Much has been written on the subject of Spanish law 42/98 but little has been commented on the fallout from this seemingly simple piece of legislation. The law entered into statute on 5th January 1999 but for whatever reason the majority of the Spanish timeshare industry either didn’t understand or chose to ignore it, later this would be seen to be at their peril.
For those who enjoy a dry read, TCA published and English translation of this law back in 2015, you may read it here. What we don’t propose to do is this article is go over the whole law but just the significant parts and how they have affected the timeshare industry. Firstly, let’s look at those points:
- Your contract length was more than 50 years or in perpetuity.
- You contracted a floating time or points backed timeshare.
- Your timeshare was not registered in the land registry.
- You were not provided with the exact details of the occupancy rights.
- You were not given the then cooling off period of 10 days. (Extended to 14 later)
If a timeshare contract fell foul of any of these points then it would be deemed illegal.
2015 a significant year
This was the year that the first court case came to a verdict and challenged the legality of a Spanish timeshare contract. A Norwegian lady, Tove Grimsbo, was awarded more than an estimated €40,000 after what has been called a “ground-breaking” Spanish supreme court ruling that promised to shake many operators within the timeshare industry to their very core.
The highest civil court in Spain upheld a Provincial High Court ruling ordering Anfi to refund all of the lady’s payments, plus interest and legal fees, after a case that has lasted more than 6 years.
When Mrs Grimsbo’s husband was persuaded by Gran Canaria’s Anfi Sales S.L. in 2001 to sign a contract for timeshare, paying a more than 700€ deposit, there and then with their credit card, the courts ruled that their right to a full “cooling off period” of 10 natural days was certainly breached. The law on this is strict, timeshare sellers cannot take a deposit within the first 10 days of any contract, and in this case it seems they did.
As we stated above, this certainly shook many developers and over the following years many ended up in court trying to defend their illegal contracts, naturally nearly all failed.
Why is the industry suffering?
Taking aside the millions of Euros that Spanish courts have ordered in compensation to those owners with illegal contracts, we will now look at what’s causing the damage to the ongoing industry.
The cooling off period
This was the biggest hit to the industry, the salesman takes many hours grinding the prospect down, they finally agree to purchase but the commitment to buy by taking a deposit has been removed. Now no money must pass hands for at least 14 days. The same cooling off period also applies to any related finance contract.
After leaving the resort and in the cold light of day the prospect suffers “buyers remorse” and decides to cancel, result, sale gone.
The work around
Timeshare legislation only kicks in if the purchase contract is longer than 3 years. Enter the “pack man”. If all else fails then a trial membership or holiday pack will be offered, this is normally for a term of 2 years 11 months, thus circumventing the cooling off period. In this case monies may be taken on the day.
Naturally the cost of this is substantially lower than full ownership but in the future it gives the reps more bites of the cherry when guests return for holidays, and of course at least the developer has taken some money albeit only €3 to 4,000 nothing like the €20,000 for full ownership.
Points and floating
Both outlawed, this costs the developer dearly. We looked at the pitfall of points from the consumer viewpoint recently. Whoever phrased Law 42/98 must have had a good look under the bonnet of timeshare and established that points were a con. The weeks’ system was very easy to understand, a developer has one apartment, and logic dictates that there are 52 weeks in a year so the maximum owners could number 52, not so points. It’s perfectly feasible to sell one apartment to hundreds of owners and it’s this very practice that causes the log jam and leads to lack of availability.
Imagine the damage to the bottom line if one apartment can only be sold to a maximum of 52 owners. Points fall foul of the Spanish law because they don’t give exact details of the occupancy rights.
The work around
Enter the fractional contract; this is a halfway house between points and fixed weeks. Although a purchaser effectively buys a fraction of the property, for ease this is normally converted to a points based currency system to allow the use of the inherent “flexibility” of timeshare.
Not wishing to be a gossip monger but all the signs are that fractional contracts are under the spotlight. The word “investment” has crept into sales presentations which goes against the following extract from the EU Timeshare Directive:
“A timeshare or a long-term holiday product shall not be marketed or sold as an investment.”
The developer may argue that fractional is not timeshare, however it’s certainly a long term holiday product as according to the Directive, long term is anything above 3 years.
In our opinion, this may be the next big issue to face the industry.
The fallout
Maybe it’s the vast number of upheld claims in the Spanish courts or simply that both the Spanish law and EU law makes the retailing of timeshare practically impossible this has caused a good number of developers have shut down their sales operations, those of note are:
- Diamond Resorts
- Club la Costa – In administration
- Anfi Sales – In administration
- Silverpoint – In administration
- Azure Malta – In administration
- Salina Wharf Malta – Gone
- Club Paradiso Tenerife – Gone
Diamond resorts were the first to see the writing on the wall when in November 2017 they shut down their 15 European sales offices with around 1,000 staff losing their jobs and as we write, despite the recent takeover by Hilton, there are no signs that the all new “Hilton Vacation Club” will start selling again in Europe. Both Anfi and Club la Costa have followed suit.
Even those developers not mentioned here are scaling back their sales activities, only what can be described as “Legacy Resorts”, those still selling old style fixed week timeshare seem to be just about holding their heads above water. That said, even these resorts are struggling as we reported recently.
Comment
It’s a pity that both the EU and other global timeshare markets haven’t chosen to follow the Spanish example. We are not saying this vindictively but we firmly believe in strong consumer protection. Where timeshare is concerned, Spain have definitely fulfilled that. It’s good to see that the EU directive chose to follow the Spanish lead by not only adopting the cooling off period but extending it to 14 days. However they failed to adopt many other conditions
TCA recently engaged in a Zoom meeting with some American timeshare experts and they said that if the States introduced the same as the EU, the industry would collapse overnight. Most states do have cooling off periods; however they do not preclude the taking of money during the period. Another facet is the cooling off period differs from state to state, 3 days being the minimum and 10 the maximum, depending on the state.
Regular visitors will know that at TCA we feel the days are numbered for timeshare unless there is a radical overhaul of the product. Even then, faced with the enormous competition from smarter ways to holiday the reality is that timeshare as we know it is on the way out. The evidence in this article speaks for itself.
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