Applicability of new Timeshare Directive to Fractional Ownership
Guidance Note issued by FSOTA – August 2010
Introduction
The new ‘Directive’ (2008/122/EC) hereinafter referred to as the 2nd Directive is planned for final implementation across the EU by 23 February 2011. Some countries have implemented the Directive already, notably France, others like the UK have recently issued draft proposals for new laws, and several are consulting interested parties.
Once the Directive is implemented in individual Member States where a fractional developer is operating and/or marketing, FSOTA believes it is likely the developer will have to comply with the new law. This Paper aims to clarify how the new Timeshare Directive will be applicable to the vast majority of resorts that sell their accommodation on a fractional basis. The implications could be far reaching as in the past many fractional developers did not fall within the scope of the 1st Directive,
Fractional Ownership
Under the general description of “Shared Leisure Real Estate”, fractional ownership of real estate for leisure purposes can best be described as usage rights that are granted to owners as a result of a shared ownership title or a shared right of use. In this description fractional ownership can also be described as ownership of multiple weeks or titles. In many cases fractional ownership concerns real estate of exceptional quality or in an exceptional location, whilst at the same time the real estate represents small niche resorts and often involving high luxury services. Whatever the description, FSOTA has concluded that the majority of fractional ownership developments in Europe are likely to fall within the scope of the 2nd Directive, although it acknowledges that there will be some exceptions.
The 2nd Directive
Definitions
Article 2 of the 2nd Directive sets out that: a "timeshare contract" means “a contract of a duration of more than one year under which a consumer, for consideration, acquires the right to use one or more overnight accommodation for more than one period of occupation”.
This definition has been drafted in a deliberately wide manner and clearly fractional ownership will fall into this definition. Differences in terms of length of stay, quality of accommodation, how the use rights can be exercised or even whether it is for leisure purposes or not, does not make any difference – it will still fall within the definition set out under Article 2.
This means that Fractional Ownership, or Seasonal Ownership or whatever denomination used, is regarded as a product falling within the Directive.
The Consequences for Fractional Developers
The impact of this new definition, for fractional developers who have not formerly regarded themselves as falling within this legislation, is quite significant. From marketing, to sales and after sales, specific requirements are set out, which every company will have to follow. This is also true for any fractional developer who either has resorts in Europe, or who sells to residents of the European Union outside the jurisdiction of the EU.
The main provisions of the new Directive can be summarised as follows:
• Full disclosure in marketing and sales;
• A cooling off period of 14 calendar days (without cause or reason needing to be justified); and
• A prohibition from taking any monies, in whatever form, during this 14 day period.
Full disclosure for marketing and sales comes in the form of detailed rules on what a company has to put in the contract (sometimes even where), the format of parts of the contract, and even the specific language to be used.
In addition, some information needs to be available pre-sales, in marketing and advertising (i.e. a reference to the place where to obtain the information), as well as strict language requirements which have to be met if selling to EU residents.
FSOTA is able to provide its members with a detailed guide to the new Directive as well as on the national implementation of the Directive and is currently monitoring developments of the legislation across the 27 Member States and will be lobbying on behalf of the industry wherever necessary.
For more information on FSOTA go to www.fsota.org and also www.gofractional.org
