Insight – how to solve a problem like a timeshare

7 August 2020 | Investment

For a time, not so long ago, timeshares were the in-thing – something many invested in or considered investing in. It was especially popular in the 1980s and 90s, in the years after the package holiday and tourist booms triggered a surplus of cheap flights to popular foreign destinations.

It’s still alive in some forms today – as you can see from a cursory Google search – but is much less popular and, more often than not, comes with the words scandal or scam attached.

In the early 2000s, a timeshare spin-off – known as Fractional Ownership (FO) – became quite popular at the higher end of the market, even drawing in agencies such as Knight Frank which were trying to sell ‘one month’ portions of properties.

In a Financial Times article from a decade ago (behind a paywall), Estate Agent Today editor Graham Norwood outlined the differences between the two models.

FO was very much the more respectable of the two, according to Norwood, with timeshare bedevilled with arguments over the dodgy fly-by-night companies that often sold them and the fact that there was no real awareness of what sort of market existed (would owners be able to sell their share with a profit, for example?).

The single biggest issue for timeshares, though, were exit payments. In other words, how much you had to pay to whom when you sold your week or fortnight.

There were also some organisations which appeared, through their names and websites, to be authorities or even regulators popping up in the late 1990s in response to many cases of timeshare scams. But they themselves were nothing more than other timeshare operators cashing in on the problems.

It’s now estimated that some 500,000 Brits are tied into unlawfully sold timeshare contracts, which often prove very tricky to get out of.

But how did it come to this?

What is a timeshare and how do they work?

A timeshare is an arrangement whereby several joint owners have the right to use a property as a holiday home under a time-sharing scheme.

Multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time – typically one to two weeks. It is effectively a way of having a stake in an overseas property without much of the responsibility, and a guaranteed place to stay in the sun.

Insight – how to solve a problem like a timeshare

Traditional timeshares were located on a complex consisting of 300 or more rooms, ranging from one-bedroom accommodations up to three, four or more bedrooms. Each accommodation is split into 52 shares, thus representing each week within a calendar year.

A timeshare owner would typically purchase one, two or more weeks and this would represent their entitlement to occupy that accommodation every year for the duration of the agreement the owner entered into.

In the early years, timeshare agreements were written in perpetuity, meaning that there was no end date to the agreement. The idea being that timeshare owners and their family would enjoy holidays for life.

The weeks would also be split into seasons, with week one being the first week in January and week 52 being December. Timeshare resorts would then colour code the weeks to depict the seasons – for example, week twenty-six to week forty being red weeks, these representing the summer months and the most expensive weeks to own. 

How did they become so big?

Insight – how to solve a problem like a timeshare
According to Gary Smith, CEO of Mercantile Claims and Praetorian Legal, which deals in getting people out of unwanted timeshare contracts, the concept first became fashionable in the ‘80s and saw a massive growth across mainland Europe.

“Europe was a hotbed for timeshare selling and street touts, who would target holidaymakers enticing them into resort presentations with the offer of money and free gifts to attend,” Smith says.

“However, times have changed and we’re living in a time where timeshare is no longer fashionable as a result of tour operators giving people far more choice of holidaying experiences.”

Consequently, these once exclusive timeshare resorts have opened to anyone to make use of as they seek to survive.

He says there is also a massive misconception about timeshares – they are not a property investment and should never be considered or sold as one.

“We are in a situation now where anyone, a timeshare owner or not, can book a holiday with these once exclusive timeshare resorts, pay for their holiday on an ad-hoc basis whilst timeshare owners continue to pay yearly maintenance fees and remain locked into a long-standing commitment that will continue for many years to come.”

In short, he adds, timeshare is now cumbersome and, for too many long-term owners, ‘a worry and a millstone around their necks’.

Why has it become such a scandal?

How is it, though, that around half a million British people have been suckered into unlawfully sold timeshare contracts?

“Let’s take a typical scenario,” Smith explains. “On a holiday abroad, a couple could be walking down the street and they would get approached by a timeshare tout, who would start up friendly banter. They would be invited to attend a presentation. They wouldn’t know what the presentation was about, but they would often be reassured that it wouldn’t involve parting with any money – therefore, they wouldn’t need to agree to anything.”

Agreeing to such a proposition has now proven to have been a big mistake for many, Smith says.

“Holidaymakers who attended these two to three-hour presentations would often be kept on-site until they succumbed to the pressure selling tactics deployed by the timeshare salespeople and agreed to sign a timeshare agreement merely to free themselves.”

Smith says the majority of people his firms speak with say they never wanted, or intended, to purchase a timeshare. They were, instead, indiscriminately mis-sold timeshare on the basis that the people signing had to do the deal on the day as it would not be available tomorrow.

Insight – how to solve a problem like a timeshare

“This is typically a pressure selling tactic and in the early days of timeshare there was no such thing as a cooling off period, which allowed people time to think and reflect on their experience and would, inevitably, lead to ‘buyer’s remorse’ and cancellation.”

A further unexplained phenomenon of timeshare selling, Smith continues, is that there was no defined pricing structure. All timeshare selling was done by commission-based sales reps, which meant pricing was done on the basis of what the salesperson could sell the timeshare for.

What’s more, timeshare selling in the early years often came with the assurance that timeshare was in demand and that demand would always outstrip supply, meaning that selling an unwanted timeshare into the future would never be a problem.

If there ever was a problem, timeshare owners were told that they could simply return it to the resort.

“That has now proven to be a complete fallacy and the cause of thousands of timeshare owners being lumbered in their golden years with the worry of unwanted, unaffordable timeshares,” Smith says.

Timeshare maintenance fees also add to the problem and is the one thing that most timeshare owners want to rid themselves of. What started off as quite modest yearly fees have now become burdensome 20 years on.

“Maintenance fees, predominantly, rise year-on-year and often rise above the rate of inflation or at best are equal to,” Smith says. “This for many is no longer affordable hence the need to find a timeshare termination solution.”

Smith believes the wide choice of travel and accommodation available and the flexibility provided by the internet to arrange things yourself will lead to the further decline of the timeshare as a viable concept. At the same time, the struggle between timeshare owners and timeshare resorts will increase in the years to come.

Where were timeshares most common?

“Timeshares were and still are sold worldwide, including here in the UK,” Smith states. “The USA, for instance, still has a fairly buoyant timeshare market and sales are still commonplace in the Caribbean. The Americans often refer to timeshare as vacation ownership and their attitude and mentality towards timeshare is very different to the UK and Europe. There is also a reasonable resale market amongst American timeshare owners which is also very different to the UK and European market.”

The resale market in the USA means that, while the process is a little drawn out, it is in the resort’s best interests to repossess the timeshare if they become aware of a dispute and non-payment of ongoing maintenance fees.

“For US timeshare owners in the UK, the risk of legal action or financial detriment is very unlikely. The repossession of a US timeshare is non-judicial in so much as the process is done exparte and referred to as ‘foreclosure’ where the timeshare resort obtains a court order to repossess the timeshare and resell it,” Smith explains.

“UK-based timeshares, in particular, have proven more difficult to exit, because they are more compliant and often have defined end dates and, with the exception of a certain Scottish resort not written in perpetuity, in perpetuity contracts are still lawful in Scotland.”

In part two, Smith talks us through how difficult it is to get people out of a timeshare arrangement, the current state of the timeshare market in the UK and whether he would ever advise someone to consider this sector.

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–> This post has originally been featured in Property Investor Today.