Part Two
Timeshare “Ownership”.
Timeshare “ownership” is a misleading phrase. The main systems of “ownership” operating in Europe are:-
1. Trustee
In those countries where it is not permitted to have more than a limited number of owners of a property, typically the UK the property (villa, apartment, apartment block etc) is placed into an independent Trust. When a timeshare sale is made the Trustee issues a “licence to use”, usually in the form of an “Ownership Certificate”, to the purchaser as evidence of their “ownership”
2. Escritura.
Where multiple ownership in a single property is permitted, typically Spain, the original property owner (usually the developer) registers the whole of the resort in their name in the local land registry. When a timeshare sale is made, a Notary registers the change of ownership of the specific apartment/week number and issues an Escritura to the purchaser certifying that the purchaser is now registered as the owner. If this has not occurred then a law has been broken. Hot of the press is that we now have details of such breaches in multiple resorts and our friends in Poole are hot on the trails to disclose this fraud.
The trust system is also used in countries where multiple ownership is permitted because it is a more economic way of providing the purchaser with evidence of their purchase and to arrange and re arrange transfers of ownership.
However, neither system provides absolute certainty of “ownership” because it is often overridden by the rights and obligations in the Purchase Contract.
This contract may enable ownership to be repossessed by the developer in the event of the “owner” failing to pay the annual fees or for some other breach of the contract. Or, if the resort is run as a Members Club, the Members can dissolve the Club allowing the property to revert back to the developer. It is therefore fundamental to the consumer and committee members to be aware of the consequences of the decisions they arrive at.
I am reminded persistently of my early days by the wise words of Mr Boyd in that “areas of timeshare law is an intricate web and all matters have to be looked into first to stop the launching of a bad and ill directed action”.
A number of traders in Spain have failed to arrange for the Notary to register a purchaser in the local registry, so the “owner” has no Escritura, legally the owner has no “ownership” rights whatsoever! This is the dream coming soon for fixed timeshare holders and if revealed then lawfully those timeshare owners can claim the entire resorts. They own them and entirely. This could be worth millions. That said an investigation has to be done. In completing this works some might invest and others may benefit and that is why I believe a group should be formed so that the investigating consumers can obtain a return and that return can be used to free other consumers from the timeshare cuffs
The bond schemes which are similar to a shareholding in the accommodation run by Holiday Property Bond and Hapimag utilise a similar accommodation booking system to the point’s schemes, but apparently without the consumer problems of the points system run by other traders.
Length of ownership period
More than 7/8 of remaining timeshare owners are tied into contracts requiring them to pay the annual fees whether or not they use the accommodation for periods greater than fifty years. A large proportion of them having the obligation forever. These contracts were established at a time when traders believed that timeshare was something owners wanted to pass down to their children as an asset. A belief that turned out to be entirely wrong in the present business ether. However by returning to the principled and ethical mindsets coupled with a solid effective consumer association you can have the dreams fulfilled.
Many consumers did not realise the obligations of such a long term agreement until they decided they wanted to withdraw from ownership and found that the asset they owned was now a liability because nobody wanted to buy, least of all the developer who sold it to them in the first place. Then the realisation struck that you are stuck with a millstone around your neck and forever and which will pass to your children.
This long term ownership obligation is the source of considerable distress to owners who are at the realisation that their children (and their children ad infinitum) will have to keep on paying, every year. This distress is often turned to the advantage of the resale fraud operators who claim to be able to “rescue“ the owner from their obligation to pay, but fail to do so.
The advantage of surety of title therefore is used to hurt consumers and day after day without change. Many see that the perpetuity is a bad clause but I don’t advocate that position. I believe that in perpetuity is a fantastic system, is an asset and that asset is appreciating. The reason why the asset is not appreciating is again due to a controlled environment and that control is in the hands of the industry, not the consumer. So we need change, not a new mutant variation.
Exchange System
The ability for timeshare owners to swap their ownership in any year for another time period and/or place is the lifeblood of the timeshare concept.
There are four companies in the EU offering an exchange service, all based in the UK. There are two large ones, RCI and Interval International (“Interval” are subsidiaries of US companies), and two small ones, Dial an Exchange “DaE “ and United Kingdom Resort Exchange “UKRE”. RCI and Interval also provide a travel service to their members making a holiday booking a “one stop” process.
Between 60% & 65% of timeshare owners are claimed to be members of an exchange scheme with just under 50% of them actually making an exchange each year. The matter in this article is tendered as a consideration not an advertising concept, however I would not be doing justice if I did not say that home is where the heart is and you won’t find a better home in the exchange world than “UKRE”
Banking of weeks for exchange
A timeshare owner wanting to go to another resort and/or time in the year puts their week of ownership (for one year) into the exchange company “space bank” and is offered a week elsewhere in exchange. For added flexibility the exchange company may accept a week in one year in exchange for a week in the preceding or subsequent year –
“borrowing” or “lending”.
Each exchange company operates in a slightly different way. RCI requires owners to place their own week in the space bank before being allowed to take out a week. And RCI mostly enforce a “like for like” system whereby the banked week must be equal to or superior in quality and desirability (a seasonal assessment) to the taken week. Interval, DaE and
UKRE are more flexible generally allowing any week to be banked and taken.
Affiliation of Resorts to Exchange Companies
RCI and Interval operate a resort affiliation scheme. A purchaser at a resort will be enrolled into the affiliated exchange company for 2 or 3 years thereafter having to pay the exchange company annual fees directly to the exchange company.
The benefit to the resort of affiliation is the incoming exchanges who are fodder for the sales people. Neither DaE nor UKRE operate an affiliation system, offering membership to owners in any resort.
In recent years, as resorts have declined in quality standards, some have been disaffiliated by RCI and Interval. Disaffiliation is almost always the first sign of a potential resort closure.
Quality rating of resorts
There is no independent system for rating the quality of timeshare resorts nor any agreed standard criteria used by the industry, unlike the hotel industry. It’s operated like “I will rate you better if you rate me better” and if they are not in our club they won’t even get a rating.
RCI and Interval rate their affiliated resorts on a quality criteria with three grades, each given different names by RCI and Interval – but “Gold”, “Silver” and “Bronze” adequately describes the system. There have been reports that preferred developers have received better quality ratings than is justified by owners experiences. This fiddling of the system benefits the preferred developer as it provides them with a greater number of exchanges for their selling machine.
Seasonal banding of regions
Both RCI and Interval seasonally band weeks in each region into High, Medium and Low (similar to the banding of weeks in a floating week system). This is to indicate the level of natural consumer demand but the banding is sometimes intentionally distorted to aid selling.
Cost of exchange
RCI, Interval and UKRE charge an annual membership fee (currently just under £100) but DaE make no charge for membership. All the companies charge for arranging an exchange at prices ranging from £100 to over £200 per week depending on a number of factors including the region chosen to take out of the space bank.
Owners banking a week for exchange are still required to pay the annual management fees to their own domiciled resort.
Rental/Bonus weeks
All the exchange companies are now deeply involved in renting out timeshare weeks to their members. These rental services are often called “bonus weeks” or “extra weeks” and are generally priced between the open market rental rate and a normal exchange rate, making them attractive to members of the exchange organisation.
RCI have been accused of transferring high season weeks out of their exchange space-bank into their rental pool to make more money. This has resulted in a growth of complaints that owners have not been able to get an exchange week in high season and having to pay more to buy a “bonus” week.
Owners are denied the right to use the exchange company of their choice.
A number of developers restrict their owners from using an exchange company of their own choice. Refusing to allow an exchange organised by Dial an Exchange.
Timeshare Resorts Luxury to Lacklustre in three decades
Almost all European timeshare resorts were built (or converted) in the 1980’s and early 90’s mostly with well appointed, en-suite accommodation ranging in size from a studio (1 bedroom) through to 3 bedroom, 3 bathrooms villas with on-site facilities, generally of the very highest standard. Most resorts comprise of buildings but some 10 are (or have been) based on boats and at least one on a, short lived, static caravan scheme.
All timeshare accommodation is self-catering.
This initial high quality put timeshare well ahead of the then competition and enabled sales people to legitimately claim “more luxurious than “ and “you’re getting your own super holiday villa”.
But by 2000 standards had begun to drift downwards.
Now many resorts are looking tired. What had been “five star” are now struggling to compete at three star level.
Money paid by owners to maintain standards and keep the accommodation fresh and new has been filched by the management. This has led to an increasing level of owner disenchantment.
But the decline in standards has not been universal. Some resorts, mostly those managed by the “Good guys” [see Page 8] are still holding their heads up proudly. But they are now in the minority as traders milk owners, giving nothing back in return.
Resort downsizing & closures
Of the 1,121 timeshare resorts counted in Europe in 2005, at least 115 have since closed and many more are heading towards to closure, often with as little as 20% occupancy by timeshare owners. One resort with capacity for 850 owners has only 11 remaining!
It is suspected that many more would have closed had the real estate market in Spain held up. But the recession put a stop to many property sales. When the market for large scale property in Spain does recover then many more resorts will cease to be for timeshare owners.
Resorts in Trust
Owners question how a resort, ostensibly held in trust to protect their interests, can be closed down from under them.
These “en-trusted” resorts mostly have an Owners Club. The Club has a Constitution which enables the Club, in General Meeting, to wind itself up on a 75% majority vote, a figure easy for the management to achieve if only a few owners remain (or they fiddle the votes).Once the club is wound up, the trust can be dissolved, allowing the property to revert back to the developer.
Alternatively the management company can make life so miserable for the owners with massive hikes in fees coupled with deterioration in standards so that owners simply walk away leaving the resort deserted. Exactly what happened to owners in Lanzarote Beach Club.
Part 3 will be issued shortly and consists of the industry as it is now and is titled ‘The Good, the Bad and the Ugly’
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk