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FEATURE ARTICLE: International Regulation of Timeshare -Europe-

--by David C. Sampson

May 19, 2006
Although timeshare, as a prepaid vacation option, is generally accepted as having originated in Europe (the Hapimag program in Switzerland is usually identified as the original timeshare program), regulation of timeshare outside the United States does not appear to have been as thorough or as protective of consumers as domestic regulation has been. In the United States there are typically three broad types of regulatory jurisdictions - "resort jurisdictions," "market jurisdictions," and those jurisdictions which, for reasons of geography, economics, or cultural imperative, are neither resort jurisdictions nor market jurisdictions. It is also clear that nearly all resort jurisdictions are also market jurisdictions, many market jurisdictions have resorts located in them, and the third type of jurisdiction will usually have some high net worth individuals who may purchase timeshares and may have some resorts located there.

The intent of regulation in the various states is fairly clearly identifiable. Resort jurisdictions are generally more aggressive in regulating the content and structure of the timeshare program, market jurisdictions are generally less interested in regulating content and more interested in ensuring full disclosure of all aspects of the timeshare program, and the third type of jurisdiction relies most heavily on broadly applicable consumer protection laws, such as antifraud statutes, with little to no regulation of timeshare specifically. But even in the market jurisdictions and the third type of jurisdiction, the consumer can purchase with some confidence that the jurisdiction in which the resort is located has required that the timeshare program meet certain standard requirements. With the drive toward a regional economy and the attendant political alignment of the European Economic Community, the European Community has attempted to standardize timeshare regulation in a manner which has diluted these natural distinctions, resulting in what appears to many to be a less than optimal regulatory scheme.

This survey provides a brief look at timeshare regulations in select jurisdictions in Europe. It is not intended to be a guide to registering or otherwise complying with regulations in the jurisdictions it covers, nor is it intended to be a comprehensive guide to European timeshare law. Indeed, it should not be considered legal counseling or legal advice of any type, but a mere survey of the more important timeshare regulations in various European jurisdictions with which the authors are familiar or otherwise find interesting. Anyone wishing to develop a resort or market a resort in any of these jurisdictions should contact local counsel in the jurisdiction where the resort will be located or marketed. Your domestic timeshare counsel should be able to help you find local counsel.

The European Timeshare Directive
The baseline regulation for timeshare in Europe is provided by the European Timeshare Directive (Council Directive 94/47/EC, 1994 O.J. (L 280) 83, October 29, 1994) (the "Directive"). The Directive does not provide significant regulation of the creation, structure, or other content of a timeshare program, but is directed toward the sales process and required disclosures. The Directive limits its coverage to contracts for a period of three years or more and intervals of at least one week per year. Its key elements are:

• A minimum 10-day cooling-off period;
• A ban on taking any deposit until after the end of the cooling-off period; and
• A comprehensive list of information and disclosures required to be given to the purchaser in his or her own language (provided it is an official European Union language).

The Directive's requirements are specifically identified as minimum protections. Member nations are required to implement the Directive by local legislation, but are permitted by the Directive to impose more strict requirements. It is our understanding from a report published in November 2004 by the Timeshare Consumers Association, entitled "Timeshare in Europe - 2004 - An Industry at the Cross Roads," that all nations contained in the European Economic Area ("EEA") have passed the necessary legislation to effectuate the Directive. Following are some additional requirements imposed by certain member nations. Again, this is not meant to be a comprehensive list, but merely indicative of the types of changes or additions some member nations have imposed.

Austria
Austria enacted the Directive into national law through the Austrian Timeshare Act (BGBI, 1997/32). The Austrian Timeshare Act supplements the Directive as follows:

• It extends coverage of the Act to include any entitlement to use the property periodically for a period of at least three years. Accordingly, it includes biennial interests and periods that are smaller than one week.
• The contract is required to contain a specific list of detailed information regarding the project, the developer, the reservation system, the exchange company and other pertinent information.
• The cooling-off period in Austria is 14 days, beginning from the time all of the information required by the Act to be in the contract has been received. If the information is not initially included in the contract, the developer may provide a supplement, but in any event, the cooling-off period is limited to three months.
• If the purchaser has stayed at the property prior to exercising his or her termination rights, he or she must pay a reasonable compensation for use.

Czech Republic
The Czech Republic supplemented the Directive with Act No. 40/1964 Coll., the Civil Code, relating to regulation of consumer contracts. The Czech regulation requires as follows:

• The purchase contract must be in writing.
• The contract must be executed in the Czech language (this would be in addition to the purchaser's language, if different).
• The contract must include a list of detailed information about the consumer, the seller, the project, the price, financing, maintenance, exchange and other topics covering eighteen specific areas of disclosure.
• The cooling-off period for Czech contracts is extended to 15 days, unless the contract does not adequately address one or more of the 18 disclosure items, in which event the consumer has up to three months to terminate the contract.

Denmark
Denmark's supplemental law is contained principally in the Act on Consumer Contracts Granting Rights of Use Relating to a Timeshare (Act No 234 of 2 April, 1997). The Danish supplement adds the following to the Directive:

• It extends the coverage provided by the Directive to all contracts that run for at least three years and grant use rights over two or more periods. Accordingly, it covers biennial contracts as well as contracts for periods of less than a week.
• The Act specifically prohibits lenders from receiving any payment from consumers prior to the end of the cooling-off period.
• The contract must be written in the language of the country of which the consumer is a citizen or in which he or she is resident. This is in addition to the Directive requiring the contract to be in the purchaser's language.
• The Act applies to resale transactions if the seller uses a professional (e.g., real estate agent) to handle the transaction.

Spain
Spain's implementation of the Directive and supplemental provisions are contained in Spanish Law 42/1998, December 15, 1998. The salient points of the law are as follows:

• It covers all Spanish land, including the Balearics and Canaries.
• It does not include personal property or points programs.
• It extends the coverage of the Directive to resales.
• It applies to contracts for three years but only up to fifty years.
• No mention of the word "ownership" may be made in the contract.
• The law includes a very detailed list of information to be provided in the contract and extends the Directive's 10-day cooling-off period to three months if all of the required information is not included.
• All owners must be "registered" with the cost of the notary and registration to be added to the purchase price.
• All timeshare developments existing on or developed after January 7, 1999, must have an "Owners Community," in which:
  • each owner has one vote for every week owned;
  • a two-thirds majority is required for any changes to the regime or any other arrangements; and
  • a simple majority is required for all other decisions.
• A series of taxes are charged to each of the participants in the transaction.

United Kingdom.
The United Kingdom passed its implementing legislation in 1997, with the Timeshare Regulations 1997, 29 April, 1997. The UK legislation supplements the Directive as follows:

• It specifically extends the application of the Directive and the UK's 1992 Timeshare Act to cover those instances where "the offeree is ordinarily resident in the United Kingdom and the relevant accommodation is situated in another European Economic Area (EEA) State."
• It provides for a disclosure document that gives specific disclosures that address, among other things, information related to the parties to the contract, the specifics of the timeshare regime, the details of construction, what amenities are included, price information, and cancellation rights.
• It provides a list of items which must be included in the purchase contract.
• The cooling-off period is extended to 14 days.

Generally
As noted, all of the EEA nations have passed legislation implementing the Directive. Many of the EEA nations have supplemented the Directive with extended cooling-off periods, specific disclosure requirements, and, in some cases, structural regime requirements, such as owners associations. Interestingly, some consumer groups, including the Timeshare Consumers Association, decry the amount of variation among the European nations, stating that the variations lead to confusion and lack of consumer confidence. At the same time, these consumer groups hold up United States regulatory systems as a model for what Europe should seek to achieve.

In point of fact, the United States regulatory schemes vary even more from state to state than do the European regulations -- the European regulations at least have the unifying standard of the Directive. What is more likely to have made the regulatory system in the United States more effective is not a nonexistent uniformity of laws, but a more directed, targeted approach to regulation by the various states with emphasis on what is important to consumers in the type of jurisdiction involved. Despite the broad and sometimes frustrating differences in specific requirements, the various states have forced developers to comply with minimum standards in their creation of the underlying timeshare regimes, in providing for maintenance and upkeep of the projects, and in providing appropriate disclosures to the consumers. When these basics are covered by the regulatory system, it is less likely that projects will fail or deteriorate and the confidence of the consumer will increase. When regulatory systems, such as that currently applied in European states, rely almost totally on disclosure and a cooling-off period, failure is more likely and consumer confidence will likewise falter. In the long run, only a regulatory scheme in which with resort jurisdictions provide substantive protections in addition to the disclosures mandated by the Directive is likely to adequately protect consumers, provide confidence in the product, and enhance the long term health of the industry.

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About David C. Sampson:
Dave Sampson, a Managing Partner at Baker & Hostetler in Los Angeles, is a recognized leader in the timeshare industry and has extensive experience. Mr. Sampson structures timeshare developments, including creation of the timeshare regime and all associated legal documents, and provides advice to developers on all aspects of timeshare development, sales and registration. He was among the lawyers for the timeshare industry who negotiated and drafted the California Vacation Ownership and Timeshare Act of 2004. Mr. Sampson also provides general legal advice related to real estate transactions, development projects and construction contracts.

Mr. Sampson is an ARDA Trustee, member of the ARDA State Legislative Committee and Legislative Counsel for ARDA-California. He was a member of the University of Southern California’s Lusk Center for Real Estate Development in 1997 and was co-lecturer for the USC School of Urban Planning and Developments segment of the Master’s in Real Estate Development Program. He served in the United States Air Force Security Service/Electronic Security Command (1970-80) and was awarded the USAF Commendation Medal (1975), United States Joint Service Commendation Medal (1977) and the United States Meritorious Service Medal (1980). Mr. Sampson lived in Rimbach (1972-75) and Augsburg (1977-80), Bavaria, West Germany, and he speaks German and Czech.