In 1946 Fred Pontin, Billy Butlin and the Warner brothers enlarged their holiday camps to cater for the pent up demand in the UK for holidays following the end of the Second World War. These entrepreneurs wholeheartedly believed there would be an expansion of holidaying, and they were right.
Their holiday camp operations formed the model for the modern package holiday industry, it rapidly expanded as flying became less expensive, more available and holidaymakers were becoming more daring, swapping Margate for Malaga and Cleethorpes for the Canaries.
It was into this mass market that holiday timeshare arrived in 1963. Initially timeshare commenced in Switzerland, but after scrutiny the model was quickly taken up in the US and arrived back in Europe (Scotland) in 1975. Within 5 years timeshare resorts were exploding onto the scene in all major holiday destinations throughout Europe with Spain leading the way.
Timeshare was a very different product from package holidays. In short it offered something that package holidays didn’t –top quality, self-catering accommodation in accessible places, idyllic surroundings and added security in that it was always yours. The concept was novel and not fully understood by consumers so initial sales were sluggish.
By the early 1980’s massive building programmes were under way in the Canaries and Costa del Sol which needed aggressive selling techniques, imported from the US, to fill the weeks available.
By the mid 1980’s, with sales rocketing, timeshare demonstrated it had the potential to be a major player in the holiday business. But the level of complaints of miss-selling had rocketed and reached epidemic proportions, resulting in an Office of Fair Trading investigation and report in 1990.
At this stage it took the government 8 years just to react to the epidemic of mis-selling, false imprisonment of consumers and criminal selling. That said this report formed the basis of the Timeshare Act 1992, but did little to stem the complaints. The selling party was not stopped and the staple of aggression, mis-selling and fear continued until the government had another bash at helping the consumer.
A tougher law was introduced throughout Europe in 1998 which, whilst having only a marginal effect on complaints, it did begin to reduce the number of aggressive sales being made. Consumers now had a cooling off period and a ban on the taking of an up-front payment. That said it was ignored by some sellers and the ruse of mis-selling continued.
The problems of the industry were further compounded by the increasing availability of rental property, especially through the Internet, of equal or even better quality properties than timeshare but at similar or lower price.
By the mid 2000’s the industry was beginning to turn pear shaped – the potential of being a leading light in the holiday world was now looking dim. Timeshare had failed to keep up with the competition and its anti-consumer practices were becoming apparent to all. The media had a field-day exposing consumer ill treatment, poor practises and downright distress.
Reducing sales volumes coupled with an increasing number of owners “walking away” resulted in a decline in the number of timeshare owners in Europe.
This ownership decline accelerated and today only one third the number of owners are willingly paying their annual fees, compared to the peak year of 2000. If this decline continues for another 5 – 8 years there will be hardy any timeshare industry left in Europe!
This is a normal backlash of consumers who get locked into contracts by shady means.
An industry that could have become a major force in the holiday sector is now on the edge of self extinction and the industry caused it. They could not stem the exodus and since the year 2000 it has been bouncing from pillar to post from one disaster to another. If you consider the Resort Development Organisation (RDO) and/or the Organisation for Timeshare in Eurpoe (OTE) have had 14 years to make a lasting course correction and you look at the disaster around us then you have to adjudicate that the masters in charge are either unwilling or incapable of putting matter right.
It says everything when a barrister is in charge of the RDO. As the main issue facing them over the last ten years is stopping the tidal wave of litigation and group actions.
This report identifies the reasons why the industry fails to achieve its full potential and points a finger at those responsible.
HOW TIMESHARE WORKS
The starting point is the idea of sharing! A great social and human concept if there ever was one.
Sharing the cost of owning a holiday apartment appeals to the very soul. The concept of only buying the time period that you want with the ability to exchange your time period with that of another owner somewhere else in the world has to be a winning product.
Then things got more and more complex.
Behind every timeshare is a vault of complications with respect to ownership, titles, trusts, blind trusts, secret trusts and off shore companies. The entire system is utterly messy in respect to jurisdictions and legal arenas. In some cases you research issues and apply them and come right back to the beginning again. It’s called an orbital arrangement. One has to consider that either these business men were the Mensa elite or the complication exists purely with the intent to confuse. They say the simplest of terms are the best and the complexes are designed to conceal. Therefore is the industry a designed subterfuge of concealment.
If we take a more detailed look into what is sold.
Fixed week system
In the beginning, timeshare ownership was for a specific week. Each week was numbered from 1 to 52 starting in January so, for example, week 52 was generally Christmas or New Year week.
Owners liked this system because they knew exactly when their holidays would fall and those with young families could be sure of getting their accommodation during a school holiday period if they owned such a week.
Those owners who wanted a change, either of the time of year or geographic region were able to swap their own week for another week using one of the exchange companies.
Consumers regarded the fixed week system as being in their interest. But traders thought otherwise because of the difficulty of selling the accommodation in the off-season weeks. A 70% sell-out was considered about as high as they could achieve, so a “floating” week system was progressively introduced and by the industry.
Before we move on to the next system, consumers should give the above paragraph just consideration. If the retained weeks held by the developer were unsold and were unsellable they were worthless, yet the developers attach equal voting rights to them. The second issue is that if the developer retains 30% of the dead weeks and has a beneficial interest in the voting, do they have a corresponding maintenance liability to maintain the weeks they own. Considering this you may appreciate why the developer cajoles the club committees to change the systems and constitutions. The committees have a lot to answer for here.
Floating week system
In the floating system, weeks are put into three seasonal bands – High, Medium and Low.
This enabled sales people to persuade consumers that the purchase of a High season week would guarantee access in school holidays, despite “High” covering a wider time band that just the main school holiday periods. Worse still, purchasers of Low season weeks were told that it was easy to transfer into High season, which was almost entirely false. The verbal falsehood and the misrepresentation starts and is designed to introduce a false precept to obtain a monetary gain from the consumers.
A number of resorts also operate a floating apartment as well as a floating week system both of which are unpopular with owners because of the uncertainty of their period of use and the position of the apartment they will be allocated having been shown a nice sea view but ending up overlooking the bins.
A floating week system often resulted in a 100% sell out. The developer gets rid of all his weeks for top prices and when the real deal become clear, the trouble begins.
The traders have yet another scheme to make them even more money – the points clubs.
Points clubs did away with ‘weeks’ ownership and replaced them with a booking ‘currency’ points.
Currency is a very strange thing to the un-savvy, some consumers attract the same degree of greatness to point as the salesman and an acceptance of understanding what a point is. So I ask you (before reading on), what is a ‘point’ as it does not exist. It’s a bad notion.
You are not given coins worth 10 points, 100 points or 1000 points. You go to Marks and Spencer and they award you with a voucher if you give them your trusty ten pound note, so I ask again what is a ‘point’?
A point is best described as a closed electronic currency which can only be used in a single enterprise (closed loop system).
Consumers were sold a number of points and led to believe that the number of points they bought guaranteed them access to the accommodation and time period that they wanted.
This is entirely wrong as a concept and the points awarded only entitle you to spend them on available products. If you keep choosing products which are not available you have your points either reduced or removed forever, this now moving the currency into the realms of a temporary currency whereby if you don’t spend, you lose it all.
The claim was that the more points they buy, the greater the choice of places, time periods and number of weeks to use that were available. That is wrong, the more you have the faster you have to spend them.
The floating week concept become a falsehood when you add into the mix that even if you have points you have not spent, they are destroyed or erased and you are required to pay for more points the second after they have been destroyed and year, after year, after year
The points system soon became complicated with “half points for booking within 60 days of travel” and “banking points for next year” etc. – all variations which gave the appearance of being beneficial to owners but proved otherwise when tried out. Have you ever asked can I pay my maintenance fees with the points I have not spent? If the answer is no then you are expected to buy into a currency which the seller will not except for anything other than timeshare.
The number of points necessary to book a week of use in accommodation is generally a function of the size of the apartment and the time of year. But over time traders have made changes to the points allocations, often resulting in owners having their points effectively devalued or forced to buy more points just to keep the availability they originally bought. There is a strong suspicion that at least one major points club sold more than 100% of the accommodation, relying on “no-shows” to ensure that owners were not turned away !
All floating systems (including points) enable the developer to skim off the best weeks for their own purposes.
Owners complain that the weeks they are offered, either for their own use or for banking with an exchange organisation, were in the less popular seasonal periods.
Points border on the most bizarre product you can have and practically has no resale value.
With the overall decline of “timeshare” two new products were invented. These add more lush delights into the mix and is intended to side swipe incoming legislation so the ruse can continue to the consumers.
This is probably the ultimate evolution of timeshare and certainly the most pernicious.
When the rogues saw the ease with which timeshare sales people could extract large payments on the promise of “top quality holidays in the future” they set up “Holiday Clubs” with grandiose claims of holidays “anywhere in the world, at any time of year and at massive discounts”. Unfortunately for consumers the claims were very seldom true and almost all holiday clubs were completely bogus, failing to have a booking system or arrangements with holiday providers for discounts.
Holiday clubs have been the preserve of some of the major fraudsters in the industry. Although not providing any rights over tangible property (as most timeshare does) holiday clubs are now regulated by the European timeshare laws.
Fractional Ownership and Destination Clubs (aka Private Residence Clubs)
Fractional Ownership is essentially a “re-branding” of timeshare and first appeared, in the US in the early years of this century and gradually spread worldwide but take-up in Europe was, and still is, very sluggish.
In the absence of any agreed (or legal) definition, fractional ownership appears to offer: –
Ownership in holiday accommodation on a shared time basis (exactly like timeshare)
In up-market accommodation (claimed to be superior to that of previous timeshare). For a fixed period of ownership often 25 years or so. With a number of weeks of use per year – 6 weeks being a 1/8th fraction etc. With a “guarantee” that the assets (accommodation) will be sold at the end of the ownership period with the proceeds of sale being distributed according to the fractional share owned.
There is suspicion that some so called “fractional” schemes are yet another ‘investment’ fraud. And a number of fractional schemes are now marketed on a “Buy to Let” basis, which raises serious doubts about their financial viability – see “Investment Frauds”
They are being promoted by known rogues in the timeshare industry and have woolly worded contracts that any competent lawyer would advise against involvement.
The “investment” prices are many times greater than the fractional value of the original property as a whole – buyers are paying up to 8 times over the odds – which does not augment well for any capital refund, let alone profit, at the end of the ownership period.
Promises of a distribution at the end of the ownership period are being made by off-shore or limited liability companies that may have disappeared before pay day or who arrange a private sale at an artificially low price to a friendly company.
Some traders are offering loans at interest rates to make the purchase which would totally negate any potential profit that might accrue. Rise and Fall of Timeshare in Europe
So you the consumer have put your trust in the timeshare man and buy into everything he advises you to buy and ‘hey ho’ you are back to timeshare with a massive debt, a lot of added worry and now locked in to tighter and tighter contracts.
The orbital merry go round for some, but hellish for you.
Quite surprisingly, when it is pointed out to some consumers they still, they actually still, believe the salesmen who makes the profit over independent advice lines.
Look over the cycle and see which part of the cycle of timeshare you are in as you will be offered the next either now or in the future.
HOW TIMESHARE WORKS
A typical example of a poor fractional scheme is “Dames de la Mer” (a trading name of Shakespeare Classic Line Ltd) who market fractional ownership in yachts in Turkey selling 206 x one week “fractions” for around £8,000 each. The boats originally cost c. £220,000 delivering a potential gross profit of £1.4 million to the seller. After 35 years the 206 owners are promised a share of the sale proceeds which are unlikely to reach £500 per owner. The director was jailed for over four years.
The number of ‘honest’ fractional resorts in the EU is in the low double digits. With most resorts containing very few units of accommodation – 5 to 20 is a common range – the number of fractional owners hardly exceeds 2,000.
A natural resale market has yet to evolve and with very low levels of sales it is unlikely to happen in the foreseeable future, especially as developers are expected to continue to build to meet demand, leaving existing owners with no outlet. Exactly what happened with timeshare Destination Clubs (also called Private Residence Clubs), they have much in common with Holiday Clubs where the “member” pays a capital sum for access to a number of resorts (generally of a high quality) worldwide. The member has no rights of ownership in any specific accommodation as they would do with timeshare or fractional ownership.
But, unlike Holiday Clubs, all the Destination Clubs currently in Europe do appear to provide the service they promise.
Fractional Ownership and Destination Clubs are regulated by the current EU Timeshare law
Timeshare “ownership” is a misleading phrase. The main systems of “ownership” operating in Europe are:-
In those countries where it is not permitted to have more than a limited number of owners of a property, typically the UK the property (villa, apartment, apartment block etc) is placed into an independent Trust. When a timeshare sale is made the Trustee issues a “licence to use”, usually in the form of an “Ownership Certificate”, to the purchaser as evidence of their “ownership”.
Where multiple ownership in a single property is permitted, typically Spain, the original property owner (usually the developer) registers the whole of the resort in their name in the local land registry. When a timeshare sale is made, a Notary registers the change of ownership of the specific apartment/week number and issues an Escritura to the purchaser certifying that the purchaser is now registered as the owner. If this has not occurred then a law has been broken. Hot off the press is that we now have details of such breaches in multiple resorts and our friends in Poole are on the trail to disclose this fraud.
The trust system is also used in countries where multiple ownership is permitted because it is a more economic way of providing the purchaser with evidence of their purchase and to arrange and re arrange transfers of ownership.
However, neither system provides absolute certainty of “ownership” because it is often overridden by the rights and obligations in the Purchase Contract.
This contract may enable ownership to be repossessed by the developer in the event of the “owner” failing to pay the annual fees or for some other breach of the contract. Or, if the resort is run as a Members Club, the Members can dissolve the Club allowing the property to revert back to the developer. It is therefore fundamental to the consumer and committee members to be aware of the consequences of the decisions they arrive at.
We are reminded of the wise words of Mr Boyd in that “areas of timeshare law are an intricate web and all matters have to be looked into first to stop the launching of a bad and ill directed action”.
A number of traders in Spain have failed to arrange for the Notary to register a purchaser in the local registry, so the “owner” has no Escritura, legally the owner has no “ownership” rights whatsoever! This is the dream coming soon for fixed timeshare holders and if revealed then lawfully those timeshare owners can claim the entire resorts. They own them and entirely. This could be worth millions. That said an investigation has to be done. In completing this works some might invest and others may benefit and that is why we believe a group should be formed so that the investigating consumers can obtain a return and that return can be used to free other consumers from the timeshare cuffs
The bond schemes which are similar to a shareholding in the accommodation run by Holiday Property Bond and Hapimag utilise a similar accommodation booking system to the point’s schemes, but apparently without the consumer problems of the points system run by other traders.
Length of ownership period
More than 7/8 of remaining timeshare owners are tied into contracts requiring them to pay the annual fees whether or not they use the accommodation for periods greater than fifty years. A large proportion of them having the obligation forever. These contracts were established at a time when traders believed that timeshare was something owners wanted to pass down to their children as an asset. A belief that turned out to be entirely wrong in the present business climate. However, by returning to the principled and ethical mindsets coupled with a solid effective consumer association you can have the dreams fulfilled.
Many consumers did not realise the obligations of such a long term agreement until they decided they wanted to withdraw from ownership and found that the asset they owned was now a liability because nobody wanted to buy, least of all the developer who sold it to them in the first place. Then the realisation struck that you are stuck with a millstone around your neck and forever and which will pass to your children.
This long term ownership obligation is the source of considerable distress to owners who are at the realisation that their children (and their children ad infinitum) will have to keep on paying, every year. This distress is often turned to the advantage of the resale fraud operators who claim to be able to “rescue” the owner from their obligation to pay, but fail to do so.
The advantage of surety of title therefore is used to hurt consumers and day after day without change. Many see that the perpetuity is a bad clause but I don’t advocate that position. I believe that in perpetuity is a fantastic system, is an asset and that asset is appreciating. The reason why the asset is not appreciating is again due to a controlled environment and that control is in the hands of the industry, not the consumer. So we need change, not a new mutant variation.
The ability for timeshare owners to swap their ownership in any year for another time period and/or place is the lifeblood of the timeshare concept.
There are four companies in the EU offering an exchange service, all based in the UK. There are two large ones, RCI and Interval International (“Interval” are subsidiaries of US companies), and two small ones, Dial an Exchange “DaE “ and United Kingdom Resort Exchange “UKRE”. RCI and Interval also provide a travel service to their members making a holiday booking a “one stop” process.
Between 60% – 65% of timeshare owners are claimed to be members of an exchange scheme with just under 50% of them actually making an exchange each year. The matter in this article is tendered as a consideration not an advertising concept, however, we would not be doing justice if we did not say that home is where the heart is and you won’t find a better home in the exchange world than “UKRE”.
Banking of weeks for exchange
A timeshare owner wanting to go to another resort and/or time in the year puts their week of ownership (for one year) into the exchange company “space bank” and is offered a week elsewhere in exchange. For added flexibility the exchange company may accept a week in one year in exchange for a week in the preceding or subsequent year.
“borrowing” or “lending”.
Each exchange company operates in a slightly different way. RCI requires owners to place their own week in the space bank before being allowed to take out a week. And RCI mostly enforce a “like for like” system whereby the banked week must be equal to or superior in quality and desirability (a seasonal assessment) to the taken week. Interval, DaE and UKRE are more flexible generally allowing any week to be banked and taken.
Affiliation of Resorts to Exchange Companies
RCI and Interval operate a resort affiliation scheme. A purchaser at a resort will be enrolled into the affiliated exchange company for 2 or 3 years thereafter having to pay the exchange company annual fees directly to the exchange company.
The benefit to the resort of affiliation is the incoming exchanges who are fodder for the sales people. Neither DaE nor UKRE operate an affiliation system, offering membership to owners in any resort.
In recent years, as resorts have declined in quality standards, some have been disaffiliated by RCI and Interval. Disaffiliation is almost always the first sign of a potential resort closure.
Quality rating of resorts
There is no independent system for rating the quality of timeshare resorts nor any agreed standard criteria used by the industry, unlike the hotel industry. It’s operated like “I will rate you better if you rate me better” and if they are not in our club they won’t even get a rating.
RCI and Interval rate their affiliated resorts on a quality criteria with three grades, each given different names by RCI and Interval – but “Gold”, “Silver” and “Bronze” adequately describes the system. There have been reports that preferred developers have received better quality ratings than is justified by owners experiences. This fiddling of the system benefits the preferred developer as it provides them with a greater number of exchanges for their selling machine.
Seasonal banding of regions
Both RCI and Interval seasonally band weeks in each region into High, Medium and Low (similar to the banding of weeks in a floating week system). This is to indicate the level of natural consumer demand but the banding is sometimes intentionally distorted to aid selling.
Cost of exchange
RCI, Interval and UKRE charge an annual membership fee (currently just under £100) but DaE make no charge for membership. All the companies charge for arranging an exchange at prices ranging from £100 to over £200 per week depending on a number of factors including the region chosen to take out of the space bank.
Owners banking a week for exchange are still required to pay the annual management fees to their own domiciled resort.
All the exchange companies are now deeply involved in renting out timeshare weeks to their members. These rental services are often called “bonus weeks” or “extra weeks” and are generally priced between the open market rental rate and a normal exchange rate, making them attractive to members of the exchange organisation.
RCI have been accused of transferring high season weeks out of their exchange space-bank into their rental pool to make more money. This has resulted in a growth of complaints that owners have not been able to get an exchange week in high season and having to pay more to buy a “bonus” week.
Owners are denied the right to use the exchange company of their choice.
A number of developers restrict their owners from using an exchange company of their own choice. Refusing to allow an exchange organised by Dial an Exchange.
Timeshare Resorts: from luxury to lacklustre in three decades.
Almost all European timeshare resorts were built (or converted) in the 1980’s and early 90’s mostly with well appointed, en-suite accommodation ranging in size from a studio (1 bedroom) through to 3 bedroom, 3 bathrooms villas with on-site facilities, generally of the very highest standard. Most resorts comprise of buildings but some 10 are (or have been) based on boats and at least one on a, short lived, static caravan scheme.
All timeshare accommodation is self-catering.
This initial high quality put timeshare well ahead of the then competition and enabled sales people to legitimately claim “more luxurious than” and “you’re getting your own super holiday villa”.
But by 2000 standards had begun to drift downwards.
Now many resorts are looking tired. What had been “five star” are now struggling to compete at three star level.
Money paid by owners to maintain standards and keep the accommodation fresh and new has been spent elsewhere by the management. This has led to an increasing level of owner disenchantment.
But the decline in standards has not been universal. Some resorts, mostly those managed by the “Good guys” [see Page 8] are still holding their heads up proudly. But they are now in the minority as traders milk owners, giving nothing back in return.
Resort downsizing & closures
Of the 1,121 timeshare resorts counted in Europe in 2005, at least 115 have since closed and many more are heading towards to closure, often with as little as 20% occupancy by timeshare owners. One resort with capacity for 850 owners has only 11 remaining.
It is suspected that many more would have closed had the real estate market in Spain held up. But the recession put a stop to many property sales. When the market for large scale property in Spain does recover then many more resorts will cease to be for timeshare owners.
Resorts in Trust
Owners question how a resort, ostensibly held in trust to protect their interests, can be closed down from under them.
These “entrusted” resorts mostly have an Owners Club. The Club has a Constitution which enables the Club, in General Meeting, to wind itself up on a 75% majority vote, a figure easy for the management to achieve if only a few owners remain (or they fiddle the votes). Once the club is wound up, the trust can be dissolved, allowing the property to revert back to the developer.
Alternatively the management company can make life so miserable for the owners with massive hikes in fees coupled with deterioration in standards so that owners simply walk away leaving the resort deserted. That is exactly what happened to owners in Lanzarote Beach Club.
Last modified: September 7, 2015