Timeshare Legislation

EU directive - Introduction

On the 26th October 1994, the European Communities adopted the following Law : "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".

All EU countries were required to adapt their national law by the final date for implementation of April 29th 1997. The aim of the Directive to establish common rules to protect consumers in all EU Member States. The Directive covers transactions between commercial vendors and private buyers but excludes business-to-business transactions, agreements between private buyers and sellers, agreements with resale companies and agreements on canal/narrow boat timeshares. 

It is important to note that the Directive applies to "any contract or group of contracts concluded for at least three years under which, directly or indirectly, on payment of a certain global price, a real property right or any other right relating to the use of one or more immovable properties for a specified or specifiable period of the year, which may not be less than one week, is established or is the subject of a transfer or an undertaking to transfer.." Such a definition could mean that companies selling "timeshare" of less than three years (such as holiday packages), for example, are not covered by the legislation and therefore are not required to offer a cooling-off period.

The four main points to the EU Directive are:

• Buyers must have a statutory minimum "cooling off" period of ten days from signing the contract.
• The taking of deposits before the end of the cooling off period is prohibited.
• Contracts must be in the language of the Member State in which the buyer lives.
• Purchasers must receive all descriptive information concerning the property and their rights.

The Directive does not attempt to set up legal structures for timeshare. It is a consumer protection measure and concentrates on the position up to and including the time of the purchase contract.

OTE supports the provisions of the Directive recognising the imperative behind its inception, and continues to work with governments at both European and national level to create legislation and regulation that safeguards the interests of the consumer and encourages the positive development of the industry. It is important to note that all OTE members, regardless of whether they are resale companies, companies selling weeks in canal boats or selling weeks with contracts of less than three years, are all obliged to adhere to OTE's Code of Ethics

To add further protection to packs of less than three years, OTE has implemented a Holiday Pack Resolution which came into force in August of 1999 in order to protect consumers buying from OTE members (for a summary see Policies, a full version of the document is available in the Members only section.)

History and Development of the EU Directive

In 1991 the European Commission announced its intention to present a Directive to protect consumers in relation to timeshare contracts. The proposal had three main sources:

The European programme for consumer protection and information adopted in April 1975 

Summary of EU Directive

In its final form the Directive deals only with the provision of information and arrangements for the purchaser to withdraw from the contract (cooling-off period). The main provisions can be summarised as follows:

Article 3
Sellers have to provide information on the matters listed in the annex to the Directive, and the information becomes part of the contract.

Article 4
The contract has to be in the language of the purchaser or the Member State in which the purchaser resides and be accompanied by a translation of the contract in the language of the Member State where the resort is situated. 

Article 5
The purchaser has to have a minimum cooling-off period of 10 days from the signing of the contract or of 3 months plus 10 days if the contract does not contain the obligatory information. 

The right to withdraw is to be exercised by notice to the person appointed for that purpose in the contract. The notice has to be given but need not be received before the expiry of the period. 

If the right to withdraw arises because of lack of information, there is no obligation on the purchaser to pay any of the seller's expenses. If it is exercised within the 10 day period there can be an obligation to pay the necessary legal expenses of the vendor which have to be expressly mentioned in the contract. 

Article 6
Advance payment by the purchaser, e.g. by way of deposit before the end of the cooling-off period, is forbidden. 

Article 7
Related contracts for financing the purchase are automatically subject to the same rights of withdrawal if these are exercised in respect of the purchase contract. 

Article 8
Contracting out of the provisions which benefit the consumer is not permitted. 

Article 9
No clauses adopting a system of law which would deprive the purchaser of the Directive's protection are permitted if the resort is in an EU Member State. 

Article 11
Member States can add provisions more favourable to purchasers, but not cut down the protection provided for in the Directive. 

Article 12
Member States were required to incorporate the provision of the Directive into national legislation by 29 April 1997.

UK & Spanish timeshare legislation

b. New provisions introduced by the UK Timeshare Regulations 1997

• Points-based clubs are subject to all the provisions of the amended Act. 
• Insurance and share-based schemes come within the scope of the act for the first time. So products like Holiday Property Bond will be subject to the Act. 
• Independent providers of consumer credit are more exposed to claims than they were under the un-amended Act. Previously, credit agreements were only caught if the credit provider knew or had reasonable cause to believe that his credit was being used for a timeshare purchase. Now, any credit arrangements between the provider and a timeshare company can result in the creation of timeshare credit agreements within the meaning of the Act. 
• The act will apply to timeshare sales made to UK nationals in any other European Economic Area (EEA) state. The EEA includes all EU Member States. It also applies (in theory at least, world-wide) to any scheme which includes timeshare accommodation in the UK. Under international conventions, judgements obtained by individuals in UK courts must be enforced without re-opening the case, by courts of other EEA states. 
• All advertisements for timeshare must refer to the relevant disclosure document (see below) and say where it may be obtained. Failure to comply is a criminal offence. 
• There is an absolute ban on advance payments either to the seller or to a third party. It is a criminal offence to contravene this provision. 
• Purchase contracts must contain all the information specified in the Schedule to the Regulations, a criminal offence is committed if they do not. The contracts must be translated into the purchaser's language (if s/he is an EEA national or resident). The same rules regarding the translation apply to the disclosure document. If any timeshare property is in an EEA state, a certified translation of the purchase contract must also be provided. In both cases, a criminal offence is committed if a translation is not provided. The Act has created six new criminal offences which have been highlighted above, where one previously existed.

The Law applies to all contracts (regardless where they are executed) concerning the use of properties in Spain (including the Canary Islands and the Balearic Islands) during a defined or definable period of the year. 

The Law creates a new legal scheme for timesharing: the rotational enjoyment rights scheme. All timeshare schemes established after the law came into force concerning the use of properties in Spain must be constituted as a rotational enjoyment rights scheme. Such schemes may be established for between 3 and 50 years duration and based either on limited rights adin rem or personal rights (in the form of seasonal lease contracts with all or part of the rentals paid in advance.) Timeshare owners will not be entitled to any compensation on expiry of the rights purchased.

• Disclosure Information must be provided prior to any timeshare sale to any person requesting information. The document must mention a number of points which are listed under Article 8.2 of the Law. 
• Purchase contracts must contain all the information under Article 9 of the Law. 
• Contract and information documents must be expressed in the language of the Member State of the EU where the purchaser resides. They must also be expressed in Spanish or any other official language in Spanish. 
• The cooling-off period during which the purchaser can cancel the agreement is 10 days. This can extend up to 3 months if the contract does not contain the prescribed information. 
• Any advance payments by the purchaser to the vendor before expiry of the cooling-off period are prohibited. However, the parties can make contractual arrangements to guarantee payment of the deferred price provided that the vendor does not receive any payments (directly or indirectly) in the event of withdrawal by the purchaser. The purchaser has the right at any time to demand the return of an amount equal to twice any advance payment made to the vendor in contravention of the Law and can then choose either to cancel (within three months) or to affirm the purchase contract. 
• Timeshare credit agreements are cancelled automatically when the purchase agreement is cancelled. No provision may be made in loan agreements for any sanction or penalty on the purchaser in the event of withdrawal. 
• Tax provisions are included in the Law addressing Wealth Tax, Transfer Tax, Stamp Duty and VAT. Wealth Tax applies based on purchase price, VAT applies at a reduced rate of 7% except in the Canary Islands where a reduced IGIC rate applies, and transfer tax/stamp duty applies to transfers between private individuals (not subject to VAT) at a rate of 4%. 
• The registered owner (developer) of a pre-existing scheme must execute a regulatory deed of adaptation within two years and record it in the Property Register. 
• Execution of the deed of adaptation of pre-existing schemes under the Spanish "multi-ownership" escritura system shall be effected by the President of the Owners' Committee. 
• In the deed of adaptation the scheme may be converted to a "rotational enjoyment right scheme" or may continue to exist under the same pre-existing legal structure. 
• It is forbidden to convey rotational enjoyment rights using the term "multipropiedad". In addition to the above, new schemes shall have to observe the following: 
  

  • Resorts must have at least 10 units 
  • Schemes may be set up as a right ad rem or a personal right scheme 
  • Mixed use timeshare/other form of tourism activity is permitted 
  • Annual period of occupation must always be no less than 7 consecutive days. 
  • Duration of schemes must be from 3 to 50 years 
  • Upon expiry of the term, timeshare owners are not entitled to any compensation 
  • Schemes must be established by the registered owner of the resort and all applicable licenses must be in place 
  • A contract must have been signed with a management company unless the developer has decided to take direct responsibility for the management services himself. 
  • Delinquent owners. A rotational enjoyment right may be repossessed if the owner fails to pay maintenance fees for at least one year following 30 days after formal demand. In such a case a timeshare owner would be entitled to an amount equivalent to the remainder of the value of the interest purchased. This entitlement may be waived in the sales contract. 
  • Bank guarantees or insurance policies guaranteeing the return of all sums paid are compulsory where sales are being made at resorts under construction. 
  • Detailed information complying with the requirements of Article 5 must be included in the regulatory deed which will govern the scheme. 
  • Insurance against liability arising from damages caused by the developer or by his employees is required. 
  • Insurance covering occupants' liability, fire and general damage is also mandatory.