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| HOW DOES FRACTIONAL OWNERSHIP DIFFER FROM TIME SHARES? |
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© March 16, 2007 by D. Andrew Sirkin.
Any reproduction or use of this document or any part of its content
requires the written consent of the author. Mr. Sirkin is chief attorney for Paris Pied-à-Terre Fractional Ownership. Contact Mr. Sirkin at
dasirkin@earthlink.net, or visit www.andysirkin.com
Both the arrangements known historically as timeshares, and the arrangements now referred to as fractional ownership, fall within the legal definition of a “timeshare” in most U.S. states. From a strictly legal standpoint, the term “timeshare” refers to any arrangement under which a group of people shares use of a property based on time, regardless of whether they own the property and regardless of whether a management company or developer is involved in organizing or operating the property. But from a practical standpoint, there are significant differences between most of the arrangements historically referred to as “timeshares”, and most modern vacation property fractional ownership arrangements.
Put simply, the meaningful difference between most old-fashioned timeshares and most modern fractional ownership arrangements is the extent of ownership and control given the users of the Property. Old-fashioned timeshares typically did not involve direct ownership of real estate, meaning that the users of the property did not actually own or control it. Modern fractional ownership almost always involves direct ownership, meaning that each user has a deeded interest, and this usually means greater owner control. Moreover, even in instances where a modern fractional vacation home arrangement does not involve direct ownership (typically when the property is outside the U.S.), the users own and control the entirety of the tiny company or association that is formed to hold title.
But generalizations about the distinction between old-fashioned timeshares and modern fractionals can be misleading, and it is important not to be mislead into complacency by the way an arrangement is named or advertised, or even by whether ownership is deeded or not. For example, contrary to popular misconception, having deeded ownership does not necessarily mean you have any particular level of control over how the property will be managed, what your ownership costs will be in the future, or whether you have any meaningful prospects of making money based on increasing property value. These issues must be examined based on the documents governing the project, not based on what the arrangement is called and whether or not ownership is deeded. Here are the key questions to ask yourself about a fractional ownership arrangement:
- What is my per-night cost when I add up all of my annual costs (including management fees and dues) and divide them by the number of days I can use the property each year?
- Will I have any control over how my costs (particularly management fees and dues) increase over time and how the property is managed and maintained?
- To what extent am I free to rent out the vacation home and control the rent charged?
- If I want to vacation somewhere else, how easy is it to get the location I want at the time I want it?
- What restrictions apply to re-sale, what competition will I face within the property and in the immediate area, and what financing (if any) will be available to my buyer?
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