The Halcyon Condo Association has so mismanaged its finances that a circuit court judge has gone as far as to order the appointment of a receiver to oversee the management of the 104-residence Palm Beach complex.

A receiver is a neutral third party appointed by a court to take control of a business, property, or assets in order to manage or preserve assets. It is often viewed as an extraordinary remedy, and is invoked only if other methods to protect assets are insufficient.

“The Court finds that, if a receiver is not appointed, the risk of financial irregularities and transgressions will likely increase," Circuit Judge Maxine Cheesman said. "A neutral court-appointed receiver is proper to ensure the preservation of the association, its property, and its assets.” At issue is the failure of the association to account for $15 million in expenditures, and its decision to refuse to hold a community vote on a plan to redo its air conditioning system. Cheesman has ordered the association not to move forward with the project, which is expected to cost $2.5 million. Cheesman concluded condominium bylaws require such a project to be approved by owners. The association has requested Cheesman to reconsider. Meanwhile, lawyers for a condominium owner, who sued the association, have called on Cheesman to find the association in contempt for continuing to proceed with the air conditioning project.

The Halcyon condo complex in Palm Beach, Florida

The Halcyon offers ocean and intracoastal views with listings prices ranging from approximately $800,000 to more than $3 million. The drama at the six-story, 104-residence beachfront condominium began about a year ago after the board first approved the air conditioning project.

“All I ever wanted was for them to allow the owners to have a say as our documents require,” said Michael Montanaro, an original owner who filed the lawsuit. “I do not know what they are afraid of, but if I prevail, they will have to pay my legal fees, which now total more than $200,000. And they have spent just as much. The Halycon is using three law firms; Montanaro, two.

“This is ridiculous. I did not want this to happen. Every ruling, including mediation, has gone against them.”
Halcyon residents could feel financial impact

Association lawyers argued in a recent court filing that the appointment of a receiver could have devastating consequences. Christopher Bellows, one of the lawyers representing the association, said he was unable to discuss the case.

"Indeed, the appointment of a receiver could result in a lender declaring The Halcyon in default of over $6 million in loans and demanding those loans immediately paid. Similar risks could impact individual unit owners," association lawyers said in a court filing.

As for the air conditioning project, The Halcyon is already committed to paying a vendor more than $600,000 for equipment that has been purchased. Additionally, it may be necessary to pay storage fees, finance charges, and ongoing maintenance costs incurred by the vendor, according to the court filing.

“These are just some of the potential losses The Halcyon could face in light of the Order,” according to the association. The bank has already frozen its line of credit while the lawsuit is pending.

The seven-member board is deeply split over the issue. It approved the air conditioning project by a 4 to 3 vote, with its treasurer supporting a community vote. He noted in his testimony that the project's cost exceeded the association’s annual budget.

The board wants to install a rooftop fresh air machine on roofs, relocate three condensing units from the roofs to ground level, and replace the light commercial air conditioning units that serve common hallways.

Wayne Bergman, director of the town of Palm Beach Planning, Building and Zoning Department, testified that, under the Florida Building Code, the HVAC Project was an “alteration” and “definitely not a repair.”

Cheesman, citing his testimony, ruled there is no urgent need for the work to be done. She found that the association failed to produce any evidence that the air conditioning system was in need of immediate repair.

“The owners have a clear legal right to vote on the HVAC Project,” Cheesman ruled. Based on testimony, Cheesman also concluded the association failed to keep proper financial records concerning $15 million in special assessments.

“At a minimum, it is unclear on the face of this record how all of those funds were spent,” she said, noting an independent investigator hired by the board two years ago confirmed records supplied to him by the association were inadequate to provide a full accounting of the expenditures. The current association treasurer confirmed that the projects were over budget and still haven't been completed.

The Receiver is expected to prepare monthly financial statements and status reports designed to identify any redundant or wasteful expenditures. A hearing is scheduled for Aug. 15 to rule on the contempt charge. Cheesman will also hear arguments from Halcyon about whether she should reconsider appointing a receiver.