Trends in Florida Timeshare Regulation

Introduction

The State of Florida has been the leader in the regulation of the timeshare form of real property ownership. In 1976, the Florida Department of Legal Affairs promulgated the nation’s first timeshare regulation based on Florida’s "Little FTC" act. The regulations called for a 15-day rescission period, strict escrow protections until time of deeding, and specifically enumerated twelve prohibited developer practices including investment emphasis and sales representations on amenities to be provided in the future if not financially assured.

Over the years, the State has devoted a great deal of legislative scrutiny to timesharing by strengthening the law’s enforcement powers, balancing consumer rights with the needs of the business and making various technical corrections. Since its inception, Florida’s timeshare law has been amended in twelve different legislative sessions, most notably in a dramatic extension of the Act in 1993 to cover multisite vacation clubs. However, the definition of a timeshare interest has retained its key feature over the years. In the current iteration, "The Florida Vacation Plan and Timesharing Act" ("the Act") defines a timeshare as "[a]ny arrangement, plan, scheme, or similar device . . . whether by membership, agreement, tenancy in common, sale, lease, deed, rental agreement, license, or right-to-use agreement or by any other means, whereby a purchaser, in exchange for a consideration, receives ownership rights in or right to use accommodations, and facilities, if any, for a period of times less than a full year during any given year, but not necessarily for consecutive years." By providing for use and ownership periods of less than a full year, timesharing gained the legal framework it needs in order to provide a well tailored match to family and personal vacation profiles.

Consumer Protection

In the late 1970's, leaders of the infant industry identified the lack of a statutory framework as impeding growth of the timeshare product. Well publicized examples of fraud and marketing abuse suppressed consumer acceptance. Acting upon the need for a statutory framework for uniform disclosure and consumer protection, lobbying and educational efforts spearheaded by the American Resort Development Association were organized and implemented. Arising from the lobbying effort, in 1981 the Florida legislature passed the "Florida Real Estate Time-Sharing Act" to regulate the industry and to serve as one of the first timeshare enabling and regulatory statutes in the nation. Inevitably, legal challenges arose against state authority to regulate timesharing. Florida courts have, however, uniformly held that the law is "a reasonable regulation to conserve the public welfare" and have helped to shape the law through interpretation of key statutory provisions. Charges that the Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes, which is entrusted with enforcing the timeshare regulations, was unlawfully delegated the authority to administer the law were similarly dismissed. Upheld also was the statutory delegation to the Division of the power to enforce the regulations through criminal sanctions.

Notwithstanding the numerous revisions to the statute and challenges to it in the courts, the statute has maintained a consistent focus on consumer protection. The Act serves to protect prospective purchasers of timeshare by requiring full disclosure of such matters as the substance of contracts for the purchase of timeshare periods,0 the use of escrow accounts or other security arrangements, and the content and form of advertising for timeshare. Prospective purchasers solicited in Florida as well as those solicited elsewhere in the U. S. where the timeshare property is located in Florida are entitled to receive a public offering statement. The public offering statement follows a prescribed format and provides detailed information about the timeshare property along with consumer warning statements and other mandatory language.

As with most consumer disclosure statements, the purpose of the public offering statement is to fully inform the purchaser about the timeshare interest being purchased, as well as to underscore special risks involved. In order to accomplish this goal, Florida’s public offering statement requires disclosure on most facets of the timeshare program. For instance, detailed information must be given about the developer and the managing entity, their experience in timeshare, and any other party who may affect the purchasers' rights in the timeshare. Major elements of the actual timeshare plan or project must similarly be detailed. Examples include descriptions of accommodations, descriptions of developer leases or other agreements on recreational amenities and personal property attendant to the resort, an explanation of the status of the title to the real property underlying the timeshare, and a description of financing to be offered to purchasers.

Disclosure of the material information is not the only function of the public offering statement. Regulations require that certain declarations be included in the offering statement verbatim. Some of these statements serve as a warning to the prospective purchasers while others ensure that disclosures are not misleading when conveyed to the consumer. An example of such a statement is the announcement that is to be included on the front cover with the name of the timeshare plan, and nothing else, on every public offering statement. That statement reads as follows:

This public offering statement contains important matter to be considered in acquiring a timeshare period. The statements contained herein are only summary in nature. A prospective purchaser should refer to all references, exhibits hereto, contract documents, and sales materials. You should not rely upon oral representations as being correct. Refer to this document and accompanying exhibits for correct representations. The seller is prohibited from making any representations other than those contained in the contract and this public offering statement.

Authority of the Act over timeshare property extends through the useful life of a timeshare regime. For example, the Act contains requirements for matters such as the management of the timeshare resort, assessments of common expenses, and liens for overdue assessments. Requirements for resale of timeshare property are also provided by the Act.

Single Site Timeshare

While Florida timeshare offerings occasionally have been based upon non-deeded "right-to-use" property interests, most timeshare properties in Florida provide deeded interests to consumers and are "single site" timeshare regimes. Thus, to provide a timeshare a declaration of conditions, covenants and restrictions, the developer must devise written rules which govern reservation procedures and detail the use of the timeshare property.

Today, purchasers in deeded, single site timeshare regimes usually receive a 1/52nd undivided ownership interest in a given resort apartment or villa along with use rights in the timeshare resort which are exercisable not just with respect to the accommodation in which the consumer receives its undivided deeded interest, but also with respect to the unit type (e.g., two bedroom) and season (e.g., high demand season). The structure is known as "floating" timeshare interests, since the particular suite used and the specific time of vacation chosen will vary from year to year. In such a timeshare regime, owners simply call a central telephone number which might ring at the resort or at a reservation center, reserve a particular week of occupancy up to a year in advance, and take a particular accommodation on check-in. By selling these floating timeshare interests, timeshare management can more easily fulfill the desired time of vacation posited by timeshare owners by placing them not in one specific unit but rather in any similar unit type (for example one bedroom or two bedroom type) within the regime. Timeshare purchasers have responded favorably to the increase in vacationing flexibility as they are now able to vary their vacation time throughout the year subject to seasonal limitations in some areas in the state.

Exchange Programs

Under the Florida Timeshare Act, an exchange program is "[a]ny method, arrangement, or procedure for the voluntary exchange of the right to use and occupy accommodations and facilities among purchasers." Resort Condominiums International (RCI) and Interval International, the two exchange companies with world-wide reach, are operated independently of any one timeshare developer. These companies provide highly sophisticated reservation centers and serve as timeshare inventory clearinghouses to enable consumer timeshare owners exchange timeshare interest and step into timeshare vacations literally around the world. To utilize the exchange feature, a consumer timeshare owner first secures the week in the coming year for vacationing at their own resort through use of the resort's reservation procedures. Then, the owner contacts the exchange company by telephone or sometimes via the Internet to see what is available in exchange, and to confirm an agreeable exchange.

Under Florida law, an exchange program offering its services to timeshare owners must comply with the requirement of the Act. The Act provides for a consumer disclosure statement disclosing the central elements of the exchange program. The written information required is not as detailed as in the public offering statement for the timeshare resort, but covers the central elements of an exchange program, including a complete list of limitations, restrictions, or priorities employed in the operation of the exchange program, the fees or range of fees for participation by purchasers in the exchange program, and the number of timeshare units in each timeshare plan which are available for occupancy and which qualify for participation in the exchange program.

Multisite Plans

Starting in the early 1990's, the trend among the largest timeshare developers is the introduction of vacation clubs which involve the availability to the consumer, under the developer’s brand name, of timeshare resorts in a number of domestic and sometimes international locations. Florida law expressly covers such "multisite plans" (also known as vacation club timeshare plans) which are defined in the statute as "[a]ny plan, method, arrangement, or procedure with respect to which a purchaser obtains, by any means, a recurring right to use and occupy accommodations or facilities of more than one component site . . ." Instead of selling timeshare units to one particular site, developers of multisite plans are now selling deeded interests in one site combined with membership in a "vacation club" which provides access to geographically diverse timeshare resorts without direct use of any exchange entity. In some of these plans, the interest that a purchaser buys translates into a designated number of "points" that can be used on an annual basis. Points are then used as currency by which vacation club members obtain the right to reserve, occupy, and use the accommodations of one of the multiple timeshare properties.

The introduction of points along with the multiple resort strategy allows for substantial consumer flexibility, not only as to resort location but as to other features as well. Club members can custom tailor their vacations taking into account number of bedrooms, time of year, weekends and holidays, in addition to location of the component site. Thus, for the same number of points, a member might be entitled to reserve a week in a studio unit for seven consecutive days off-season or only three days in a two-bedroom unit during the busy season at a given resort. Vacation clubs also may offer other benefits to members. Some companies allow members to utilize points for services other than their multiple timeshare properties. Timeshare points are now being used for services such as hotel stays, airfare, cruises, car rentals, and merchandise. On the other hand, points sometimes bring confusion to the sales table, require more sophisticated legal documentation and operations management, call for far more time with reservationists over the course of the year, and may be subject to manipulation tending to devalue the point value of the owner base with respect to certain high demand resorts or seasons.

The advent of multisite timeshare plans has led to consideration and passage of Part II of the Florida Vacation Club and Timesharing Act. In addition to the requirements of the Part I, some of which were discussed under the heading of Single Site Timeshare, multisite timeshare plans must fulfill further mandates such as additional disclosure requirements for a public offering statement (such disclosures are compiled in the newly required "Multisite Public Offering Statement"), special rules for management and reservation systems utilized by the timeshare program, and provisions for the addition, deletion or substitution of sites from the plan.

To clarify the range of legal documents needed for a multisite plan, the following is a summary list of documents often utilized for such a plan:

• Purchase/Club Membership Agreement
• Promissory Note
• Mortgage/Deed of Trust/Deed
• Truth-in-Lending/RESPA/Fair Housing Disclosures and Requirements
• Declaration of Condominium/Declaration of Covenants, Conditions, and Restrictions
• Escrow Agreement (for purchaser deposits)
• Vacation Club Trust Agreement
• Resort/Hotel Amenities Use Agreement
• Articles of Incorporation/Bylaws of Timeshare Owners’ Association
• Subordination/Non-Disturbance Agreement(s)
• Management Agreement
• Rules and Regulations
• Reservation Procedures
• Subsidy Agreement (re: Club Dues/Annual Assessments on Developer-Owned Inventory)
• Situs State and Market State Registrations including Public Offering Statement(s)

Traditionally, in Florida and elsewhere, timeshare resorts typically have been stand-alone properties with clearly defined property boundaries. One innovative approach has been to incorporate the timeshare building or timeshare legal component into a mixed use regime along with one or more of commercial, hotel, golf or urban festival settings. Integration of a timeshare component with its mixed use setting often calls for attention to the legal relation among the various components including standards of maintenance/management of the various components, and assurances of continued access by the timeshare component to any other component deemed essential to the offering such as an adjacent golf course, hotel pool, or other outdoor or indoor amenities. Florida requires a combination of reasonable assurances and high standards of disclosure for consumer protection.

Conclusion

Questions about timeshare ownership no longer relate to viability of the genre just as questions about the condominium form of ownership no longer focus on whether that form of real property ownership is here to stay. Questions more likely cluster around the pace of U. S market acceptance for timesharing, new frontiers in urban timesharing, stepped-up developer and management efforts to deliver quality vacation and travel experiences, and issues of developer and third-party resale programs. As to the State of Florida, one fact is clear: the 20-year relationship among (a) leading Florida timeshare developers working individually and through the highly successful Florida Chapter of ARDA, (b) The Division of Florida Land Sales, Condominiums and Mobile Homes, and (c) the Florida legislature, usually mutually respectful though in the early years sometimes contentious, has greatly enhanced the strength and flexibility of the timeshare product while contributing substantially towards delivery of quality Florida vacation experiences to countless families from around the world.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.