What is Fractional Ownership?

Fractional Ownership IS a Timeshare product!
The best way of describing timeshare is in the words of Richard Mackintosh, Chairman of the timeshare trade association the Resort Develpoment Organisation (RDO), who in February 2010, explained:

In essence there is little difference between timeshare and fractional other than a fractional purchase is usually of a longer usage period each year,

although owning a fractional may include owning a share in the legal title whereas timeshare does not. Both are within the same laws and guidelines.

WARNING – ‘Fractional Ownership’ ought to be viewed as sceptical in some scenarios, and by some unscrupulous people, it has been jockeyed as a cover for investment fraud.

It appears, there is an absence of an approved definition of fractional ownership. It also appears that timeshare companies use this phrase to re-badge the timeshare products. This being a cloak, consumers are advised to tread carefully when dealing with contracts and opportunities under the heading of fractional ownership.

A number of timeshare traders promote fractional products with claims of high resale values. This is purposeful so as to lure consumers to the belief that if and when they choose to dispose of the fractional ownership, the sale price is based on the sale of underlying real estate values shared amongst the other fractional owners.

That said, the few contracts inspected show that the original purchase price, of the individual fractional ownership is significantly higher than the current open market price. This in essence, gives no comfort that the share of the resale value will be greater than the original purchase price. In laymen’s terms, this product is promoted as an investment, whereas it is not.

At no stage should any consumer be duped into the belief that any timeshare product affords a consumer an investment. Timeshare is not an investment whereby at some later stage, it will yield the acquirer of timeshare of financial benefit in the future. The writer acknowledges, in saying this, that the consumer may obtain benefit from having a timeshare, for which satisfies their need to own a timeshare, however it can never be dressed or sold as a financial investment.

Some fractional schemes include an element of promised rental income, either paid (in part) to the purchaser or used to defray management/maintenance fees contractually payable by the purchaser. Verbal promises such as the aforementioned should not be relied upon and should be classed as sales puffs. Consumers ought to be aware of the contractual declarations in the contract where generally it states that the consumer, in signing, does not rely upon statements made by the sales representative. Rarely will any consumer find that a seller makes beneficial obligations within the confines of a contract which in later years, could come back to bite them. Utmost caution when being faced with these claims should be observed at all times.

Fractional ownerships are presented to consumers in a number of flavours, some of which, may not provide legal interest in the bricks and mortar of the accommodation. ‘Destination Clubs’ or ‘Group Ownership’ are some examples.

History shows us, in the distancing of the term timeshare, it is likely that certain timeshare companies will distance themselves again from not only timeshare but fractional ownership. Caution therefore, ought to be observed.

Some resale brokers, external to the timeshare industry, hope that fractional ownership should be given credibility as a balanced mix of ‘investment’ and low cost, high quality, holiday usage. Whether they will be able to influence a market already dominated by the timeshare industry is open to question. However, at present, there seems to be little foothold in the industry by those brokers.

A major concern for consumers is that fractional purchases cost much more than timeshare. Sometimes ten times more. If the sale promises fail, as they have substantially failed to do in the timeshare business, then the resultant loss to the consumer will be much greater. Buying ‘off plan’ can be highly risky as the project may never materialise and getting your money back could prove difficult.

Again fractional ownership is regulated by the Timeshare Regulations 2010.

TCA advice:
It is ESSENTIAL that prospective purchasers of a fractional ownership take professional advice, covering both the legal and taxation issues. This should be done before concluding an agreement/contract. The potential financial loss, (if the sales promises fail), could be serious.

In the event that a consumer is faced with an offer from a timeshare company to exchange their timeshare for another product which is dressed in a fractional ownership scheme, the consumer should be very aware that this is very risky and could potentially commit the consumer to years and years of further expense.

If you decide to purchase a fractional ownership, it would be very prudent, and could be your saving grace to do so by the use of a UK issued CREDIT card. In the event a consumer is able to discharge the payment for the fractional ownership in full, the consumer should consider paying, in part, on his credit card so as to enjoy the protection that card offers in the future as it gives the consumer protection under the Consumer Credit Act 1974.

If it sounds ‘too good to be true’ then DON’T! It is probably not true.

Last modified: March 11, 2016