Timeshare contracts are notoriously difficult to get rid of, but clients who own a timeshare in Europe may now be looking at their options in light of the uncertainty around theeffects of Brexit. Julie Jordan looks at the options for Spanish timeshare owners.
There are more than 600,000 British timeshare owners, and a significant proportion of them own timeshares in Spain. Many either now find that their timeshare no longer works for them (especially in light of Brexit), or are concerned that their contracts are ‘in perpetuity’, and do not want to leave their families with indefinite maintenance obligations on their death. As such, you may have clients who are timeshare owners and need your advice.
Since the 1980s, timeshares have commonly been sold as indefinite contracts with unspecified rights of use, and deposits were required to be paid immediately upon signature. A client who holds a timeshare contract subject to Spanish law (or potentially one which was either entered into in Spain or references a Spanish property) may be able to take advantage of a number of groundbreaking decisions made by the Spanish Supreme Court in 2015. These have held many Spanish timeshare contracts to be null and void.
There are two main types of timeshare contract: those which confer property rights and those which grant only contractual rights to use holiday accommodation. The latter are more common in Europe. A Spanish or other relevant national property law specialist should be consulted in the case of timeshare contracts granting property rights.
In this article, I will explore options for clients wishing to divest themselves of their timeshares.
Can the client have their contract declared null and void?
Under the Spanish law 42/1998, in force from 5 January 1999 (subsequently superseded by Spanish timeshare law 4/2012), certain provisions in Spanish timeshare contracts are prohibited. The contract:
- cannot be for more than 50 years or for an unlimited period;
- must identify the specific accommodation and dates when the purchaser has a right of use (unlike many so-called ‘floating week’ contracts); and
- cannot require any advance payment within the initial 14-day statutory ‘cooling off’ period (and the Spanish courts have subsequently confirmed that the payment cannot be made either to the timeshare operator or to any third party trustee company).
Many Spanish timeshare contracts breach one or more of these prohibitions. If a contract is in breach, a Spanish court can declare it null and void. There is no time limit on bringing the claim under Spanish law.
Can the client claim their money back?
If a contract is declared null and void, the timeshare owner can receive back the whole of the purchase price paid.
In addition, where the timeshare operator had failed to provide to the purchaser, before the contract was made, with all the information required to be provided by the relevant European directives and Spanish law, a claim can be made for double any payment that was made within three months of contract signature.
In practice, a deposit was often paid on contract signature, so double the amount of the deposit can be claimed. In many cases, the full purchase price was paid within three months of signature, in which case, double the full purchase price can be claimed.
It may also be possible to claim back the whole or a proportion of any maintenance fees paid during the entire period of ownership. This is because the maintenance payments were wholly dependent on the existence of the timeshare purchase contract that has been declared null and void.
How can your client divest themselves of the contract?
If your client cannot or does not wish to bring a claim in the Spanish courts, but wishes to divest themselves of a timeshare contract, what other options are available to them?
Each timeshare resort’s contracts are different, but common features are:
- a right to transfer the contract during your lifetime to family members
- a right to bequeath the contract rights on death under a will
- the absence of any contractual right or very limited contractual rights to terminate on notice.
Transferring to a family member during the purchaser’s lifetime
Where another family member is willing to take on the timeshare contract, this may be a simple and cheap way of ‘offloading’ the contract. There may be a contractual right, or it may be possible to obtain the agreement of the timeshare operator to transfer the contract, with all its ongoing obligations, to a relative. A fee to cover the administration of the transfer is often payable to the operator.
Where another family member is willing to take on the timeshare contract, this may be a simple and cheap way of ‘offloading’ the contract
To effect the transfer, the timeshare operator could issue either a novation agreement removing the original purchaser and substituting the transferee, or a new contract in the name of the transferee. For a non-UK timeshare contract, the transfer document may need to be executed before a notary in the UK (incurring notarial fees), though some operators will accept a signature witnessed by a solicitor.
A novated or new contract should comply with current local law, and the operator ought to make any necessary changes to the original terms. This can be difficult to ‘sell’ to the transferee, who may receive less than the rights originally purchased and no ‘refund’ of part of the purchase price paid. The required 14-day cooling off period, within which the contract may be cancelled, also applies. There are occasions when these changes, although desirable, are not made by the operator in practice.
Transfer on sale to an unrelated person
A timeshare contract may be sold either privately or using one of the ‘timeshare supermarkets’. The resale market is not vibrant, and timeshare owners are often disappointed to find their contract worth only a fraction of what they paid for it. The recent Spanish Supreme Court decisions mean the value of an illegal floating week contract in Spain will be minimal, if it can be sold at all.
Giving the timeshare back to the operator
There may not be any contractual right to hand a timeshare week back to the operator. Some will take weeks back, provided maintenance is fully paid up. An administration charge may be levied for this ‘service’. Different operators will have different policies and practices on accepting back unwanted weeks. Some limit this to owners who have reached a certain age (such as 75), or owned for a minimum period. Others also charge a multiple of the annual maintenance fee as consideration for taking the contract back. This relatively low-cost option may be acceptable where the owner feels they have had good use of their timeshare and recognises that the week has a low value on resale. For an owner in reduced financial circumstances, it may be the only viable option.
Few timeshare operators provide a genuine ‘buy back’ service, although some may maintain a register of available ‘resale weeks’ and split the proceeds of sale if a new purchaser can be found. However, it may take some time, perhaps years, for the week to be sold.
A formal written variation to the purchase or membership agreement will be required to terminate the contract and relinquish any current or future claims against the timeshare operator. In return, any future obligation to pay maintenance is cancelled. Existing bookings and unused weeks carried forward but not yet booked may be lost.
Even where there is no contractual right to give the contract back, timeshare owners may try to ‘resign’ it. Sometimes this is accepted and sometimes not. Owners may be harassed to continue to pay maintenance even when they have informed the resort that they no longer want and can no longer use their timeshare. Although I am not aware of anyone actually having proceedings brought to recover unpaid maintenance fees in the UK, there are stories of debt collectors being instructed and harassing for payment of maintenance.
What happens on death?
Where a timeshare contract confers property rights, these pass on death into the estate of the deceased. In the case of contractual rights of use, the position is less clear, so each contract needs to be considered individually. Where the contract confirms the right to bequeath the timeshare, this may suggest it is not a ‘personal’ contract, and therefore survives the death of the original purchaser.
Few timeshare operators provide a genuine ‘buy back’ service, although some may maintain a register of available ‘resale weeks’ and split the proceeds of sale if a new purchaser can be found
If the rights do pass into the estate, the contract can be transferred to the deceased’s beneficiaries by a novation (see above). If the deceased’s beneficiaries do not want the contract, it can be disclaimed and possibly donated to a willing donee (see tinyurl.com/tcabequests). However, the personal representatives must continue to comply with the contractual obligations until the contract has been disposed of. The options are the same as during the lifetime of the owner: sell the contract, give it back, or make a claim (if possible) in the Spanish courts to have the contract declared null and void. In practice, many personal representatives seek to give the contract back, but sadly this is not always accepted by the timeshare operator, and the maintenance invoices keep coming – see above.
Where none of these options is possible, the personal representatives will be unable to wind up the deceased’s estate and distribute the other estate assets without making adequate provision for future liabilities to pay maintenance: this will be difficult to assess in the case of an ‘in perpetuity’ contract.