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BP Business Economic Loss Claim Appeal 2015-1010: Resort management entity not excluded real estate developer


The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms.

The Settlement Program denied this claim, finding that Claimant is a real estate developer, excluded from the Settlement. Claimant filed for Reconsideration and was denied again on the same grounds. This appeal followed.

Claimant is a business engaged in the operations of the [XXXXX] resort, which includes hotel condominium rentals units and two on-site restaurants. Claimant is engaged in providing short-term lodging through hotel condominiums it initially developed, a program initiated in 2008. A related facility continues to own a number of units that were not sold during Claimant’s active sales program, which Claimant claims ended no later than 2008.

In its Denial Summary, the Claims Administrator identified several elements as the basis for its decision. First, that Claimant had a Developer’s License. The evidence shows the Developer’s License was obtained in 2004, when it is readily conceded that Claimant was engaged in real estate development. Claimant does not dispute that it had a license to develop the property, nor that it did develop the property. The question is whether all Real Estate Development activity ceased prior to 2010. There is no evidence the license was active or had been renewed in either the benchmark period or 2010. The fact that the license may not have technically expired, albeit dormant, does not render Claimant a real estate developer during 2010.

Secondly, the Denial Summary finds that the fact [XXXXX] “declared” the subject condos in July 2007 and then amended the declaration in December 2008, to be significant. However, both declarations of the condo complex were prior to 2010. Claimant plausibly explained that the amended declaration, filed in December 2008, was amended to reflect the agreement that was entered into at that point with which placed all of the condos into a rental program, and when Claimant asserts it ceased all “development activities.”

The third point set forth in the Denial Summary relates to Claimant’s website, which has an “available residences” section. Claimant asserts, as supported by the affidavit of its managing partner, that the website is a remnant from the original marketing campaign that ceased once all 79 -owned units were placed into the rental program. As to this issue, the focus is on Policy 468, Section D, ”Cessation of Real Estate Development Activity”, which states in relevant part:

If the information available on the claim indicates to a reasonable degree of certainty that the Entity had been engaged in Real Estate Development Activity before 1/1/10 but had ceased Real Estate Development Activity by 1/1/10 and was not engaged in such activity in 2010, the Entity shall not be considered to be an Excluded Real Estate Developer, applying the following rules.

1. General Rule: An Entity will be considered to have ceased Real Estate Development Activity on the first day of the first month after it has.

* * * (b) Completed all Real Estate Development Activities and assumed the responsibilities of operating the developed property according to its intended use and without holding them for sale at a future time.

2. Property Held for Sale: An Entity that in 2010 sold or continued to hold out for sale any real property developed by the Entity has not ceased all Real Estate Development activity and shall be considered an Excluded Real Estate Developer, regardless of the date the project was completed.

All of the units were placed in the rental program in November 2008 and were rented out in the ordinary course of business, according to their intended use. In addition to the affidavit of the managing partner, the lack of any sales team, marketing expense, or other indicia of an active sales effort strongly indicates this is a stale provision relating to a former sales effort that ceased in 2008. Notably, there have been no sales, and all activity has apparently been associated with renting the units under the resort management program arranged with [XXXXX] in 2008. The evidence is insufficient to support the finding that units were being “held out for sale” under policy 468.

Lastly, the Claims Administrator cited expenses for “License and Permits” and “Interest” on Claimant’s financials. An examination of the licenses demonstrates they are rental licenses, consistent with Claimant’s current rental management activity. The interest is on a permanent loan, which replaced Claimant’s development loan in 2008; further evidence of a wholesale change in its business plan and role following the entry into the resort management program with in 2008. Further, the utter absence in Claimant’s financials of any of the over twenty (20) examples of development expenses associated with Real Estate Development as set forth in Policy 468 C (4) supports the conclusion that this Claimant was not a Real Estate Developer in 2010. This is consistent with the Claims Program’s determined to classify Claimant’s business under NAICS Code 721110 (relating to short term lodging), and which is listed in the Settlement Agreement, Exhibits 17-19, as part of the “tourism industry” and thus eligible for preferential treatment for RTP and zone determination.

Based upon a de novo review of the record in this matter, it is the finding of this panelist that the Claims Administrator exceeded its discretion in its finding that this claim should be excluded. The appeal is upheld, and the claim is remanded for assessment as an allowed claim under the Settlement Agreement.

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