Exchange appeared some decades ago as an ideal formula to facilitate the occupation by tourists of accommodation units during their holidays.
It was very successful, as a relatively small disbursement allowed several members of the same family to enjoy their holidays in the place of their choice.
But tourists’ habits evolved rapidly as, while the “tourists-family unit” preferred and were in the habit of enjoying their holidays in the same place every year, the current trend is to choose a different destination each year, not only within the same country or the same continent, but anywhere else.
The Timeshare (or ‘Rotational Enjoyment’) Industry’s prompt response to the new trend was provided in the form of a new formula which was meant to satisfy that demand, namely the so-called “exchange”.
In very simple terms, exchange means facilitating or, rather, offering each year the possibility for an owner of timeshare in a specific resort to exchange temporarily, if they so wish, the unit inherent in their right of occupation for that of another person who, being in a similar circumstance, wishes to do so.
But such a basic concept is not real; that is, it does not mean that an agent puts two owners in contact who at a given time wish to exchange the respective units each one of them is entitled to use, as this is done through a system which allows hundreds of thousands of timeshare owners to gain access to a network in which such an exchange can be made effective, albeit among hundreds of thousands of people.
All of the above is true, as it is also true that this system has worked for decades.
But it is also important to be aware of the legal nature of such an exchange right, which has many a time been misinterpreted, often to achieve objectives other than those inherent in the legal concept itself.
In order to achieve those other objectives, it has sometimes been attempted to oversimplify the subject of the contract, with statements as simple as claiming that the exchange system entails an absolute obligation to provide a unit to enjoy the right of occupation in a new destination, on request by the user of the exchange system and in the place requested by them, without even having to make a reservation sufficiently in advance or considering other users’ concurrent requests.
Not only is this untrue but it is also impossible, as it is impossible for hundreds of units in hundreds of destinations in hundreds of countries to be available to any holder of an occupation right up until the day before the commencement of their occupation period. This may sound like an exaggeration, but quite a few times it has been understood, even by the courts, that such should be the case and that rules like those containing the phrase “subject to availability” were nothing short of a trick meant to justify the service provider’s lack of commitment, if not downright fraud. To that must be added the idiosyncrasy of each client wishing to exchange their right as, while last-minute exchange reservations are very common in certain countries, reserving well in advance is common practice in other countries, which increases the chances of having their preferences confirmed.
The first Timeshare Directive of 1994 did not define the objective scope of the exchange contract beyond describing it as a separate (or different) contract from the timeshare contract entered into with the promoter of the resort, in addition to the demand that certain information requirements be met.
All of it changed radically when Directive 2008/122/EC regulated this contract in more depth, starting with the very definition of the subject of the contract, in respect of which it is expressly stated that:
“An exchange contract is a contract by virtue of which a consumer affiliates, for valuable consideration, to an exchange system which allows them to enjoy an accommodation unit or other services in exchange for allowing other persons temporarily to enjoy the benefits inherent in the rights acquired by virtue of the consumer’s timeshare contract relating to property for tourist use”.
The Spanish Golden Century writer Baltasar Gracián said that “good things, if short, are twice as good”. The above definition of exchange abides by this principle, as in just a few words it defines the subject of the contract, who the parties to this contractual relationship are and what each such party’s obligations are.
1.- The actual subject of the contract is the provision of a service by a trader (“the exchange network”).
2.- The service provided by the trader consists of making available to the timeshare consumer or user the “system” which allows the exchange to take place. It is important to stress the word “system” contained in this legal definition of this kind of contracts for how it specifies the obligation of the exchange network. That is, the trader’s obligation is to set up and allow the use of the “system” or “medium” which will make the exchange possible.
3.- The consideration to be received by the trader –the exchange network– is the payment of the agreed price.
What is, therefore, the obligation of the exchange network?
Two kinds of obligations are differentiated in the classic dichotomy of obligations outlined by ancient Roman Law, by which European Law is influenced:
– Obligation to produce a result or specific obligation, whereby the trader undertakes to produce a result in favour of its counterparty (a consumer or user in this case). Therefore, if the result is not produced, the trader is in breach of its obligation to the consumer. A classic example of this is the obligation to hand over a certain item.
– Obligation relating to means or activity, whereby the trader undertakes to provide the means or to carry out the activity which is necessary for the consumer to obtain a result. In this case, the classic example would not be the handover of an item but the provision of a service.
Exchange being a “provision of services” as opposed to the handover of a “determined or determinable” thing, the system management network does not have the obligation to produce a result –what the consumer wants– but an obligation relating to the means and the activity which, in conjunction, will enable the client to obtain a result.
Therefore, the obligation of the exchange network is fulfilled by the establishment and maintenance of the “exchange system”, which among other things obligates it to classify the rights of occupation ceded by the timeshare owners for exchange within the system on the basis of equivalence criteria, which requires a very complex entrepreneurial activity because it must simultaneously relate to thousands of units in more or less demanded equivalent seasons of use (by reason of weather, festivities, cultural events, sports events, etc).
Such means and activity (system) entail, without limitation:
- The affiliation tourist resorts, which means that the lawfulness and operability thereof must be verified.
- Classifying the various tourist resorts by parameters of quality, services, facilities, accessibility, etc, as their legal rating in a country (hotel stars, apartment keys, etc) is not enough because, despite having common names, there are different rating criteria in each country.
- Classification by season as aforesaid.
- Maintenance of a “computer system”, with highly complex software which requires constant updating.
- Attention to clients in various languages and, in effect, in virtually every country in the world.
This should not be perceived as something as simple as a “perfect business” which does not guarantee any result, because the result to be produced by the exchange network is the operability of the system which makes possible the exchange of the rights of occupation ceded to the exchange system by hundreds of thousands of people who do not know each other and will never meet.
Therefore, if the exchange network provides the service, the activity and the means to obtain a result, then the consumer can obtain the result by using the system in accordance with its own rules and regulations, fundamentally the reservation of the desired accommodation unit meeting the equivalence parameters of the right temporarily ceded by the consumer to the system so that it can be used by another consumer.
Confirmation of the exchange is certainly subject to the tourist principle known as “subject to availability”, which is not an undetermined legal concept but refers to the fact that reserving a unit in a specific season and a specific place will be usually achieved if done sufficiently in advance and taking into account that –as every affiliate to the system knows well– that they will be competing with other affiliates. If an affiliate wishes to reserve a unit in Spain on 15 July to use it on 15 August, they are very unlikely to succeed.
But in any event, and also by reason of the size of the system, which includes thousands upon thousands of rights capable of being exchanged every year, the affiliate will never be left without the possibility of choosing from hundreds of other alternative units. “Subject to availability” refers to one or various desired units, but there will always be hundreds of other rights which can be reserved and used.
This means that, while the exchange network has the mandatory obligation to ensure the operability of the “medium” or the “system” <<as per the definition of exchange right contained in Directive 2088/122/EC and in the Spanish Act 4/2012 of 6th July and equivalent Acts of the other EU countries>>, we can say that the outcome, although not mandatory for the network, can always be obtained according to Spanish Law as if “variable” or “alternate” obligations were involved (article 1131 and related articles of the Civil Code).
Finally, as stated in the following transcription of a paragraph contained in the exchange contract to which Judgement 179/2014 of First Instance Court No. 1 of Palma de Mallorca relates: “exchange is made possible through a reservations programme, subject to its own rules and dependant on the number of affiliated resorts (which changes from one year to the next), on the holders of rights in the affiliated resorts who voluntarily cede their right on a temporary basis, and on the competition between them to obtain reservations (based on the rules of the programme). The task which the management company of this –fundamentally computerised– network is obligated to perform is to keep in operation, with all the material and human resources necessary, the computer system which makes the exchange possible but does not guarantee the desired result. In other words (says the Judge), “the exchange is not guaranteed”.
This last comment by the Judge is all the more important as, embracing the defendant network’s arguments, he accepts that guarantee of confirmation of the required exchange is not part of the subject of the contract or an obligation of the provider of such a service.
Francisco J. Lizarza
Spanish Lawyer
Marbella, 6th February 2017
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