LOYALTY PROGRAMMES, DISCOUNT CLUBS AND TIMESHARE: “COINCIDENCES AND DIFFERENCES”.


My loyalty is ...to holidays!

My loyalty is …to          my  holidays!

If there is something that has characterised the “vacation industry” or “new holiday products” from the outset over forty years ago it is its constant, rapid evolution, from the static multi-ownership system and club membership rights, with fixed periods and accommodation units, to flexible periods and units or both, points clubs, destination clubs and discount clubs, fractional systems, etc, which has led to even more flexible systems, and it does not seem like such a constant evolution is going to stop in the near future.

Directive 2008/122/EC aimed to extend its regulations generally to all timeshare formulas, “long-term holiday products” (e.g. discount clubs), exchange, etc.

In almost every branch of the economy and very specially in those relating to the services sector and, within it, the hotel and tourist accommodation industry in general, the evolution and strength of the so-called “loyalty programmes” is truly remarkable. As its name indicates, a loyalty programme aims to make the customer loyal to the brand and turn them into regular users of it.

The idea or principle behind the loyalty programmes is simple; i.e. to recruit a new client and not just sell them one only product or service, but to make them feel somehow related to the company or brand in order that they repeatedly use their products or services. The loyalty programmes have been fundamentally based on offering advantages and discounts to the loyal customer which are not offered to the non-loyal ones. And these programmes have been so successful – virtually of universal application in all sectors of the economic activity – that the advantages or discounts included or offered at no charge have many times led some companies to establish a price or consideration to be included in the programme or to obtain additional advantages within it. We have seen this in programmes offered by hydrocarbon suppliers, airlines, etc.

And what happens with the vacation industry and, specifically, the hotel and tourist accommodation industry?, how are loyalty programmes and timeshare different? and, more importantly, how are they different from long-term holiday products, whose own legal definition refers to discounts and advantages in relation to the accommodation unit?

I believe that the answer is not an easy one as this is not specifically regulated on an European level or a Spanish level. Loyalty programmes are a spontaneous creation of economic operators under our legal system’s general principles of right to freedom of contract and free will, which refer to what we could call free “design” of the product or service and its  marketing with the limits laid down by legal regulations; in this case, for example’s sake, the Spanish Act 4/2012 on timeshare, long-term holiday products, etc, the General Consumer Act, the laws governing distance sale and sales outside the establishment, the Data Protection Act, etc.

Therefore, in default of a specific legal regulation governing loyalty programmes, we would have to study which other legal rules do substantively limit or delimitate its content, even if negatively.

 The Spanish Act 4/2012, almost literally following the provisions of Directive 2008/122/EC, defines the rights arising out of timeshare and long-term holiday products and at the same time describes that which neither of them is, specifying also that multiannual reservations of a hotel room are not timeshare insomuch as they are not binding contracts on the consumer but non-binding reservations; in other words, a simple reservation which can be easily cancelled and in which no price is payable until such time as occupation of the unit has taken place.

 Timeshare rights are obviously defined by the acquisition for a certain price (deferred or otherwise) of a right to occupy during an annual period a tourist accommodation unit which may be predetermined or determinable by application of objective rules but is perfectly identified, and always for more than one year. In both cases, the main component is the possibility of occupying a tourist accommodation, but in no event does a loyalty programme, which essentially consists of discounts or advantages in respect of a tourist accommodation unit, appear to feature such characteristics, i.e. binding on the consumer, definition or preliminary determination of the unit and acquisition for an economic consideration, as we will see below.

 A different thing, however, is to compare a “loyalty programme” and a “long-term holiday product”, which on the face of it seem to blend into each other but whose common characteristics and differences are more clearly delimited from a legal point of view.

Directive 2008/122/EC and Section 4 of Act 4/2012 define long-term holiday product contracts as “those contracts with a duration of more than one year by virtue of which the consumer acquires, for valuable consideration, essentially  the right to obtain discounts or other advantages relating to the accommodation unit, alone or in combination with travels or other services”. Also, the preamble to this Act (not included in its provisions but relevant as an indication of the legislator’s intentions and as an interpretation criterion) states that such a right is obtained for a consideration and it includes discount vacation clubs and similar products. It does not cover loyalty programmes whereby discounts are offered on future stays in establishments of a hotel chain, discounts offered during a period shorter than one year or one-off discounts. It also fails to include those contracts whose main purpose is not to offer discounts or rebates.

 On the other hand, the “negative” definition of loyalty programme contained in Directive 2008/122/EC or Act 4/2012 compares the latter to long-term holiday products and reads as follows: “For the purposes of this Directive, long-term holiday product contracts shall not be understood to encompass the standard loyalty programmes which offer discounts on future stays in the hotels of a hotel chain, as affiliation to the latter system is not obtained for valuable consideration and the main goal of the price paid by the consumer is not to obtain discounts or other advantages in the unit”.

The foregoing leads us to delimitate the essential elements or characteristics of a “long-term holiday product” (discount clubs and the like) and, in contrast with it, what from a legal point of view is not and may not be a loyalty programme whose essential purpose is the future occupation of hotel units or tourist accommodation units in general:

1.- Both essentially involve “discounts or advantages”.

2.- It refers to the future occupation of tourist accommodation,

3.- Which entails the provision of services inherent in the hotel or tourism industry.

4.- It involves a duration longer than one year.

5.- The long-term holiday product is onerous, i.e. it is sold for valuable consideration (price), while the loyalty programme is “gratuitous”.

It is important to stress that contracts in Spanish Law are “what they are, not what they are called”; in other words, they are defined by their own legal nature, not by the name the parties may choose to give it. That is, if a right is objectively a “long-term holiday product” (namely, it features the characteristics or requirements listed above), it will be nothing but a long-term holiday product even if one or both parties have decided to call it something else.

If a contract to adhere to a so-called “loyalty programme” is entered into and such a contract involves the offering or granting of discounts or advantages in relation to occupation of tourist accommodation for more than one year – for a price or consideration – then such a product will be a “long-term holiday contract”, as such is its nature and, therefore, the commercialisation rules  contained in Act 4/2012 need to be observed, including the pre-contractual information and, cooling off period, bang of deposits and especially, , the fact that the price must be split into equal amounts each year of validity and the purchaser may withdraw from the contract upon termination of each yearly period (without having to offer any reason to do so).

I am not sure my  loyalty is toh....."our" holidays

I am not sure my loyalty is to…… “our” holidays

F. J. Lizarza

September 2013

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