Those of us who follow the happenings within the timeshare industry are well aware of that industry’s transformation, or evolution, if you will, from a typical fractional ownership deeded interest to a ‘right to use’ concept, materially changing, from a legal perspective as well as an actual palpable change, exactly what ‘vacation timeshare ownership’ now means. Commencing in the early 2000’s, the larger players in the industry started to move away from fractional deeded ownership to something now more akin to a ‘club membership’ and correspondingly away from real property ownership. Over the same time period of the past two decades or so, the timeshare industry has gradually evolved to a larger foot-printed multi-resort, multi-state model with the larger ‘chain’ developers acquiring the smaller ‘mom and pop’ resorts and assimilating them into a single large chain and thereby expanding the resort brand into new states with more geographic locations, thus aggregating and consolidating their holdings into a single resort group spread over a multi-state and even multi-regional areas.
Maintenance Fee Makeover:
Initially, the product makeover seemed, at least in part, to favor the existing consumer/owner as the new product now offered would transcend the more limited fixed week, fixed location product of yesteryear in terms of increased use flexibility at a variety of different locations and differing time frames. That increased flexibility is certainly a significant plus to former owners who opted to convert their interests and who now, as a result, possess the modified legal status of “club member” as opposed to ‘owner’.
However, the intervening passage of time has revealed a much darker side of the equation that perhaps wasn’t initially apparent to the now former fractional owner. Consider, if you will, those annual maintenance fees that have always been part and parcel of traditional fractional real estate timeshare ownership.
Consider next the core definition of a “maintenance fee”. The fairly plain meaning of the term suggests a budgeted annual periodic cost of keeping something that you own or have a significant vested interest in, operational, so that when you choose to seek the benefits of it, there are no impediments in your way.
Indeed, it’s completely logical that anything of substance that you own that requires upkeep is something that you willingly choose to maintain in order to be able to avail yourself of its use and benefits, a strikingly perfect example being your previous fractional periodic ownership of your real estate based vacation residence!
Maintenance Fees After Loss Of Ownership?
Where that concept of maintaining something that you own and have regular usage of begins to get a little murky, is, if over the past decade or two, you’ve succumbed to your resort presentation that ‘upgraded” you to your new ‘right to use’ product, and redeemed your previously held deeded interest. At the time you may well have wholeheartedly bought into the idea of a far more flexible vacation product that allowed freedom to choose a different time period and location from your former ‘same old’ fixed time and location deeded interest. The euphoria may have begun to wear off however, when you began to realize that a) you no longer ‘own’ a specific unit at your resort and b) you now have to follow the necessary procedures when you want to reserve a unit, perhaps at a completely different resort location than the one you’re used to, and there is no up-front assurance that the specific location and time period you are attempting to reserve will be made available to you where and when you want it!
But conceptual confusion issues aside here, as a former fractional timeshare owner who willingly (perhaps with a little push from the resort’s sales team) converted your interest, merging it if you will, into a membership based interest for added flexibility and the ability to enjoy different locations and times, how is it that you overlooked a key concept at the time of your conversion? Is it conceivable that all the pros and cons of the new deal were not adequately explained to you, or that the emphasis was overly on the admittedly positive aspects of this new status? Even so, from a legal standpoint, how were the resorts able to keep and continue the annual contractual maintenance fee obligation in the deal given the significant change in the legal relationship between the resort and its former owners, now ‘club members’? Put another way, how exactly did it happen that this significant and increasing annual obligation is able to continue after the loss of ownership?
Once the fog began to clear, the big question remains. “If I no longer own a part of a unit, and now my legal relationship with my resort is as a ‘travel club member’, why am I paying to maintain something I no longer own”? This of course is the $64,000 question, and as you may have already surmised, the answer is somewhat complicated. Let’s start with our own analysis in the absence of a clear-cut response from the timeshare industry.
Collecting Maintenance Fees, Yet Less Accessible to Timeshare Members?
Let’s commence with the facts that we do know. The timeshare developers have established themselves as very skilled marketers over the past several decades of providing a resort product to the public. Add to that skill the fact that they have, for decades, maintained a very ‘hands on’ approach to the regulation of their industry in order to consistently stay on top of state regulations that allow them to continue consistently marketing their products to the vacation product consumer. Moreover since the developers control the purchase transaction by inviting their prospective purchasers to come and tour a sample of their resort offerings, and then essentially require that a prospective purchaser close a sale on the same day of the visit (subject to a short rescission period after the sale), and to add to that, it is the developer who exclusively creates the terms and conditions of said purchase into ‘fill in the blanks’ legally binding contracts.
Therefore, for purposes of this analysis, it seems that the timeshare industry that is the main beneficiary of a club membership purchase contract that mimics the former real estate product offering but with a couple of new conditions not previously contemplated, in the sense that it now generates more uncertainty into the actual process of securing a reservation, and transfers little to no real property ownership to the purchaser. Further, since larger segments of the timeshare industry are now offering their timeshare products directly to the vacationing public on a pay for use basis, (without the added obligatory maintenance fee burden), this offering of the same inventory to the general public via travel websites available directly to the public, clearly ‘dilutes’ the existing resort inventory available to the timeshare owner/members, creating a new class of outside competition for timeshare members attempting to reserve their desired units and time periods.
Indeed, from the timeshare industry’s perspective, it’s difficult to quarrel with the proposition that if there is a way to continuing collecting maintenance fees while at the same time making bookings less accessible to the timeshare members and adding a separate revenue stream of “non-owners” now able to access the exact same product inventory apparently with little to no outcry, regulatory or public, where is the incentive or need to change?
Floating Deed, Vacation Travel Club, Right-to-Use?
In keeping then with this analysis, the principal resort developers have differing approaches to marketing their newer ‘right to use’ multi-site product. Some have continued to identify their product with real estate, presumably based on the concept that real estate typically holds its value and maybe even appreciates over time, and therefore remain an easier sale. These developers may continue to offer a “deed’, but a closer inspection now often reveals the new ownership is represented by a ‘floating deed’. No, it’s not a deed to a boat, but it’s also certainly not tied to a specific piece of actual real estate (i.e. a specific unit) either. Some developers now commence the purchase transaction by initially presenting a deed to the buyer, but then while in the midst of the purchase presentation, persuade that buyer to transfer his or her newly minted deed back to the developer in exchange for a ‘beneficial interest in a master trust’. To many purchasers, the beneficiary designation on a master trust sounds as good as a deed, so the switch is made, and the new purchaser has deeded their interest to a ‘master trustee’, never to emerge from the purchase process with deeded ownership. Other developers have abandoned any remaining vestiges or pretense of a real estate-based product by heavily touting the advantages of multi-state and regional vacation opportunities via a strong ‘Vacation Travel Club’ banner.
Survival IF Annual Maintenance Fees Were Eliminated?
To conclude the discussion on the issue of the propriety of continuing to charge annual maintenance fees on vacation experiences where the persons charged for these fees do not own the interest they are ‘maintaining’, it is becoming evident that at least to some extent, this continuing practice remains as a carryover from an earlier and less complex era. However, it’s the same developer-based organizations who have continued to include maintenance fees as a contractual obligation, notwithstanding the major changes in current product. Add to this formula the developer’s highly developed sales practices and skilled marketing techniques, and we can see exactly how this practice has been perpetuated for their own enrichment and with little to no intervention from the governmental regulators!
As to whether the vacation club resort based product could economically survive if annual maintenance fees were eliminated, that answer already exists in the affirmative! One needs only to examine the resort industry’s overall marketing practices to see that there’s still a terrific economic future in these family orientated multi room resort units with amenities. They can, and they are quite profitably marketed as pay for use properties. Nearly all of the major brand resort/hospitality corporations have either a timeshare division or have spun off a separate sister timeshare entity which typically still shares the brand name (flag) with the parent hospitality company. Indeed, it appears that the larger hospitality chains are now emulating their own timeshare resort developments by diversifying their short stay products by incorporating small suites and increasing on site amenities to attract more family orientated resort destination type vacations. Correspondingly, many of their reservation systems are now offering bookings at either their hotels or their related timeshare resorts so as to offer a more diverse product line under the same flag. It’s therefore clear that the ‘pay for use’ business model in the hospitality industry is, has and will be the way revenue is generated into the future. Presumably then it’s fair to note that the timeshare resort industry has already embraced the ‘pay as you stay’ business model. So, how much longer will the timeshare industry attempt to continue the practice of charging ‘annual maintenance fees’ with no ownership right of possession?
Apparently as long as they can!
Respectfully submitted,
Michael D. Finn, Esq.