PART II : RELINQUISHMENT OF ROTATIONAL ENJOYMENT RIGHTS OF A DIFFERENT LEGAL NATURE (I.E. WITH A DIFFERENT LEGAL STRUCTURE) TO THE AFOREMENTIONED “MULTI-OWNERSHIP”.


triplesunrise_diacon

In line with the legal grounds of the DGRN Resolution with regard to the relinquishment of “multi-ownership” rights, in this case we set out to study the possibility of unilateral relinquishment of rights whose main subject is the rotational enjoyment of an accommodation unit but which, rather than being constituted as a community of multi-ownership, are based on typical or atypical contracts relating to in rem or personal rights different from those mentioned above.

 Very different legal formulas and structures other than “multi-ownership” are and have been employed. Therefore, being unable to be exhaustive, we will only refer to the main or most commonly used structures, albeit taking also into account the time when they were constituted in relation to the Spanish legal regulations on the matter and the validity over time of each of their provisions.

1.- ROTATIONAL ENJOYMENT SCHEMES AND CONTRACTS PRIOR TO THE COMING INTO FORCE OF THE ROTATIONAL ENJOYMENT OF PROPERTY FOR TOURIST USE ACT (TIMESHARE ACT 42/1998).

Before the appearance of this Act, there was not any specific legal regulation governing what was then almost exclusively known as “multi-ownership” or, otherwise, timeshare; in the case of the former name (multi-ownership), its use is practically confined nowadays to the “community of multi-ownership” as described above, while the second term (timeshare) would be used to refer to almost all the remaining legal formulas of this phenomenon at the time, albeit predominantly to the legal system called “club-trustee”, now and then the most commonly used system in Spain.

 There not being a specific Act during this period, the various schemes were constituted under the general principles of Spanish Law known as “principle of free will” and “right to freedom of contract” and, therefore, took any form that was not contrary to Law and to the remaining general principles of our legal system.

        Among the most widely used schemes-structures, in addition to the aforesaid multi-ownership, we would mention: “Club-Trustee”, “Multi-leasehold” scheme, Trading Company, Civil Partnership, Associations, etc.

As these schemes of rotational enjoyment rights established under the freedom of contract principle are not legally defined, we could say that their own Rules and Regulations, insofar as they have been accepted, constitute their “law between the parties”. There being no provisions in these Rules concerning unilateral relinquishment of Rotational Enjoyment Rights, it can be concluded that:

        –If the right is of a contractual nature, which it is most likely to be, then Article 1256 CC (Civil Code) will apply. By virtue of this article, compliance with a contract may not be left to the discretion of one of the parties; i.e. the obligations of the parties may not be determined by one of them but must be previously determined in the contract or, at least, the rules for determination of the future obligation must be contained in the contract. No provisions typical of Anglo Saxon law such as “from time to time” or “as reasonably determined” etc may be employed in this case.

        –If the right is of any other nature, then the same considerations contained in the doctrine established by the Resolution, and other doctrine of the DGRN by analogy, could be applicable.

        –As regards the effects of the relinquishment, if admissible, the relinquished rights would revert back to the developer of the scheme or to the seller of the right unless otherwise provided in its rules and regulations.

        –Of especial note are the associative and corporate schemes which were constituted under Spanish law before being prohibited by Act 42/1998, particularly those formalised as civil partnerships and trading companies. Suffice it to mention the legal arguments of the Resolution transcribed in Part I of this article which, insofar as including references to the rights of one and the other and notification requirements which are analogously applicable to the relinquishment of a right in a multi-ownership community, may lead us to conclude that, also in these cases, the relinquishment is detrimental to the members themselves, so their consent needs to be obtained or, at least, they must be notified of the relinquishment in order to exercise the right of opposition and take any legal action to which they may be entitled (1705 CC).

In this sense, as with the community of multi-ownership, the effects of the relinquishment, if admitted, would accrue to the remaining members.

        2.- ROTATIONAL ENJOYMENT SCHEMES AND CONTRACTS AFTER THE COMING INTO FORCE OF ACT 42/1998.

        A.- IN REM AND LEASEHOLD RIGHTS OF ROTATIONAL ENJOYMENT.

        In this case we will refer to both in rem rights and personal leasehold rights constituted under the Rotational Enjoyment Act 42/1998, in force from 04/01/1999 until the coming into force of Royal Decree 8/2012 on 18th March which was subsequently repealed by Act 6/2012 on 8th July of the same year.

Both in rem and leasehold rights of rotational enjoyment are regulated by the three aforementioned sets of legal rules in essentially the same manner –or very similar in any event– so, for the purposes of this section, we will refer to them jointly.

 Having established, as indicated in Part I of this article, that every person is entitled to relinquish a right, and having also established the limitations to such a relinquishment of rights –that it may not be detriment to third parties or constitute an abuse of law-, we should now determine who would be prejudiced by the relinquishment in order to meet the indispensable requirements (i) of obtaining consent from the prejudiced party, or (ii) of serving notice on the prejudiced party so that the latter can formally oppose the relinquishment.

        In relation to the above, it would first be of interest to know whether the relinquished right becomes the property of the State or otherwise accrues to any of the parties involved in these schemes.

        Both in the case of in rem RERs and in the case of leasehold RERs, what is inappropriately referred to as ‘division of property’ takes place upon the constitution of the scheme:

  • In respect of the actual property on the one hand albeit without the use thereof, which by analogy in terms of in rem usufruct rights could be called “bare ownership”. Such ownership without entitlement to use the property continues to be held by the owner/developer of the property.
  • On the other hand, the “right of rotational enjoyment of the accommodation unit”, which could also be compared to ‘usufruct’ or ‘use and enjoyment’, although in this case the unit can only be occupied as tourist accommodation, whether for valuable consideration or gratuitously.

When the RER is constituted by public instrument, fee simple ownership is formally and legally broken down into the aforementioned rights and the two rights are at that moment held by the same owner and/or developer of the scheme, until the right of rotational enjoyment is transferred to a third party.

Contrary to what happens in the case of the in rem usufruct right, the law governing RERs (currently Act 4/2012, according to article 23.4, 3rd paragraph) provides that “the fact that an in rem right of enjoyment and the ownership, or a share thereof, are held by the same person, does not involve the expiry of the limited in rem right, which shall continue to exist during the whole lifetime of the scheme”. That is, even if the owner of the property should by any title re-acquire the RER, the RER will not expire.

Once the RER has been transferred to a third party, the latter becomes liable for the annual service or maintenance fees to the owner of the properties operated under the scheme, who is always accountable for the service even where the provision thereof has been contracted for with a third party. This is without prejudice to the existence of further obligations being taken on by the third-party owners of the RERs, e.g. by virtue of resolutions passed by the “community of RER holders”.

Obviously, the owner may not in any way pass on to the remaining RER holders what, as owner (not, therefore, as holder of title to the underlying property), they have the obligation to bear.

Consequently, the relinquishment of a right involves that a share becomes vacant which, in the case of an in rem right, is blended with the right from which it arises; that is, it would revert back to the developer (who would become liable for the fees) but the scheme would not expire until its termination.

DCITAMEN

The conclusion to be drawn is clear: the owner and/or developer is the prejudiced party, insofar as they recover ownership of the RER but also the obligations inherent therein. And, as prejudiced party, the developer could object to the relinquishment, so notice of the relinquishment must be served to enable the developer to express its opposition.

But, is the owner and/or developer of the scheme always the person to whom a detriment is caused by reason of ownership reverting back to it?

In relation to the quantification of the annual service fee, Article 30.1 of Act 4/2012 provides (as did the preceding regulations) that the RER Contract must express:

The price to be paid by the purchaser and the amount which, according to the regulatory deed, has to be paid after the purchase of the right on an annual basis to the services company or to the owner where the latter has taken on such a provision by virtue of the regulatory deed, in respect of which it shall be mentioned that such a price must be updated in accordance with the Retail Price Index published by the National Institute of Statistics except where any other updating system has been agreed by the parties –which may not be left to the discretion of either of them. Also, the average index over the preceding five years shall be mentioned to provide an approximate idea of its magnitude”.

From the above follows that there are two different ways of determining the fee on the basis of the amount reflected in the contract (and normally also in the rules and regulations of the scheme). The first one is the annual updating of the fee by application of the Retail Price Index, and the second one is any updating system which may be agreed on by the parties.

The second updating option was included in the Act at the proposal of ANETC-OTE (currently the Spanish Chapter of RDO), as it was felt that updating the fee during a 50-year period on the basis of the Retail Price Index was not realistic and would soon become outdated.

Therefore, the rule whereby <<another updating system>> is allowed opens the door toASAMBLEA what, by experience, was already considered a realistic updating formula, which is none other than the approval and implementation of an annual budget by the “community of right holders” and by the owner and/or developer or the services company respectively. Such a budget should contemplate all the expenses required to maintain the services (including the remuneration to be received by the service provider) against the income which, fundamentally, will come from the fees paid by the affiliates. This way, the fees to be paid by the affiliates are not determined at their discretion by the owner and/or developer or by the services company as the case may be.

However, this formula may entail a transfer of the RER holder’s obligation and, therefore, it may be detrimental to third parties in the event of relinquishment of their right, as if the cost of the service in its entirety is borne by the members “as a community”, then the debtor may well be the community itself or, at least, insofar as every RER holder is liable to the creditor (owner and/or developer or services company) and the income must be in line with the expenditure, the relinquishment of a RER may entail an increase of the fee payable by each member to cover what should have been paid by the relinquisher.

Obviously, it will be necessary to follow the rules of the “community of RER holders”, which may be freely determined with the sole exception of the majorities required for the passing of resolutions in each case. For any matters not envisaged by its own rules and regulations, the “rules applicable to communities of property owners under the Horizontal Property Act” are applicable on a subsidiary basis.

Also, the community may have other activities not included in what may be called the “provision of ordinary services”, such as the introduction of new facilities not legally mandatory (internet or any other which may be introduced in future, etc), the cost of which would be borne by the RER holders on a pro rata basis.

Consequently, I consider that the legal grounds of the DGRN Resolution may be applicable to: (i) the community of holders of in rem rights of rotational enjoyment, more clearly, and (ii) the community of leasehold RER rights, in terms of the detriment caused in both cases to the community and/or to its members by reason of the relinquishment, which would determine that consent from the community, or the service of notice thereof on the community to enable it to express its opposition, would be necessary for the relinquishment to be valid.

 B.- ROTATIONAL ENJOYMENT RIGHTS OF A PERSONAL NATURE CONSTITUTED UNDER “NON-SPANISH” LAW.- THE ‘CLUB-TRUSTEE’ SYSTEM.

THE CLUBAlthough numerous RER schemes of a personal-associative nature in pursuance of predominantly Anglo-Saxon law –the so-called “Club-Trustee” system– were constituted before Act 42/1998, the actual change introduced by the new regulations of 2012 was that, while the preceding Act prohibited the constitution of any scheme other than those involving in rem or leasehold rights (although it did not go as far as to mention explicitly that the 1980 Rome Convention was not applicable in that case), the new Act recognised that, in addition to the two aforementioned formulas of in rem and leasehold rights, other formulas of an associative nature, with a merely contractual or binding content and subject to foreign law (of an EU State or otherwise), may be employed under (EC) Regulation no. 593/2008 on contractual obligations. This is doubtlessly an extremely important fact, as one of those schemes, i.e. the Club-Trustee system, which is normally subject to Anglo-Saxon laws, is still –and is expected to continue to be– one of the favourite systems for the future given its flexibility and the fact that it provides consumers and users with practical protection in several relevant aspects.

Schemes have been constituted on that basis to operate in Spain under the Club-Trustee formula to such an extent that this is currently the system adopted by a majority of operators.

For this reason, we need to consider whether the unilateral relinquishment of club affiliation rights or, in other words, the rights inherent therein to occupy tourist accommodation in Spain on a rotational basis, and the associated obligation for the member to bear the communal expenses, has to be compliant with the Spanish laws or must be subjected to those of the legislation under which they were constituted.

The provisions of the current (Spanish) RER Act 4/2012 are certainly applicable to rotational enjoyment schemes configured as a “Club-Trustee System” where these relate to property located in Spain or marketed from Spain, but only insofar as relating to the rules transposing Directive 2008/122/EC, which fundamentally refer to consumer data protection rules such as information to the consumer, withdrawal and termination right, prohibition of advanced payments and other rules concerning the marketing of the product.

But the aforementioned Directive does not address the issue of what the legal nature of the rights is or must be, as this falls under the exclusive jurisdiction of the States.

The exclusive jurisdiction for substantive regulation of in rem and leasehold rights does certainly lie with the State where the property is located (hence in rem rights and the alternative leasehold rights of rotational enjoyment are exhaustively regulated by Act 4/2012). However, insofar as the right is configured as a merely personal, contractual and binding right, the above-mentioned Regulation (EC) no. 593/2008, which is an internal rule of Spanish Law as it is of the remaining States which have adopted it, allows the constitution of such personal or binding rights –even where they relate to property located in another State–, which are solely governed by the rules of the State to whose jurisdiction they are subject.

In the case of ‘Club-Trustee’ schemes, if the constitution is subject to British Law (for example’s sake), then the scheme –i.e. the Club– shall be substantively regulated by British rules, among them the rules governing the acquisition of club membership (namely the acquisition of this kind of rotational enjoyment right) and the forfeiture of such membership.

We therefore consider that the unilateral relinquishment of Club affiliation rights, whether to the detriment of the remaining club members or consented by the latter or otherwise, shall be valid or null as determined by British Law.

In this regard, Philip Broomhead (legal director of FNTC) states that:

Whether an owner, who owns timeshare in a club trust resort, can relinquish his ownership without penalty earlier than the stipulated termination date will normally depend on the provisions of the club’s constitution or rules or the agreed established practice at the club. 

The general rule is that an owner cannot relinquish his timeshare before the expiry of the club unless there is a specific provision allowing this within the constitution or rules. 

However some clubs, whether by historical practice or by agreement with the Club Committee or developer/management company, allow owners to relinquish their weeks provided all management fees are up to date.  Some clubs require that between one and three years’ future management fees are paid in advance before early relinquishment is allowed. 

In other circumstances, owners may be permitted to leave early where they have reached a certain age, or the owner or a partner is infirm or medically unable to travel or the owner or partner has been made redundant or bankrupt. In these latter scenarios, appropriate evidence will be required.  In all these situations, the management fees will at least have to be paid up to date.

 There are cement fees after a given period by treating the default as a substantial breach of the constitution or rules.  However this is not normally publicised and it happens only as a last resort where the club has pursued the owner with a number of reminders.  Where a club has a small number of owners, this is unlikely to be permitted because the burden of financing the defaulters is taken on by the small number of remaining owners who have to pay an ever increasing annual management fee to cover the defaulters.  In well-funded resorts where there is still a developer present, then cancellation is more likely to be tolerated as the developer can then take back the defaulted week and resell it or cover the management fees on the repossessed week by using them for marketing or rental purposes.  If there is no established practice or the rules or constitution doesn’t permit early termination, then the club may issue court proceedings against the owner for breach of contract for the non-payment of management fees and then, on obtaining a court judgment, the club may pursue recovery of the debt through various legal means open to it.lubs which simply cancel members who have not paid their current year’s manag

 In all these circumstances it is important for the owner to consider the rules or constitution carefully to see what is permitted or to look at any agreed adopted practice of the club regarding relinquishment before actually doing so.    

 SOL BRILLANTE

FINAL CONCLUSION:

As previously indicated, given the great variety of systems which have been or may be constituted in future, we have analysed those which have been most commonly used to date. In respect of all of them, and of all those which have not been analysed, the conclusions to be drawn, in my view, are as follows:

  1. Covenants and contracts must be honoured by the parties who freely consented to them.

This is the reason why the consumer protection rules of Directive 2008/122/EC, implemented in all the EU States, focus primarily on protecting the consumers at the moment of giving their consent, which consent must be free (without aggressive sales practices), informed (pre-contractual information document) and pondered (14-day free withdrawal period during which no advanced payments may be made).

  1. Also to be protected are the rights of all the other parties, such as the developer of the scheme and the services company, hence the person who has already become a user of rotational enjoyment rights may only “relinquish their right unilaterally and abdicatively” where no detriment is thereby caused to third parties or, if it is, where the prejudiced third party’s consent is obtained or the latter does not formally oppose the relinquishment where applicable.

 Francisco J. Lizarza_MG_7643

 Lizarza Abogados                                                                                   

Marbella, January 2015

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