Many people have heard the terms ‘Fractional Ownership’, ‘Equity Shares’ and ‘Deeded Property’ but how many actually understand them. Below we give a brief description of each, easy to understand, term. Then we will explain what each means to the timeshare industry.
What is ‘Fractional Ownership’?
Fractional ownership simply means the division of any asset into portions or shares. The ‘asset’ is generally of high value, for instance real estate property. Fractional ownership is the legal sharing of a property by multiple owners under an arrangement which allocates usage rights of the property to each owner. Fractional ownership offers the owners a lifestyle enhancement by giving them access to a luxury property at a fraction of the cost.
What are ‘Equity Shares’?
An ‘Equity Share’, also known as an ordinary share, represents the type of fractional ownership in which a shareholder undertakes the maximum risk associated with a business venture, the shareholders are members of the company and have voting rights.
What is a ‘Deeded Property’?
A deeded property is any property that is owned outright. This means that the owner may handle the property however they so choose. If a property is financed, the financing institution will hold onto the deed until the finance has been repaid in full. Once the finance has been repaid, the owner will receive the deeds of the property.
The advantages of a deeded property are: –
- The owner of a deeded property may choose to sell at any time and for any price.
- The owner may also decide, if they are not using the property, to rent out the property.
- Although there is no rule stating a property has to be bequeathed, the owner can choose to do so and to whomever.
When people first hear of the idea of ‘Fractional Ownership’, they immediately think of ‘Timeshare’. Although they do share some similar characteristics the main differences are in the way the actual equity is distributed. In a ‘Fractional Ownership’ arrangement, the purchaser owns an ‘Equity share’ in the property, normally 25% of the entire deed. If the value of the property increases, the fractional owner’s share also becomes more valuable. In the same way as with whole ownership, fractional owners can sell the deed whenever they deem necessary, releasing the capital growth from their investment.
When purchasing a fraction of timeshare, ownership is still distributed. The value of each fraction will still rise or fall in value with the value of the unit, however, the timeshare fraction is normally only 1 week, therefore there could be fifty two owners on one deed. This means that it is almost impossible to sell the unit, as all owners would need to be in agreement of the sale and the value the unit is sold at. Therefore these owners often find themselves having to give up their fraction, or even pay the resort to take it back.
These days there are additional deed ownerships available, i.e. points-based, floating week and right-to-use ownerships. The deeds for these options may vary. Some deeds will stay in the owner’s name for the remainder of their life, these can be gifted or willed. Some deeds will state owners may have the use of the property on specific years, such as every other year and other deeds actually expire at a set date.
If you have any questions regarding your timeshare ownership, or a future ownership, do not hesitate to contact us on the email or phone number below, for advice.
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk