Timeshare owners balk at hefty fee for a week by the sea

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Time-share holders at Gurney’s Inn in Montauk will likely need to vote on whether to sell the inn’s time-share component by the end of March because of the rising costs of operation. And the management of the inn, spa and restaurant doesn’t know yet how the potential sale could change the storied establishment in years to come.

Gurney’s General Manager Paul Monte said that there’s little secret among those who are familiar with the time-shares that the company’s current structure is not viable in the long term.

“In April of last year, we made a presentation to the time-share owners and laid out the capital needs for the property,” said Mr. Monte. “We laid out the cold hard cost of doing business out here and of the maintenance fees they’d have to pay.”

Some time-share holders have become worried enough by the skyrocketing cost of their maintenance and their perception of secretiveness on the part of the Monte family, which established the inn in 1926, about any plans for the inn that they’ve attempted to involve the New York State Attorney General in an investigation into the inn’s corporate structure. They have also developed their own website, gurneysowners.com.

“Most of the owners are like me—they bought at high prices in the 1980s, and kept the time-share throughout the Montes’ bankruptcy when you couldn’t give them away,” said East Quogue resident Maria Daddino, who bought a week in June in a studio unit for $10,000 two decades ago.

“Now the Montes want to sell. They won’t disclose their plans, won’t give out any information, and are levying on the owners large special assessments and maintenance fees. Mine are $1,600 this year, for one unit for one week. That means for just my unit, they will get 51 other payments of $1,600. Many of the older owners, who can’t afford the high maintenance and assessment fees, are just surrendering them to Gurney’s,” she said.

“Most of us don’t really want to sell. We’re being forced into a corner,” she added.

Ms. Daddino said that she is concerned that, if enough shares are returned to the inn’s management, it will be able to vote those shares to sell Gurney’s despite the protests of the other time-share owners.

Mr. Monte said that only the 2,500 owners of actual time-shares will vote on whether to abolish the time-share structure and seek out a buyer or an investor. He added that the manner in which any potential investor would interact with the operation of the inn, spa and restaurant is still entirely up in the air and, if an investor comes through, he has no idea how the inn may change under new owners in the years to come.

Pat Buffa, the president of the time-share owners association and a real estate attorney, said she is disturbed by many bits of information she’s culled from a year of examining Gurney’s corporate structure. She said that she expects to receive a letter from Gurney’s management within weeks announcing a planned vote on whether to sell the time-shares.

She said that 2.7 million class B shares in “Gurney’s Inn Resort and Spa INC” belong to the Monte Trust, which is controlled by Paul Monte’s aunt, Lola Monte, and her son, Keith Cooper, according to Ms. Buffa. The trust controls the inn’s board of directors, she said.

It was written into the documents creating the co-op structure on which the time-shares are based that the time-share owners—who hold 340,000 shares of class A stock in Gurney’s—would have one representative on the company’s board of directors, according to Ms. Buffa. But they did not get a representative, Ed Leggio, until after Gurney’s came out of bankruptcy in 1998, she said.

“The problem is, this is the only co-op in New York where the original sponsor, the Monte family, is still controlling the board of directors. We pay all the bills. They run everything,” she said.

Mr. Monte said that he believes that Ms. Buffa is still “miffed” by her failed attempt to run for the board of directors in 2002, and added that she represents a small group of summer shareholders, whom he said are still getting value out of their shares, while those who hold shares for less desirable weeks are unable to justify the high cost of their maintenance fees. He added that the time-share owners’ representation on the board was not established until the late 1990s.

Ms. Buffa, who owns three time-shares—one during the summer and two in the off-season—began a crusade last year for more information about how the setup works after the shareholders’ maintenance charges skyrocketed.

“A lot of things started happening last year that raised the hairs on the backs of our necks,” she said.

First, she said, shareholders were billed an extra $300 along with their regular maintenance, which had averaged about $900, for repairs to the spa roof. Then, she said, they were billed for a second assessment of $620 per weekly share. Half of that, said Ms. Buffa, was to cover shortfalls in the inn’s budget and the other half was to buy a structure on the beach near the inn known as the Shelbart cottage. The owner of the cottage, Sheldon Brightbart, had the right of first refusal on use of the spa and restaurant, and Ms. Buffa speculated that his agreement was an impediment to the sale of the inn.

Mr. Monte corroborated her account of the new assessments, though he took issue with Ms. Buffa’s speculation that Mr. Shelbart could have held up a sale. He added that revenues from the time-shares make up just 20 percent of the facility’s income, though the management had to cover the budget shortfalls due to declining demand from outside users as the economy soured last year, by increasing its assessment to the time-share owners.

Ms. Buffa said that many time-share holders, shocked by the increase in their maintenance fees, attempted to sell their shares, only to learn that they would have to pay a $6,000 fee to do so, rendering their holding nearly worthless.

“They can’t sell them now because the maintenance is so high,” she said.

Mr. Monte, however, said that the $6,000 fee would be the cost to each shareholder to do necessary capital improvements to the inn, but that if the shares were sold, the owners would no longer have to incur that cost.

“Our goal is to sue them for conflicts, self-dealing. These are the issues we want to bring an action on,” said Ms. Buffa, who added she is collecting money to launch a case against the trust. “Paul Monte is signing loan documents that put burdens on us. He has a tremendous amount of control. We don’t know that that’s out of line, but we don’t know where all the money really goes.”

“They’re threatening that I told people not to pay their maintenance. They filed a complaint with the Attorney General against me,” said Ms. Buffa. “The trust’s attorney has threatened me and said there were misstatements on the website. I said, ‘If I have made any misrepresentations, tell me.’ They’re claiming we’re damaging Gurney’s, but we’re trying to get information out to shareholders. We just want a fair deal.”

“This is not about some private agenda or a Machiavellian scheme coming home to roost,” said Mr. Monte. “This has happened to a lot of time-shares … We’re at a crossroads. The time-share owners have to vote. If they want to stay, that’s fine. People who bought off season in the early days paid $198 in maintenance. That same unit owner is paying $1,100 now. They’re sharing the burden and they don’t have the same economic benefit” as the summer shareholders.

Ms. Buffa said she believes Gurney’s currently owes as much as $20 million in loans. “By the time everything is paid, and who knows whatever deals are out there, they still haven’t explained to shareholders what they would get” in a sale. “Last year, they got an appraisal from a time-share appraisal company and they refused to release it to us. I think it might have been low.”

Ms. Buffa said that Gurney’s management sent a letter last year to the shareholders warning them that an unscrupulous group might be calling them trying to solicit money, which she said scared a lot of time-share owners, many of them who are aging and fear that they will be taken advantage of.

“People should have full disclosure. I don’t have full disclosure,” she said. “We have co-op lawyers in our group who don’t understand what’s going on. I’m very familiar with condo and co-op work. Real estate was my specialty. I used to draft these kind of documents. Our people in our group are very savvy people. We’re not kooks.”

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