Timeshare Legislation

The EU Directive 1994 below was superseded by the new Directive of 2010 implemented in February 2011

A copy of this is available by clicking here. You will require Adobe Reader (free download) to view the PDF document.

EU Directive 1994 – 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.

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.

RDO 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 RDO 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 RDO’s Code of Ethics

To add further protection to packs of less than three years, RDO has implemented a Holiday Pack Resolution which came into force in August of 1999 in order to protect consumers buying from RDO 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

Resolutions of the European Parliament in 1988 and 1991

Pressure from the UK Government for European-side legislation, following pressures on the UK Government by the UK timeshare industry to legislate.

The original draft Directive presented by the Commission covered most of the necessary ground – provision of information, cooling-off period, representation of purchasers in respect of ongoing resort management. The main area it did not cover was establishing minimum standards for the legal structure.

The national European timeshare industry associations grouped together within the European Timeshare Federation and spearheaded by the UK Timeshare Council, lobbied actively for the concept of a Directive which held a fair balance between the supply side on the one hand and the consumer on the other. They proposed detailed changes to the draft to achieve this throughout the period up to the final signing of the Directive in October 1994.

Unfortunately, the general attitude of many Member States was that they would only support a minimalist Directive and the Commission was forced to substantially reduce the provisions of the original draft to obtain agreement. Many of the provisions for which the industry had lobbied to achieve a fair balance were omitted, although a substantial number had met with approval by Commission officials and representatives of Member States.

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

Summary of the UK Timeshare Regulations 1997

Summary of Key Provisions – The Regulations amend the existing UK Timeshare Act 1992.

a. Provisions retained from the 1992 UK Timeshare Act
Resale companies acting as agents probably remain outside the scope of most of the provisions of the Act but they will have to comply with its advertising requirements.

Notices of cancellation rights and blank cancellation notices (the so-called invitation to cancel) remain mandatory and must be given to all purchasers. It remains a criminal offence not to do so.

The basic cooling off period within which the purchaser can cancel the agreement remains 14 days, but this can extend up to 3 months and 10 days if the contract does not contain the prescribed information.

Timeshare credit agreements continue to be governed by the Act and are cancelled automatically when the purchase agreement is cancelled, but there are some new provisions relating to them (see below).

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.

Summary of the Spanish Timeshare Law 42/1998 on the right to enjoy successive possession of immovable property for touristic purposes, and taxation rules – Key Provisions
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.

The new Timeshare Directive (EU Legislation)

The new Directive should apply to all European countries and covers new products e.g. cruises, holiday clubs, resale and exchanges which were excluded in the previous legislation.

The aim of the new Directive 2011 is to continue establish common rules to protect consumers in all EU Member States and implement further measures to that effect. Implementation of the Directive started across the EU in February 2011. The UK implemented it on 23rd February 2011 and in Spain, on 17th March 2012.

The 2011 EU Directive covers:

  • Longer term holiday products such as Holiday Clubs)
  • Short term contracts – purchases (including “trial membership”) made a year or more. Only Memberships of 34 months or longer where covered previously.
  • All timeshare related products e.g. canal boats, cruises and caravans or timeshare contracts for less than three years (previous legislation only covered periods of three years or more)
  • Timeshare Exchange and Resale

Key Points

  • Created to be adhered to across the EU, not every country did so within its national law straight away.
  • A cooling off period of 14 days and no cancellation costs is given to consumers. There needs to be no reason given during this time, though it must be made in writing and sent via recorded post.
  • No deposits, advanced payment, guarantees or reservation of monies during the cooling off period can be taken.
  • There are compulsory penalties complying with national/local laws) if the timeshare trader does not comply with the implementation of the Directive.
  • Any loans or finance agreements are automatically terminated if consumers use their right of withdrawal which offers peace of mind.
  • Timeshare and long term holiday products must not be sold as an “investment”.
  • Contracts must be in an EU language of the consumers choice in order that they can understand the contract in full before signing.

Conditions for fair trading and measure to protect buyers will instill confidence in consumers and also help put and end to pressure selling, this is the objective of the new Directive.

It is very important for the industry because timeshare owners in general are happy with their purchases, but it is the unregulated “holiday clubs” and fraudulent resale companies that bring the industry into disrepute.

The RDO and TATOC governing bodies of the industry in Europe welcome the new legislation and have been contributing to this legislation since its conception as a consultation document by the European Commission in 2006. The new conditions for vacation clubs are particularly strict, the length of the contract must be divided into equal annual installments with the purchaser having the right to cancel each year when payment is due under a 14 day cooling-off period. Because of these tighter regulations we believe much of the activity of these clubs will cease as they will be unable to adhere to them. Loopholes in the 1994 directive being exploited by companies circumventing the detail and spirit of the Directive have now been addressed.

Disclosure Prior to Contract

To enable consumers to make an informed choice, traders must provide comprehensive pre-contractual information before entering into any contract. All pre-contractual and advertising information forms part of the contract. All advertising must specify where the pre-contractual information can be found and this must also be available to the consumer at any time during a promotion and sales event. It must include details of cooling-off period, forbiddance on taking advance payments, the right of withdrawal and necessary forms to do so.

Cooling-off period and right of withdrawal

The Directive sets a 14 day cooling-off period with a right of withdrawal during this period without costs to the consumer. No monies can be taken during this period, including a ban on taking deposits through third parties and considerably extends the cooling-off period in the event of any inconsistencies.

Short Term Holiday Products

A number of companies devised trial packages and products specifically so that they can fall outside of this definition and therefore outside the boundaries of the protection provided by the legislation. Now the new Directive is extending consumer protection to holiday products with “a duration of more than 1 year”. It does not apply to hotel loyalty programs or similar.

Exchange Companies

RCI, II and DAE exchange services to timeshare owners are now included in the legislation. Exchange Companies are required to provide comprehensive information on the benefits available to members and the charges they make. The 14 day cooling-off period during which no money can be taken and the right of withdrawal, also apply to exchange contracts.

Resales

Resale Companies are required to provide detailed information about the service being offered and will not be allowed to charge advance payments until the actual sale has taken place or the contract has been otherwise terminated. This should restore customer confidence by putting a stop to dubious operators and allow legitimate resale companies to assist timeshare owners to sell their timeshare.

Invitation to a Timeshare Presentation

Timeshare owners have been for many years now, invited to meetings supposedly to sell their timeshare or to win a prize. When they arrive they get a sales pitch for another product and often some form of money back scheme, they end up paying additional money and still keep their timeshare. The new Directive requires that “where a timeshare , long term holiday product, resale or exchange contract is to be offered to a consumer in person at a promotion or sales event, the trader shall clearly indicate in the invitation the commercial purpose and the nature of the event”. The hope is that this will make things very difficult for the rogue operators.

Codes of Conduct

The new Directive encourages industry bodies and consumer associations etc to establish Codes of Conduct and Alternative Dispute Resolution schemes (ADRs) providing out of court complaint and redress facilities for the settlement of disputes under the Directive and purchasers must be informed which scheme the marketing companies adhere to, if any.

The new Directive states that “Member States shall ensure that adequate and effective means exist to ensure compliance by traders” and “provide for appropriate penalties in the event of the trader failing to comply. These penalties  must be effective, proportionate and dissuasive”.

The new Directive will help create a level playing field for businesses by simplifying the UK legislative regime with a single set of regulations to replace the old Timeshare Act. “Holiday Clubs” will now be subjected to the same regulations that have not been previously covered by law, which should pave the way for a stronger more unified European timeshare industry whilst helping to put an end to rogue holiday clubs and unscrupulous resale companies.

How will the Directive be enforced? Historically it has been very difficult or almost impossible to enforce any previous legislation. We can only hope that the Members states this time will take it seriously and will apply greater diligence in enforcement.