano. “As I tell people, I’m not in the gambling business, I’m in the real estate business.”

BH has recently been involved in three completed condo buyouts in Florida totaling more than $250 million, including the nearly $132 million bulk purchase of the majority of units at the oceanfront Miami Beach Club condo complex in Sunny Isles Beach with partners Related Group and Dezer Development.

BH is also working on two additional buyouts in Miami-Dade County that could total $210 million. Toledano declined to identify the properties.

“Like with every deal, if you’re doing the proper due diligence you’re probably going to be OK,” Toledano said.

Development

South Florida

A win for holdouts: Appeals court sides with Biscayne 21 condo owners in battle with Two Roads tied to redevelopment