Timeshare


A timeshare is a property with a divided form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time. Units may be sold as a partial ownership, lease, or "right to use", in which case the latter holds no claim to ownership of the property. The ownership of timeshare programs is varied, and has been changing over the decades. The timeshare market has been subject to criticism.

History

The term "timeshare" was coined in the United Kingdom in the early 1960s, expanding on a vacation system that became popular after World War II. Vacation home sharing, also known as holiday home sharing, involved four European families that would purchase a vacation cottage jointly, each having exclusive use of the property for one of the four seasons. They rotated seasons each year, so each family enjoyed the prime seasons equally. This concept was mostly used by related families because joint ownership requires trust and no property manager was involved. However, not many families vacation for an entire season at a time; so the vacation home sharing properties were often vacant for long periods.
British businesses decided to go one step further and divide a resort room into 1/50th ownership, have two weeks each year for repairs and upgrades, and charge a maintenance fee to each owner. It took almost a decade for timeshares in Europe to evolve into a smoothly run, successful business venture.
The first timeshare in the United States was started in 1974 by Caribbean International Corporation, based in Fort Lauderdale, Florida. It offered what it called a 25-year vacation license rather than ownership. The company owned two resorts the vacation license holder could alternate their vacation weeks with: one in St. Croix and one in St. Thomas; both in the U.S. Virgin Islands. The Virgin Islands properties began their timeshare sales in 1973.
The contract was simple and straightforward: The company, CIC, promised to maintain and provide the specified accommodation type for use by the "license owner" for a period of 25 years in the specified season and number of weeks agreed upon, with only two extra charges: a $15.00 per diem rate, frozen at that cost for the life of the contract, and a $25.00 switching fee, should the licensee decide to use their time at one of the other resorts. The contract was based on the fact that the cost of the license, and the small per diem, compared with the projected increase in the cost of hotel rates over 25 years to over $100.00 per night, would save the license owner many vacation dollars over the span of the license agreement. Between 1974 and 1999, in the United States, inflation boosted the current cost of the per diem to $52.00, validating the cost savings assumption. The license owner was allowed to rent, or give their week away as a gift in any particular year. The only stipulation was that the $15.00 per diem must be paid every year whether the unit was occupied or not. This "must be paid yearly fee" would become the roots of what is known today as "maintenance fees", once the Florida Department of Real Estate became involved in regulating timeshares.
The timeshare concept in the United States caught the eye of many entrepreneurs due to the enormous profits to be made by selling the same room 52 times to 52 different owners at an average price in 1974–1976 of $3,500.00 per week. Shortly thereafter, the Florida Real Estate Commission stepped in, enacting legislation to regulate Florida timeshares, and make them fee simple ownership transactions. This meant that in addition to the price of the owner's vacation week, a maintenance fee and a homeowners association had to be initiated. This fee simple ownership also spawned timeshare location exchange companies, such as Interval International and RCI, so owners in any given area could exchange their week with owners in other areas.
Cancellations, or rescission, of the timeshare contract, remain the industry's biggest problems to date; the difficulty has been the subject of comedy in popular entertainment.

Legislation

The industry is regulated in all countries where resorts are located. In Europe, it is regulated by European and by national legislation. In 1994, the European Communities adopted "The European Directive 94/47/EC of the European Parliament and Council on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis", which was subject to recent review, and resulted in the adoption on January 14, 2009, on European Directive 2008/122/EC.

Established regulations in Mexico

On May 17, 2010, Mexico’s Ministry of Economy through the General Directorate of Standards established new regulations and requirements for developers of timeshare services. The new regulations are outlined in the Official Mexican Norm, which consists of a series of official standards and regulations applicable to diverse activities in Mexico. The following institutions were involved during the new standardization:
NOM is officially called: "NOM-029-SCFI-2010, Commercial Practices and Information Requirements for the Rendering of Timeshare Service". It established the following standards:
  • Marketing companies are not allowed to offer gifts and solicit for prospective timeshare owners without clearly specifying the real purpose of the offer.
  • The requirements to cancel a timeshare contract must be more practical and less burdensome.
  • NOM recognizes the privacy rights of timeshare consumers. It is strictly prohibited for the timeshare provider to dispose of the consumer's personal information without written consent.
  • Verbal promises must be written and established in the original timeshare contract.
  • The timeshare provider must comply with all obligations written in the timeshare contract, as well as the internal rules of the timeshare resort.
  • The charges that are intended to be made to the consumer must be plainly and clearly defined on the timeshare application forms, including the membership cost, and all extra fees.
To make the new regulations applicable to any person or entity that provides timeshares, the definition of a timeshare service provider was substantially extended and clarified. If the timeshare provider does not follow the rules decreed in NOM, the consequences may be substantial, and may include financial penalties that can range from $50 to $200,000.

Methods of use

Some of the options offered to owners of timeshare contract, but not necessarily all or any for a particular contract:
  • Use their usage time
  • Rent out their owned usage
  • Give it as a gift
  • Donate it to a charity
  • Exchange internally within the same resort or resort group
  • Exchange externally into thousands of other resorts
  • Sell it either through traditional or online advertising, or by using a licensed broker. Timeshare contracts allow transfer through sale, but it is rarely accomplished. According to the EU Directive, Long-term holiday ownership products in the EU, which includes timeshare fixed weeks, points and fractional ownerships cannot be sold as resellable assets.
Recently, with some [|point systems], owners may elect to:
  • Assign their usage time to the point system to be exchanged for airline tickets, hotels, travel packages, cruises, amusement park tickets
  • Instead of renting all their actual usage time, rent part of their points without actually getting any usage time and use the rest of the points
  • Rent more points from either the internal exchange entity or another owner to get a larger unit, more vacation time, or to a better location
  • Save or move points from one year to another
Some developers, however, may limit which of these options are available at their respective properties.
Owners can elect to stay at their resort during the prescribed period, which varies depending on the nature of their ownership. In many resorts, they can rent out their week or give it as a gift to friends and family.

Exchanging timeshares

Used as the basis for attracting mass appeal to purchasing a timeshare, is the idea of owners exchanging their week, either independently or through exchange agencies. The two largest—often mentioned in media—are RCI and Interval International, which combined, have over 7,000 resorts. They have resort affiliate programs, and members can only exchange with affiliated resorts. It is most common for a resort to be affiliated with only one of the larger exchange agencies, although resorts with dual affiliations are not uncommon. The timeshare resort one purchases determines which of the exchange companies can be used to make exchanges. RCI and II charge a yearly membership fee, and additional fees for when they find an exchange for a requesting member, and bar members from renting weeks for which they already have exchanged.
Owners can also exchange their weeks or points through independent exchange companies. Owners can exchange without needing the resort to have a formal affiliation agreement with the companies, if the resort of ownership agrees to such arrangements in the original contract.
Due to the promise of exchange, timeshares often sell regardless of the location of their deeded resort. What is not often disclosed is the difference in trading power depending on the location, and season of the ownership. If a resort is in a prime vacation region, it will exchange extremely well depending on the season and week that is assigned to the particular unit trying to make an exchange. However, timeshares in highly desirable locations and high season time slots are the most expensive in the world, subject to demand typical of any heavily trafficked vacation area. An individual who owns a timeshare in the American desert community of Palm Springs, California, in the middle of July or August will possess a much reduced ability to exchange time, because fewer come to a resort at a time when the temperatures are in excess of.