What is a Timeshare Agreement?
A timeshare agreement is a legally binding contract between a timeshare company or resort and an individual — the timeshare owner. Essentially, the agreement gives the owner the right to occupy a specified unit during a designated interval each year (or at another specified time). Under existing timeshare laws, the right of occupancy must be guaranteed for a minimum of ten years.
The purpose of a timeshare agreement is to establish in writing the contractual requirements and benefits associated with the ownership of a timeshare. Timeshare agreements may also accurately describe the obligations and/or assessments that timeshare owners may incur during a particular interval and the use and maintenance arrangements associated with unit occupancy .
There are several types of timeshare agreements, including: "Right to Use" (RTU) or "Use and Occupancy" agreements allow the timeshare owner to use and occupy a unit for a specified length of time.
Timeshare management agreements may allow a timeshare company to market, manage or maintain the unit in exchange for a fee.
Many timeshare agreements contain a "Right of First Refusal" provision, which requires the timeshare company to offer the unit back to existing timeshare owners before the timeshare owner is free to sell the unit for a certain price to a third party.
Key Terms to Look for in a Timeshare Agreement
Every timeshare contract must include a description of the property. This description provides enough detail for a potential owner to identify the unit. The law requires that a timeshare give you the right to occupancy of the property and to use the common elements.
Most timeshare agreements will include a clause that outlines the "use rights" for a period of time or for a certain number of days each year. This clause outlines the timeshare property, assigned week schedule, type of unit and the number of people that can occupy the unit. The use rights clause will also define when units can be reserved-usually 12-18 months in advance and when reservations can be changed and/or cancelled. These details are critical to know as each timeshare seller and developer have a different reservation system that may result in different use experiences.
Similar to the use rights clause, a maintenance fee clause should be included in a timeshare agreement, which identifies the annual maintenance fees and any special assessments.
The duration of the agreement is another important clause for a purchaser to understand. The duration clauses can range from a few years to perpetuity to a fixed number of years. If the timeshare is a license agreement, it will automatically terminate. However, if it is a deed, the owner will need to sell the timeshare or get out of the timeshare some other way. Most purchasers will want to ensure the timeshare agreement is for a fixed period of time and then renew the timeshare at the end of the term.
Rights of Timeshare Owners
Timeshare owners typically have the right to use the property for a set number of days each year. Sometimes these rights may be unlimited. However, these rights are generally granted for a specific period of time, often through a period of years or perpetuity (until death of the owner). Unless a timeshare owner decides to sell or rent timeshare interest, the timeshare can be used each year for relatively low cost. Timeshare owners may also sell or lease their property to another person. New York law requires that a transfer of a timeshare interest must be done by deed unless complied with Section 5-1313 of the General Obligations Law. The attorney general does not have any "first right of refusal" to buy back the interest. A transfer of a timeshare interest must be recorded in the office of the county clerk in order to be effective against third parties. The timeshare interest is not active until the county clerk records the deed for it. A fraudulent deed done without the approval of the Attorney General to buy the timeshare is ineffective without the approval of New York Attorney General.
In addition to the legal rights discussed above, timeshare owners have certain statutorily imposed legal rights that protects a timeshare owner from criminal acts of scams and fraud. A timeshare owner has the right to an accounting of all charges collected under their contract of sale. This accounting must be made within one hundred twenty days after the close of each fiscal year of the real property time sharing plan, detailing receipts and expenditures for each category of expense and income. Another legal right that timeshare owners are entitled to is a column summary statement. The column summary statement states fees must be reported in two categories: the first category is the actual cost per timeshare owner (units in the time-share plan); and the second is the actual cost per unit (interval) of time for which the purchaser’s time share interest was sold. Each category must be arranged in a separate column and must be reported for the prior calendar year as well as the most recent billing period through June 30 at the time of the statement. If a timeshare owner’s legal rights under the contract or the law were violated, such as failure to provide annual statements or annual meetings or failure to have timely or accurate accounting or listing of all fees, costs, and assessments paid over the course of the contract, the timeshare owner can make a demand on the attorney general to enforce their statutory rights. If the attorney general fails to require corrective action by the time-sharing plan, the timeshare owner may enforce his rights through a lawsuit.
Exiting a Timeshare Agreement
When new timeshare owners learn that they are often required to hold their interests until the end of the period of the trust, another phrase they hear is "rescind," which means to cancel a contract or to take something back. Rescission periods can take up to two years to complete, depending on the circumstances of the agreement and poor disclosure communication by the developer.
Here is a breakdown of some options that may be available for extricating yourself from a timeshare agreement prior to the end of the term of the trust:
Rescission
Many timeshare developers’ disclosure communication methods fall short of the required opportunities for owners to rescind (take back) their positions in the agreement. Accordingly , rescission (if available) is usually the first and most affordable option to be considered. Keep in mind that these timeframes vary from state to state and from case to case.
Buy-Back Programs
Developers set up these programs to accommodate owners that do not have the option to "rescind." The terms are often wrapped up in an endless chain of paperwork that keeps the owner bound to the agreement for an additional time, without the benefit of having used their timeshare even once. Some developers offer buy-back for low priced fees after decades of ownership.
Legal Action
Some states provide for a "statutory rescission," meaning owners can rescind their agreements at any time within the statutory period. When statutory rescission does not apply, and rescinding is not an option, legal action is often the only option for owners who wish to terminate their agreements before the expiration of the term of the trust. Legal action can be costly and can continue for many years, while owners wait and hope for the best possible outcomes in these cases.
Advantages and Disadvantages of Buying a Timeshare
Cost savings are one of the advantages to owning a timeshare. A timeshare agreement generally provides for shared ownership of a unit. Shared ownership often provides for cost savings over an individual purchase of a similar property. In that regard, it is important to analyze each proposed timeshare property to be certain it truly fits your needs and meets your expectations.
The disadvantages are that you are entering into a long-term financial obligation, sometimes up to 99 years, with monthly maintenance fees, special assessments, and retained real estate taxes on mortgages. The monthly maintenance fees are approximately $500 to $1,000 per month or $3,000 to $12,000 per year. The special assessments often equal the annual maintenance fees to cover large costs such as infrastructural repairs and upgrades. The real estate taxes are often retained by the timeshare association to pay the mortgage.
There can also be contractual obligations. If you fail to pay the monthly maintenance fees, the timeshare association may have the right to foreclose on your interest in the timeshare and/or place a lien on your other real estate. If you intend to rent the unit, you should understand the restrictions on rentals established by the timeshare association. Usually rentals are only permitted for a term of one to two weeks and the association may not allow you to keep all of the rental income. You should also be certain you understand the restrictions on use. Some timeshare agreements require you to use your unit only during certain times of the year, on certain days of the week, or at certain times of the day. Other timeshare agreements are less restrictive, but all have some restrictions regarding use and occupancy.
Negotiating a Timeshare Agreement
Negotiating the terms of a timeshare agreement is a complex but crucial step that can affect your long-term enjoyment of your vacation property. Many purchasers may feel overwhelmed by the sales process or the prospect of dealing with tough negotiators. However, approaching the conversation with a clear understanding of the terms can help you stay well-informed and confident while discussing the details of the sale with property representatives.
When negotiating the terms of a timeshare agreement, it’s important to keep in mind how you intend to use the property. Will your family be using the property during certain times of the year? Will you have anyone subleasing the property? These are important questions to ask yourself before signing an agreement. Having clarity regarding your intended use of the property can give you a solid stance for the negotiation process.
Additionally, it’s crucial to ensure that you understand all of the terms and conditions outlined in the agreement. Learn about all hidden fees and understand your responsibilities as an owner. If you are unsure about any of the terms , don’t sign the agreement until you have them answered. A good seller should be willing to go over all aspects of the agreement with you.
A quality timeshare property will have the answers to these questions readily available. All of this information is vital to understanding the ins and outs of your agreement and why you’re paying certain fees.
Purchasing a timeshare agreement is a significant financial commitment that requires careful consideration. Doing your research into all of the costs associated with a timeshare will give you a clear understanding of the property’s value. In creating a typical cost breakdown of your expenses, a reputable salesperson will be able to show you how you will benefit from making the purchase.
You may need to read through the agreement multiple times to fully understand it, but once you do, begin the negotiation process. Timeshare representatives may not budge on certain issues, but if you know which terms are flexible and which aren’t, you may be able to negotiate a better deal for yourself.