A really simple question with incredibly complex answers. Many years ago when Britannia ruled the waves, and to a lesser extent right up to today, the annuity was a very popular financial instrument so before we move on, let’s examine briefly the annuity. Currently, a purchased life annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future, originally these payments would be paid annually, hence the term “annuity” nowadays payments are often offered in various periods such as monthly. Many people who have private pension plans often purchase annuities at the time of taking retirement benefits from their plans.
Annuities are not only investment vehicles but can also form part of a will trust paying a fixed sum of money to someone each year, typically for the rest of their life. The point of an annuity is that it has a finite life. In the case of pensions, an annuity can be purchased just to pay benefits during the retiree’s life but may also be constructed to pay a widow’s pension in event of death of the retiree, the widow would benefit and payments would finish on the widows death.
Will trusts are where the so called “perpetuity” came from? Originally introduced way back in the 17th century as a means of avoiding death duties, especially those relating to property. As per usual the then authorities were quick to jump on this “avoidance” scheme; it was ruled on by the House of Lords to prevent people from ruling beyond the grave. People wanted to keep their titles in their family for hundreds and hundreds of years, and the House of Lords didn’t think it was appropriate for a dead person to direct the lives of people hundreds of years after, these persons are dead. Because of this, they enacted the rule against perpetuities.
The English rule is that a prohibition on a person’s right to do something is invalid if it lasts more than the period of life, and being, plus 21 years.
In the past, some smart lawyers linked “annuities” to the Royal Family by including a clause that the trust cannot last more than 21 years after the death of the last surviving survivor of the descendent now living of the ruling monarch. As the royal lineage is itself virtually perpetual, this seemed to get round the clause, naturally, today; this would fall over at the first fence, but would it? We will look at this later.
Perpetuity and timeshare
It’s true to say that virtually every timeshare sold in the USA has a perpetuity clause written into the contract, however just to really complicate matters, each State can create its own interpretation of the rules. For example, Florida will let a will trust last more than 300 years! However the “death plus 21 years” is the normal. Many timeshares sold in Europe also contain a perpetuity clause with the exception of Spain. Spanish timeshare law 42/98 as amended by law 4/12 prohibits a timeshare contract from being issued with a term greater than 50 years. Whether it’s the Spanish limitation of 50 years or the death plus 21 years clause, either way, contracts issued this way might as well be forever.
Disney v Florida State
Trouble has been brewing between the Disney Company and Ron DeSantis, Governor of Florida State. We won’t bore you with the ins and outs but in a nutshell, Disney has almost total control of the land it owns including the various theme parks which some describe it as a State within a State. Governor DeSantis wants to clip Disney’s wings by allowing the State to take control, so what has this to do with perpetuity? We will see.
Disney has covenants that ban the taxing district from using the name “Disney” or from using Disney figures or other Disney intellectual property without approval. They also prevent the taxing district from operating many kinds of businesses, including hotels, entertainment venues and retail facilities.
The covenants remain in place in perpetuity. Or if that is deemed to violate the rule against perpetuities, they remain in effect “until 21 years after the death of the last survivor of the descendants of King Charles III, living as of the date of the declaration.”
The clause has been called the “King Charles clause” or the “Royal lives clause,” according to Bloomberg Law and CNBC.
The rule against perpetuities says an interest in land isn’t valid unless it vests no later than 21 years after some life in being at the creation of the interest. The interesting part is “some life”. This means that literally any living person may become a “some life” in this case the chosen one was King Charles and as we said earlier, the Royal lineage is by virtue, perpetual. Will it work? We’ll leave that to the American law makers.
TCA comment
In our brief trip down perpetuity lane we have only touched the tip of the law surrounding perpetuities. The laws are so complex that those practising law will rarely be found liable for giving advice void of the rule. As a teaser, we haven’t touched on the fashionable “wait and see” part of the rules, our purpose of this article is to inform and hopefully and to point out some important facts. Perpetual timeshare contracts don’t exactly exist, as the law dictates some sort of end date, that said, given our current understanding, the perpetuity clause is definitely best avoided.
Perpetuity is used by resort sales staff as a significant positive benefit, pay once and your forever family can benefit, the reality is that it’s quite the reverse. A timeshare owner may go through many life changes, illness, bereavement, financial difficulties all of which may have an impact on a “forever” contract. It’s all very well that sales reps introduce the passing of the ownership to the family, but what if the family don’t want it? This today is very common.
At TCA we know of no other purchase contract that has a perpetuity clause. You wouldn’t sign an energy or phone contract with such a clause and neither would the supplier have an expectation that such a clause would be acceptable, but timeshare developers still persist in the extremely restrictive and draconian practice. If you are considering a timeshare contract that’s in perpetuity, then to quote from the Latin: Caveat emptor or “buyer beware”.
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