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Holiday Inn owner sued, alleging breach of contract, fraud and misrepresentation
By Shelia Watson
Contributing Writer
The pending sale of the Folly Beach Holiday Inn, which was called off by the seller in early September, has moved into the legal arena.
Suncoast Properties of South Carolina LLC has filed suit against Charleston at the Beach LLC, which owns the Folly Beach Holiday Inn, and Horace Rooke, the company’s owner.
According to William Nicholson III and Dan David, attorneys for the buyer, the suit was filed because Charleston at the Beach was unprepared and unwilling to deliver a good and marketable title, as required by its contract with Suncoast.
Suncoast had extended the scheduled closing date at the request of the seller, but the seller allegedly did not meet its obligations. The legal action alleges a first cause of breach of contract, a second cause of breach of contract accompanied by fraudulent act and a third cause of fraud and misrepresentation.
“Acquisition financing was in place and all documents had been prepared for conversion of the inn into a condominium hotel,” said Vicki Hollingsworth, broker-in-charge of Beachside Real Estate Inc., who handled the sale of the individual units as condos.
Complications regarding the current mortgage on the property are behind the stalled deal.
“Unfortunately, situations arose out of a very peculiar promissory note that is the underlying loan on the Holiday Inn property and that note provides that it cannot be prepaid,” said Grady Query, attorney for Rooke and Charleston on the Beach.
Ability to repay the promissory note was not one of the contingencies in the contract.
“It’s our understanding that, when he financed the property, the loan was obtained from Lehman Brothers, a stock company,” said Nicholson. “It was an unusual loan. In the note, the mortgage cannot be paid off.”
Query explained that the mortgage is part of a group of mortgages lumped together by a securities company. “Investors are providing the funds and that’s the reason this (inability to prepay the loan in order to release the title) is so iron-clad. It would affect the entire fund.”
Rooke was not aware of that clause when he entered into the contract, Query said. “He took the documents to the attorney representing him at that time and asked to have the documents reviewed.”
Rooke allegedly was advised by his previous legal representation to sign the documents and allegedly was told it was OK to sell.
“Our position is he should have been aware of that clause in the note,” Nicholson said.
Nicholson and David said the title could be obtained through “substitution of collateral,” substituting treasury bills for the property. However, Query said such an avenue could not be done at this juncture.
“It was very late in the process when Mr. Rooke was advised by the bank that this was not a normal bank loan and could not be paid off,” Query said. “Therefore, Charleston on the Beach was unable to fulfill obligations. We’ve explored every avenue to pay off the loan.”
Complicating the matter is the fact that all of the units had been pre-sold.
“All 132 rooms in the inn were under contract to sell to prospective buyers who had made required deposits,” Hollingsworth said. “The prospective buyers have been notified that Suncoast cannot proceed with its purchase of the inn and the planned conversion. As a result, deposits are being returned to the prospective buyers.”
“This was a $20 million deal, and the majority of that (financing) was based on the sale of individual units,” David said.
Among the actual damages outlined in the civil action are lost profit of $15,228,000 on sales of 132 condominium units; real estate brokerage commissions incurred in pre-sales of the units; damage to plaintiff’s reputation and goodwill, especially in the Charleston real estate market; lost opportunity to pursue other real estate development; and costs and attorneys fees. Punitive damages are also being sought.
“Mr. Rooke obviously will suffer a great loss as a result of not being able to close this,” Query said. “He would certainly do anything he could to close.”
“Had (the problem with the mortgage) been disclosed earlier, things might have been different,” David said. “We had to jump through a lot of hoops, and we went through all of them only to have this happen.”
Said Nicholson: “We were sent letters saying everything had to be in place by a certain time or the deal was off. We had everything ready to go and within a week it folded. We’re asking the court to enforce the contract.”
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