Alternative Timeshare Models and Implications for Litigation

 

One of the biggest issues facing governments introducing legislation to control the timeshare industry, has been the development of new timeshare models.  New timeshare models have been introduced by developers in an effort to 're-badge' the tainted perception of timeshares held by prospective consumers, 'optimise' control over the resort and its revenues BUT also to circumvent the legislation which has been introduced. 

The introduction of the alternative timeshare products has had two implications

  1. The legislation, in many respects, is always in 'catch-up' mode
  2. Achieving a 'just outcome' requires an in-depth understanding of the legislation and an understanding of the timeshare industry - its structure, drivers and motives/ethics of the participants

 

Alternative Timeshare Models
Deeded versus Right-to-Use Contracts

A major difference in types of vacation ownership is between “Deeded” and “Right-to-Use” contracts.

Deeded Contracts - the use of the resort is usually divided into week-long increments and are sold as real property via fractional ownership. As with any other piece of real estate, the owner may do whatever is desired: use the week, rent it, give it away, leave it to heirs, or sell the week to another prospective buyer. The owner is also liable for an equal portion of the real estate taxes, which usually are collected with condominium maintenance fees. The owner can potentially deduct some property-related expenses, such as real estate taxes from taxable income.

  • Deeded ownership can be as complex as outright property ownership in that the structure of deeds vary according to local property laws. Leasehold deeds are common and offer ownership for a fixed period of time after which the ownership reverts to the freeholder. Occasionally, leasehold deeds are offered in perpetuity, however many deeds do not convey ownership of the land, but merely the apartment or unit (housing) of the accommodation.

Right-to-Use Contracts - a purchaser has the right to use the property in accordance with the contract, but at some point the contract ends and all rights revert to the property owner. In many countries there are severe limits on foreign property ownership, thus, this is a common method for developing resorts in countries such as Mexico. Care should be taken with this form of ownership as the right to use often takes the form of a club membership or the right to use the reservation system, where the reservation system is owned by a company not in the control of the owners. The right to use may be lost with the demise of the controlling company, because a right to use purchaser's contract is usually only good with the current owner, and if that owner sells the property, the leaseholder could be out of luck depending on the structure of the contract, and/or current laws in foreign venues.

Hybrid Deeded and Right-to-Use Contracts - Developed by Disney Vacation Club (DVC) in 1991. Purchasers of DVC timeshare interests, whom DVC calls “members” receive a deed conveying an undivided real property interest in a timeshare unit. Each DVC member's property interest is accompanied by an annual allotment of vacation points in proportion to the size of the property interest. DVC's vacation points system is marketed as highly flexible and may be used in different increments for vacation stays at DVC resorts in a variety of accommodations from studios to three-bedroom villas. DVC's vacation points can be exchanged for vacations worldwide in non-Disney resorts, or may be banked towards, or borrowed from, future years.

DVC's deeded/vacation point structure, which has been used at all of its timeshare resorts, has been adopted by other large timeshare developers including the Hilton Grand Vacations Company, the Marriott Vacation Club, the Hyatt Residence Club and Accor in France.

Fixed Week Ownership

The most common unit of sale is a fixed week; the resort will have a calendar enumerating the weeks roughly starting with the first calendar week of the year. An owner may own a deed to use a unit for a single specified week. For example, week 26 normally includes the 4th of July holiday, week 51, Christmas and so on. If an owner owned week 26 at a resort he or she could only use that particular week every year.

Floating Week Ownership

The ownership will be specific on how many weeks the owner owns and from which weeks the owner may select for the owner's stay. An example of this may be a floating summer week where the owner may request any week during the summer season, generally weeks 22 through 36. In this example there would be competition for prime holidays such as the weeks of Memorial Day, 4th of July, and Labor Day. The weeks when schools may still be in session would not be so high in demand. Some floating contracts exclude major holidays so they may be sold as fixed weeks.

Rotating or Flex Week Ownership

In an attempt to give all owners a chance for the best weeks, the weeks are rotated forward or backward through the calendar, so in year 1 the owner may have use of week 25, then week 26 in year 2, and then week 27 in year 3. This method gives each owner a fair opportunity for prime weeks, but unlike its name, it is not flexible.

Points Programs

Resort-based points programs are also sold as Deeded and as Right-to-Use. Points programs annually give the owner a number of points equal to the level of ownership. The owner in a points program can then use these points to make travel arrangements within the resort group. Many points programs are affiliated with large resort groups offering a large selection of options for destination. Many resort point programs provide flexibility from the traditional week stay. Resort point program members, such as WorldMark by Wyndham and Diamond Resorts International, may request from the entire available inventory of the resort group.

A points program member may often request fractional weeks as well as full or multiple week stays. The number of points required to stay at the resort in question will vary based on a points chart. The points chart will allow for factors such as: (i) popularity of the resort, (ii) size of the accommodations, (iii) number of nights, (iv) desirability of the season.