TIMESHARE FACING A “PULL FACTOR”

LLAMADAThe recent Judgements of the Spanish Supreme Court rendered during the year just ended, 2015, have caused or may cause a tsunami which could ruin the timeshare industry as a result of the “pull factor” created by the interpretation of these Judgements and the application thereof by first instance courts and provincial courts, which has already started.

The doctrine contained in Supreme Court Judgement (SCJ) no. 774/2014 concerning the requirements to be met for the adaptation of timeshare systems in existence before the enactment of the Spanish Act 42/1998, and in SCJ 830/2015, handed down on the same date, regarding the requirements to be met by the subject of a timeshare contract (which, in addition, have both been promptly ratified by Judgements given during the same year so as to fulfil –and this is my personal opinion – the reiteration requirement necessary for Case Law to be considered a source of Law), certainly seem to indicate that the intention of the Supreme Court was to take strong action for the purpose of bringing order to a Sector plagued by a bad reputation it has failed to shake off, sometimes through fault of its own but more often than not due to a factual assumption that the consumer, whatever they say or do and even if all of it is contrary to true facts, actual events or their own actions, IS ALWAYS RIGHT.

In every consumer relationship, greater and more thorough diligence is always demanded from the trader in the fulfilment of its obligations simply because it has the upper hand over the consumer, but the consumer is also demanded to exercise their rights in good face and without abusing their own rights. Just as “bad faith traders” do exist and their dominant position allows them to take greater advantage of their position, bad consumers also exist, and not occasionally or only in isolated cases, but acting together, not only through non-profit organisations for the defence of their own interests, but also through other professionals and traders who use the means provided by the information society and the electronic networks for the obvious purpose of obtaining a personal gain.

Supreme Court Judgements 747/2014 and 830/2015 have filled with bewilderment timeshare resort promoters, companies providing tourism services to those resorts and virtually all the legal operators who, after fifteen years of what appeared to be a correct interpretation of Act 42/1998 of 15 December, have been surprised –if not overruled – by the Supreme Court with a new and, until that moment, almost exclusive interpretation of the requirements to be met for the adaptation of pre-existing systems or the extent of the requirements relating to the subject of the contract.

I have not entitled this opinion article “Timeshare Facing a Pull Factor” because of the existence of some dark conspiracy against this Sector, but to stress that such a “pull factor” does certainly exist, particularly as the possible claims to the courts of justice are being “marketed”.

The pull factor as such takes place when the doctrine established by the Supreme Court in a specific case (and it could not be different in this instance) is taken out of context and isolated and subsequently translated by for-profit operators (an activity which, other considerations aside, is currently lawful) in a simplistic, albeit not totally wrong, interpretation, outside the context of the specific case to which it relates, of the following doctrine:

A.- Doctrine initially contained in SCJ 747/2014 which, in my view, denies the possibility of adapting systems in existence before the enactment of Act 42/1998 by merely giving them public status, which was the form of adaptation used with virtually all timeshare resorts. The Supreme Court has thus established that the “transformation of pre-existing timeshare rights into in-rem or leasehold rights of rotational enjoyment according to the requirements of said Act” is the correct doctrinal interpretation of how adaptations must be performed.

B.- Doctrine contained in SCJ number 830/2015: “In the legal system established by Act 42/1998 of 15 December on rights of rotational enjoyment of holiday accommodation, failure by the contract to determine the unit which constitutes the subject thereof determines the nullity of such a contract, as provided for by Article 1.7 in relation to Article 9.1.3 of the said Act”.

This doctrinal line has been vulgarly, publicly and interestedly translated by trading and legal operators seeking to make a profit in the following statements:

• “Timeshare contracts entered into up to 2012 whose duration is in excess of 50 years are absolutely and radically null and void”.
• “Even if you have used the tourist resorts for 10, 15 or 20 years, you can recover all the money you paid – absolutely the full price you paid”.

• “You can also get back all the money you have paid every year as service fees even if the services have been provided to you”.
• “Additionally, you will not have to pay anything to the lawyers and legal representatives acting on your behalf in the Courts. This will be borne by the seller when they lose the case and, otherwise, your lawyers and legal representatives will not charge you anything”.
They obviously fail to mention that if the claimant loses the case, the claimant’s lawyers may not charge them anything but the Courts will, as a general legal principle, obligate them to pay the court costs and even the fees of the counterparty’s lawyers and legal representatives.
Who would, therefore, reject so many advantages when there is no downside?

It’s like the lottery without even having to pay for the ticket!

I believe it is necessary at this point to analyse whether, on the one hand, the above Case Law –treated as an axiom without the possibility of being disproved whatever the reason argued, however petty, irrelevant or even if based on a mere statement without having to prove anything relating to its truthfulness – can be applicable always or virtually always and in every case as proclaimed by the providers of free legal services or whether, as is my view, the aforementioned Case Law needs to be considered in the context of each specific case and in accordance with the Spanish substantive laws, in some cases, or with the law to which the contract is subject in other cases, without disregarding the fact that jurisdiction may lay with non-Spanish courts in many cases.

On the other hand, the –fundamentally economic and social – consequences of the promised universal lottery also need to be analysed.

In relation to the former, judgements have already been issued by provincial courts whose interpretation is that a brief paragraph from the Supreme Court Judgements may not be applied in every case disregarding the context of the court resolutions of the provincial courts themselves. By way of an example, Judgement 477/2015 rendered by the Provincial Court of Las Palmas, Canary Islands, on 27 November 2015, states that:

As we have seen, the aforementioned SCJ does not resolve a similar situation to the case at hand (where the subject of the transfer is not timeshare rights but condominium) and is therefore not applicable. Consequently, this Court must stick to the criterion previously described in relation to the admissibility of maintaining the pre-existing system”.

I believe that this is the line along which the Instance and Appeal Courts will go when the moment comes in the proceeding to contest other issues which had somehow been taken for granted, to such an extent that they had not been argued by the parties and that, therefore, by virtue of the principle of consistency of judgements, these may not accept or reject matters not raised by the parties in assessing the general aspects of the cases.

And here could be the first flaw of the principle followed by the managers of free legal services who encourage the consumers simply to file claims, without any further consideration, through websites and advertisements saying that the court case is basically won beforehand and that the defendant trader will bear all the expenses and the court costs, as such court costs will be inevitably awarded against the consumer. They obviously omit and fail to mention, as aforesaid, that the claimant can be sentenced to pay the court costs if the court does not accept their claims.

Will the traders who are promoting free legal services be able to promise their clients that they will not lose their right, will not pay any court costs even if they lose the case and that they will not have to pay what they owe? I believe they will not, as they say nothing about these things but simply gloss over them and fail to give any undertakings.

This is the problem with assuring an outcome in the case of a judicial controversy which is to be resolved by an independent judge.

But we also mentioned that this organised pull factor can bring about other economic or social consequences, such as:

  • A huge increase in litigiousness.

  • An escalation of bankruptcy of tourism companies and resorts. Timeshare traders will be unable to reimburse the total price paid by virtue of the vast majority of the contracts entered into over the past 15 to 20 years, during which time accommodation services have been provided, employees have been hired, utilities paid, etc., if even the proportional share of the price of the right of occupation which relates to the time during which such right has been enjoyed would have to be reimbursed.

  • Loss of a very large number of jobs.

  • Loss of the right acquired by those timeshare users who are happy with their right of occupation and want to continue to use it rather than opt for the free lottery.

  • This may be taken to the limit in those cases where there is no promoter at this time and where the resort is directly managed by its members (consumers and users) through the management bodies appointed from their number, i.e. the General Meeting of Members and the Management Committee appointed by it. Will the claimants sue a promoter who ceased to exist years ago or will they sue the other members?

Therefore, earnestness and good faith is needed from the parties, including the providers of free legal services, the traders in the Sector and the consumers and users.

If the consumers must be demanded to act in good faith and to abstain from abusing their right, the traders –in relation to the past – should review their own situation and, where it was not correct, they will have to amend it, if possible through out-of-court procedures and solutions, and for the present and for the future adapt their commercial practices and their contractual documents rigorously and strictly according to the thorough legal rules, seeking to achieve the necessary training of the agents involved in the commercialisation process so that they understand that this is the time of consumers and users and that, consequently, they need to know and respect their legal rights and those which are inherent in a proper commercialisation process.

Francisco J Lizarza – Lizarza Abogados

Marbella, January the 11th, 2015

ADAPTATION TO THE SPANISH 42/1998 ACT OF THE PRE-EXISTING SCHEMES OF “MULTI-OWNERSHIP” SYSTEMS

 ICONO PEQUEÑA BRITANICAFOLLOWING APPELATION PROVINTIAL COURT OF LAS PALMAS (GRAN CANARIA)  JUDGEMENT NUMBER 447/2015  OF 27th NOVEMBER  2015

There is a new  Judgement issued by the Appeal Court of Las Palmas de Gran Canaria regarding the P***  and P *** Resorts, operated under a “multi-ownership” system preceding the 1998 Spanish Act, i.e. the former Spanish system whereby the purchasers acquired full ownership of a 1/52 share in the apartment.

The Court of Las Palmas thereby concludes that the legal doctrine contained in the Supreme Court Judgement which states that pre-existing systems may not last longer than 50 years after the Spanish Act 42/1998 and that they should meet all the requirements of the new Spanish legal system called “rotational enjoyment” is not applicable to a system which does not involve “right in rem or rental rotational enjoyment”  but co-ownership  of apartaments (multiownerhip).

This is certainly a surprising Judgement after the Supreme Court Judgements of January and June which we all know about. I agree with what this Judgement says, although, for the same reasons, I would extend it to pre-existing systems which have not been created under Spanish Law, such as the Club-Trustee system.

(PLESE SEE “LEGAL VALIDITY OF THE “CLUB-TRUSTEE” SYSTEM: BEFORE, DURING AND AFTER THE SPANISH TIMESHARE ACT 199)

Lizarza Abogados

Marbella, 09.12.2015

 

FLOATING & FLEXIBLES TIMESHARE SYSTEMS IN SPAIN

IN RELATION TO JUDGEMENT NO. 830/2015 ISSUED BY THE PLENARY SESSION OF THE CIVIL CHAMBER OF THE SUPREME COURT ON 15 JANUARY 2015

  “In the legal system established by the Spanish Rotational Enjoyment of Tourist Property Act 42/1998 of 15th December, the fact that the accommodation unit to which the contract relates is not specified therein determines the nullity of the contract according to Article 1.7 in relation to Article 9.1.3 of the Act”.

This paragraph summarises the Case Law Doctrine expressly formulated in Supreme Court Judgement 775/2015, which has doubtlessly raised the alarm and a certain degree of confusion among the entrepreneurial operators in the timeshare/rotational enjoyment sector and among those customers who are satisfied with their product (who are a great majority) and now find themselves at risk of losing their right to occupy a “floating” or “flexible” holiday unit with which they are happy. And this has happened, in my opinion, where the interpretation of such a short text has been disassociated from the background which has led to the conclusions of the aforementioned Judgement and the doctrine therein contained.

In addition, the Judgement contained a dissenting vote by the Judge Mr Antonio Salas Carceller which starts with a partial transcription of Article 9.1.3 of the Rotational Enjoyment Act 42/1998 (hereinafter the REA 42/1998) which demands that certain details must be included in those contracts where a professional marketer participates in the transfer of a rotational enjoyment right; the details to which the transcribed section relates refer to the mandatory inclusion of “an accurate description of the building, its location and the unit to which the right relates, with specific mention of its registration details and the occupation period to which the contract relates, stating the starting and end days and times” (sic), and Judge Mr Salas concludes in his dissenting vote that this must not determine the nullity of the contract as it simply relates to irregularities which may constitute a breach of contract (which can consequently be the subject of an action to terminate the contract within three months thereof =as per the REA 42/1998=) rather than –as the rest of the Court argues– a reason for radical nullity of the contract which, therefore, is not amendable by the passing of time.

Resultado de imagen de imagenes gratis casas flotantes

Such differing views between the position of the majority of the Court and Judge Mr Salas’ dissenting vote is doubtlessly very important but, before commenting on its implications from a legal point of view, an important practical conclusion should be drawn from this to prevent litigation in such a complex –and often misunderstood or misinterpreted– matter, i.e. that the first rule for the commercialisation of this kind of right is that utmost care and maximum precision must be observed in drawing up the contracts and other documents aimed at the client-consumer, without any verbal promises or the clichés or vicious practices of past times, in order to prevent the nullity, annullability or termination of contracts and the imposition of penalties in a Sector which has changed a lot but continues to carry the burden of a bad reputation which still exists today, albeit to a large extent undeservedly.

Let us take as an example the contract which resulted in the court proceeding and Case Law Doctrine mentioned at the beginning. A quick reading of this contract, which is complicated fundamentally because it relates to a “complex subject” whose elements are determinable (flexible) insomuch as they relate to the occupation of various units –one of them not located in Spain– and to weekly periods which are also determinable (flexible), would suffice to understand without much difficulty that it lacks the minimum degree of rigour which would be required irrespective of the omission of certain details.

But the concerns which the Supreme Court Judgement 775/2015 has raised among the entrepreneurial agents of this type of activity, which is the fundamental subject of this article, is that it may have been interpreted or concluded from its considerations that the Doctrine therein contained entails nothing short of a prohibition, by reason of nullity, of the timeshare or rotational enjoyment structures known as “floating or flexible” systems, whether in respect of the determination of the “unit”, of the “annual occupation period” or of both.

If we confine ourselves to the paragraph reproduced at the beginning of this article, which transcribes the strict legal doctrine established by the Plenary Session of the Supreme Court, an initial, rushed conclusion may seem to indicate (obviously with the support of its remaining considerations) that, as an essential and inescapable requirement, “failure to determine the unit” results in the prohibition of rotational enjoyment contracts whose subject has not been determined (that is, perfectly and initially specified) in the contract and in the legal system or structure on which the contract is based.

The above Case Law Doctrine does not expressly contemplate the need, for the same reasons, to “determine the annual occupation period”, although it is reasonable to assume, from the context of the Judgement itself, that such failure to determine the occupation period must also be regarded as the absence of an essential element of the subject of the contract which could also result in nullity of the contract.

The above Judgement, which as explained by Judge Mr Salas cites the REA 42/1998 to state that the subject of the contract has not been “determined” due to the absence of the mentions set forth in Article 7.1 thereof –which in Judge Salas’ opinion are not what constitute the “true subject” of the contract as this should be determined by the rules of the Civil Code which refer to the original absence of such an essential element (the subject of the contract) – ,  has chosen to apply a rule which is not the rule envisaged for any of such cases (sic).

As the majority of the timeshare operators at whom this Blog is aimed are not Spanish and in many cases come from territories with Anglo-Saxon-based legal systems or for any other reason use or are familiar with legal institutions of this tradition, I believe that it is necessary to make some brief –therefore not thorough– clarifications concerning the essential requirements of the contract as briefly, albeit accurately, set forth in Article 1261 of the Civil Code, which states that “No contract exists where the following requirements fail to be met:

1. Consent by the contracting parties;

2. A true subject to which the contract relates; and

3. Reason of the obligation thereby established

”.In Spanish Law, the “true” subject of a contract may be determined at the time consent is given or it may be determinable by the application of objective rules at some later time, whether consent is to be given only once or periodically.

We must once again mention the Anglo-Saxon tradition systems where the existence of subjective rules (undetermined legal concepts as denominated by Spanish Case Law) such as “from time to time”, “as may be reasonably determined” or “as determined by the then market conditions” is contrary to the public order demand of the Spanish legal system which requires that those obligations to which initial consent is given in the contract but need to be specified at a future time must be determined or specified when the moment comes by the application of objective rules which, we could exaggeratedly say, must be “an almost mathematical result of applying the premises agreed in such rules”, so that the determination or specification of the subject is not left up to the will or arbitrary decision of one of the contracting parties.

In this regard, the subject of the contract may take the form of future things (e.g. an unbuilt house whose determination or specification would be set in the “architectonic project” which would from the start constitute a part of the contract) or future services which are not contrary to Law or to proper conduct (Article 1272 of the Civil Code).

Focusing on the title of this Article and the concerns expressed by entrepreneurial operators in this Sector, I believe it is right to say that Judgement 775/2015 does not in any way regard the systems colloquially and commonly known as floating or flexible (determinable) as being prohibited. And such an assertion is made despite the fact that the Court deems the contract null and void by reason of lack of subject as it considers that Article 7.1 of the REA 42/1998 is applicable when its states that “where the contract whereby any other in-rem or personal right is created or transferred […] regarding the use of one or more real properties during a determinable period each year, outside the scope of this Act, shall be fully null and void”.

The conclusions which, in my judgement, can be drawn from the foregoing, are as follows:

            First.– It is expressly acknowledged that the constitution and transfer of rotational enjoyment rights, as far as the unit and the occupation period are concerned, can be determinable by the application of objective rules (flexible or floating unit and/or period).

The omission from the contract of the requirements demanded by Article 9 of the REA 42/1998 to which Judgement 775/2015 refers, whether it be regarded as a reason for nullity (as the Court argues) or a reason for termination on the grounds of breach of contract (as maintained by Judge Mr Salas in his dissenting vote), does not entail the prohibition of systems involving flexible units and/or occupation periods,  although it does confine the latter to the restricted formulation thereof as set forth by the now repealed REA 42/1998.

            Second.– The Court’s interpretation, including that of Judge Mr Salas’ dissenting vote, does restrict the constitution and transfer of such rotational enjoyment rights, whether determined or determinable by objective rules (flexible systems), to their only formulation as set forth by the REA 42/1998.

Such a restrictive interpretation was to be fully reviewed as a result of the coming into force of the new rotational enjoyment regulations of 2012, if not upon the coming into force of the Rome I Regulation in late 2009.

              Third.- Contrary to the Supreme Court doctrine established by the Judgement now under discussion and that established by its earlier Judgement of 15 January 2015 and its later Judgement of 5 July 2015, it is my view that flexible systems of personal rights constituted or transferred –including points systems – with subjection to non-Spanish law are lawful in our country and legally valid before, during and after the validity of the now repealed REA 42/1998.

Having reached the above conclusions, I believe it is now necessary to address how and in what way flexible/floating systems of rotational enjoyment of holiday accommodation have been, or can now be, constituted.

A.- SYSTEM OF RIGHTS IN REM OF ROTATIONAL ENJOYMENT.

This is the system specifically regulated by the REA 42/1998 and the current Rotational Enjoyment of Real Property for Tourist Use Act (REA 4/20129), the provisions of which are also applicable on a subsidiary basis to the other system of personal leasehold rights contemplated by the same Act (Article 1.6 REA 42/1998 and Article 23.6 REA 4/2012).

I understand that these in-rem rights, structurally by reason of their own real nature (as stated in Judgement 775/2015), must specifically refer to:

  • Predetermined units (independent registered properties where there is a horizontal division or, in default thereof, units which are described and “registered” at the Land Registry as if they were independent properties).
  • Predetermined occupation periods.
  • In predetermined holiday accommodation resorts.

That is, what has come to be known as “fixed triple” in tourism jargon: fixed building, fixed unit and fixed occupation period.

This does not prevent, in my opinion, the existence of internal fexibilisation rules by way of what we could improperly call an “internal exchange” within the same resort.

B.- SYSTEM OF PERSONAL RIGHTS OF ROTATIONAL ENJOYMENT – SEASONAL LEASEHOLD CONTRACT.

In my opinion, this is the only system of “flexible units and occupation periods” contemplated by the REA 42/1998 (Art. 1.6), albeit not expressly contemplated as such by the current REA 4/2012 (Art. 23.6).

Indeed, the above-mentioned Article of the REA 42/1998, which was in force at the time of conclusion of the contract to which Supreme Court Judgement 775/2015 relates, which is expressly mentioned therein, states that:

Such contracts shall refer to a predetermined annual season which relates to a predetermined or determinable occupation period within that season and to a predetermined accommodation unit or one which can be determined on the basis of its general conditions, provided that the resort where the right is to be enjoyed has been specified” (sic).

Therefore, they can relate to a flexible occupation period, within the same season, in a flexible accommodation unit of a “predetermined type” in the specified building or resort.

Certainly, the 2nd paragraph of the Ruling contained in the Judgement transcribed at the beginning seems to contradict that set forth in this Article 1.6 of the REA 42/1998 when it states that there is no subject of the contract where the “contract does not specify the unit to which it relates”, but I think that this must be understood as referring to the specific contract to which the Judgement relates and that the legal rule is observed in any case where the units are determined by objective rules for each specific season from among those of the same type included in the same building which, on the other hand, are all specifically and individually  described in the public Deed of constitution of the system which, in addition, must be mandatorily registered at the Land Registry.

Article 23.6 of the current REA 4/2012 also refers to the seasonal leasehold right of rotational enjoyment and, in a wider and more general sense, so to speak, it refers to seasons contracted for whose purpose is the use of one or several accommodation units for overnight stay during more than one occupation period

In any case, this being a system of a leasehold nature, it must be constituted by public Deed and registered with the Land Registry according to the applicable Spanish regulations.

C.- SYSTEMS OF PERSONAL RIGHTS SUBJECT TO NON-SPANISH LAW

1.- CURRENT SITUATION SINCE THE COMING INTO FORCE OF THE ROME I (EC) REGULATION.

All structures or systems of personal rights subject to non-Spanish law, whether of an EU country or otherwise, provided that they do not contravene any rules of the “laws of public order of the Spanish legal system” or any rules relating to matters of mandatory application in Spain (such as consumer protection rules), are valid in our country, as it is so provided by the Rome I (EC) Regulation which came into force on 17 December 2009.

Such systems of personal rights can be configured with fixed or flexible occupation periods, which can be annual or biennial and can relate to flexible units and can also refer to various buildings in Spain or in several countries, including the so-called “points clubs”; it must be noted, however, that  such freedom of contract also has its limitations, particularly as regards consumers’ rights, not only according to the domestic law to which the system is subject, but also according to the law of the country where the rights are commercialised if any of the properties is located in territory of an EU or EEA Member or if the contract, while not directly related to a real property, relates to the activities carried out by a Member State or projected from or within a Member State.

2.- SITUATION BEFORE THE COMING INTO FORCE OF THE ROME I (EC) REGULATION.

Supreme Court Judgement 775/2015, to which this commentary relates, refers to a contract entered into before the coming into force of the new regulations on rotational enjoyment of 2012 and even before the coming force of the aforementioned Rome I Regulation, so it only takes into account the provisions of the REA 42/1998 which was in full force at that time.

That contract, at that time, was neither formulated as a right in rem nor as a personal leasehold right of rotational enjoyment in the form provided for by the REA 42/1998, but as a confusing personal right which does not only relate to buildings located in Spain but also to a building in another country, and without any express or tacit subjection to foreign law but clearly subject to Spanish Law.

For this reason, I believe that the contract is in contravention of mandatory rules of the Spanish regulations then in force generally, and it would also be in contravention thereof at the present date by virtue of the Rome I Regulation.

But this leads me once more to assert that those contracts relating to “flexible” units, occupation periods and resorts which were entered into before the coming into force of the Rome I Regulation and were tacitly or expressly subjected to non-Spanish law were (without prejudice to the application of public order laws of the Spanish legal system or of consumer protection laws) perfectly valid in Spain, as it was so allowed by the 1980 Rome Convention.

In this sense, we must refer the reader to the article entitled “The Validity of the Club-Trustee System in Spain”, published in this Blog on 21 August 2015.

Once more, as mentioned in the aforementioned Article, this is an opinion article written without prejudice to a more knowledgeable or better informed opinion.

Francisco J. Lizarza

Lizarza Abogados

LEGAL VALIDITY OF THE “CLUB-TRUSTEE” SYSTEM: BEFORE, DURING AND AFTER THE SPANISH TIMESHARE ACT 1998

FOLLOWING SUPREME COURT JUDGEMENTS NUMBERS 774/2014 (15.01.2015) AND 431/2015 (05.07.2015)

This article is intended to make particular a study of the impact which the aforementioned Judgements have had or may have on the Timeshare Industry insofar as they proclaim the nullity of contracts which, being based on legal systems in place before (pre-existing) the Spanish Rotational Enjoyment Act 42/1998, failed to be transformed after the coming into force of said Act <abandoning their preceding legal system> to become the rights in rem or leasehold rights created ex novo by the new Act.- This could, without a doubt, have an impact on “almost all” the systems where other methods of adaptation –which all those involved in the legal profession deemed (until the recent Judgements were rendered) to exist and to be possible – were chosen.
The Article comes to the conclusion, for the legal reasons described in it, that timeshare contracts based on legal systems or schemes subject to non-Spanish law but relating to properties located in Spain (i.e. the Club-Trustee System) are clearly lawful given the prevalence, as a higher-ranking rule, of the 1980 Rome Convention on the choice of applicable law as regards personal obligations over the Rotational Enjoyment Act 42/1998, a lower-ranking rule.
Various Appendices will soon be added to this Article to try to show once again that the timeshare industry, and timeshare itself, is not a fraudulent system, but an economic operation or activity which responds to consumer demand, a lawful supply by entrepreneurs-developers and the interests of the national economy where the tourism sector, now more than ever, is the driving force of the Spanish growth. Therefore, these Appendices will be aimed at studying the detrimental consequences of confusing the various names given to this kind of contract, the raison d’etre of the Club-Trustee System or the economic impact of timeshare in Europe and, specifically, in Spain.

“VALIDITY OF THE CLUB-TRUSTEE-SYSTEM”

INTRODUCTION:

Before addressing the merits of the legal validity in Spain of the legal system known as Club-Trustee, we need to make some clarifications concerning the very name of this kind of “rights, products and services relating to the periodic occupation of holiday accommodation” in relation to the name of these legal systems and types of contracts, which we will generally refer to, indistinctly, either as Timeshare or as Rotational Enjoyment, without prejudice to the specific name of each right in relation to the specific system involved in each case.

-I-
BEFORE THE COMING INTO FORCE OF THE ROTATIONAL ENJOYMENT ACT 42/1998 (REA 42/1998).

The “Rotational Enjoyment Of Real Property For Tourist Use And Taxation Rules Act 42/1998 of 15 December” (hereinafter “REA 42/1998” for ease of reference), incorporated Directive 2004/47/EC into Spanish Law and was the first legal rule in Spain which established a set of regulations on timeshare, which in said Act started to be called “rotational enjoyment”. However, the fact that before the appearance of this Act there was not any specific rule regulating these contracts does not mean that this activity was clandestine or outside the Law.

There are two governing principles in Spain -“free will” and “freedom to contract”- which, as an expression of persons’ freedom, allows individuals to create, modify and terminate legal relationships; within the scope of a legal transaction, and also by virtue of the “freedom to contract” principle, persons are at liberty to undertake any obligations they may freely agree on.

This, however, is not an absolute right but one with limitations laid down by Law, and such limitations are becoming increasingly restrictive in situations affecting third parties who are regarded as more defenceless, such as consumers or users.

And where a contract which is formally envisaged by Law is entered into, the parties are free to determine its covenants provided that the end is lawful and that the mandatory precepts for such a contract are observed; otherwise, there is absolute freedom.

For this reason, when contracts from the Anglo-Saxon tradition are imported into Spain, any person –Spanish or otherwise – may freely enter into such contracts and, in addition, they may do so with the application of concepts existing in Spain (such as community of property, simple contracts involving personal obligations or other associative systems, etc) but without any obstacle to do so according to a non-Spanish law –as per the freedom to contract principle– provided that no mandatory law of Spain is thereby contravened.

Of utmost importance to understand the limits set by Spanish Law in delimiting its exclusive and excluding jurisdiction (as a public order rule) is the content of Article 10.1 of the Civil Code, which states that:

“Possession, ownership and other rights over real property, as well as the publication thereof, shall be governed by the law of the place in which they are located”.

We would certainly need to analyse this precept, particularly as regards “other rights over real property”. That is, we need to study the scope of this precept both in relation to the hierarchy of the rule in which it is contained (Civil Code) –in order to ascertain whether it is applicable given that it does not come into conflict with any higher-ranking rule of the Spanish legal system– and in terms of the actual material scope inferred from the same rule.

It is therefore necessary to determine whether the phrase “other rights over real property” encompasses all the rights of occupation which directly (as a right in rem) or indirectly (as a personal right) relate to a =real property/holiday accommodation= which, consequently, would have to be constituted and governed by Spanish Law on an exclusive and excluding basis if the property is located in Spanish territory. In other words, to determine whether only Spanish Law can substantively regulate these rights, whether they are rights in rem or merely personal or binding rights.

If we confine ourselves to what is stated in the current Rotational Enjoyment Of Property For Tourist Use Act 4/2012 of 6th July (hereinafter referred to as REA 4/2012), this is not the case, as the latter rule expressly acknowledges that the EU Regulation Rome I <which is also a higher-ranking rule than this Act> is applicable even if it goes against the provisions of its articles by virtue of the express acknowledgement contained in the 8th paragraph of Article 23, which says:

“The provisions of this title do not preclude the validity of any other type of contract whereby a right of a personal or an associative nature is created whose subject is the use of one or several accommodation units for overnight stay during more than one period of occupation and which has been created under, and on the terms of, the rules of the European Union, particularly Regulation (EC) no. 593/2008 of the European Parliament and of the Council of the 17th June 2008 on the law applicable to contractual obligations (Rome I) and the international conventions to which Spain is a party. The provisions of Title I of this Act shall be applicable to all such types of contracts”

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32008R0593

We have certainly taken a leap forwards in time by citing the new REA enacted in 2012 when we were discussing the situation created during the validity of the now repealed REA 1998; such a leap would not make any sense were it not to prove that the rule whereby any right over real property is to be governed, on an exclusive and excluding basis, by the law of the place where the real property is located (lex rei sitae), does not apply where such a right is one of a personal or merely binding nature subject to non-Spanish law.

If it is now acknowledged that the Rome I Regulation (2008) is a higher-ranking rule than the REA 4/2012 and allows the subjection to non-Spanish law of personal (not in-rem) timeshare or rotational enjoyment rights relating to real property located in Spain, the same argument must be adopted in regard to the situation created by the preceding REA 42/1998, which is aware and even acknowledges –albeit chooses to ignore– that a higher-ranking rule was in force at the time which, on similar terms, allowed the subjection of personal rights of rotational enjoyment or timeshare rights to non-Spanish law; such a rule was none other than the Rome Convention Concerning The Law Applicable To Contractual Obligations of 19th June 1980, amended in Funchal on 18th May 1992, which was published in the Spanish Gazette on 19th June 1993 and came into force on 1st September 1993 (therefore before the REA 42/1998).

It should also be noted that, even though the 1980 Rome Convention is a multilateral treaty, it now constitutes a “rule of the European Union”, which may open the door to the possibility that the issues concerning its application can be resolved before the Court of Justice of the European Union after all the Spanish judicial instances have been exhausted.

In this sense, the 1980 Rome Convention Ratification Instrument signed in Funchal by the Kingdom of Spain and The Republic of Portugal explains the motivation of such ratification as follows:

“Considering that, by becoming members of the European Union, the Kingdom of Spain and the Republic of Portugal undertook to adhere to the Convention concerning the Law Applicable to contractual Obligations, which became open for signature in Rome on 19th June 1980…”

(https://www.boe.es/buscar/doc.php?id=BOE-A-1993-18896)

In this regard, Sánchez Lorenzo states that: “The Rome Convention was born as a corrective or balancing element of the European Legal Space, directly associated through the Brussels Convention to Article 220 of the European Constitutional Treaty itself”.

http://digibug.ugr.es/bitstream/10481/15141/1/CONVENIO%20DE%20ROMA%20(1999).pdf

Or, as stated on the website EUR Lex:

The Convention on the law applicable to contractual obligations became open for signature in Rome on 19th June 1980 for the then nine Members of the European Community (EC). Later, all new members of the EC signed this Convention….

In addition, all new Member States of the Community were on signing the Rome Convention demanded to adhere to the Protocol concerning the interpretation of the Convention by the Court of Justice.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:l33109

Without needing to state the validity and application of the 1980 Rome Convention since it came into force for Spain in 1993, the truth is that, even before, taking only into account the domestic, “exclusively Spanish” rules prior to the REA 42/1998, the possibility of constituting rights of a personal or binding nature over real property located in Spain under a non-Spanish substantive law was never called into question, whether they related to apartments or residential homes or to properties/accommodation part of holiday establishments; this resulted in the predominant, if not exclusive, constitution of systems which were subject to the law of an Anglo-Saxon country, fundamentally the aforementioned Club-Trustee system.

In any case, however, it is my view that, after the Rome Regulation became applicable in Spain in 1993, the opposite may no longer be argued despite the strong current of thought doubtlessly promoted by traditional hotel businesses and legal agents who intended to adapt the phenomenon of the timeshare economic-touristic activity to one only formula involving the constitution and application of this kind of contracts to a new “right in rem” named “rotational enjoyment”, which had to be reflected in a public Deed and registered at the Land Registry so that notaries would control the constitution of the system (first compliance check) and they would have access to the Land Registry (second compliance check).

In addition to that, there would be a notarial control of the commercialisation and transfer of the RERs (rotational enjoyment rights) by public Deed to which the purchasers would voluntarily have access after the verification of the existence of the system and its rules, the RER itself and the situation concerning ownership and liens as recorded at the Land Registry.

However, the Spanish legislator, no doubt with the best intention but certainly taking an unrealistic stance, failing to take into account the very nature of the timeshare product and moving away from the identification made in Directive 94/47/EC of the problems being encountered before 1994 in this economic-touristic sector –which did not so much relate to the legal form or nature of these contracts but to the commercialisation thereof, i.e. the promotion and subsequent sale of the product–, chose not to regulate a “market” but to cause it to fall within other Spanish legal institutions of recognised effectiveness in other areas and to cause it to be controlled through public deeds and the Land Registry by the equally prestigious and competent body of Public Notaries and Registrars.

The problem, however, was that the activity of Notaries and Registrars, old but constantly adapted to real property transactions and to the frequent variations taking place from time to time, was never created or modified to regulate, for the benefit of the consumers, the mercantile transactions brought about by this type of commercialisation of rights concerning overnight stay in holiday accommodation.

And this has caught on among Spaniards and foreigners alike in the form of the misconception that the only form of acquisition (purchase) of real property in Spain is by executing a mandatory public deed which must then be registered at the Land Registry, when the truth is that such a transfer of property is equally valid (albeit it does not have the same degree of protection as against third parties) if done through a private contract where this is accompanied by possession (title and handover).

But such a mistaken belief stems from the fact that that is the most effective means to protect the purchaser’s right at the time of purchasing a real property and to retain ownership thereof undisputedly. This is why, whenever a real property is now purchased in Spain, the transaction is reflected in a public Deed and registered with the Land Registry in an overwhelming majority of cases.

But the same thing does not happen with rotational rights of occupation for the very simple reason that these rights are not a real property product –even though it has been intended to formulate them as a right in rem– but a merely touristic product or right.

This is why, after the coming into force of the REA 42/1998, the public Deed and registration have been overwhelmingly absent in the commercialisation and transfer of in-rem or leasehold rights of rotational enjoyment. In default of statistical data, I believe that it would not be unreasonable to say that the incorporation or RERs into a public Deed and the subsequent registration thereof does not reach one percent of all cases. That is, this control and protection method is good and effective for the purposes of real property development, but not for the promotion and marketing of holiday accommodation stays.

-II-
SYSTEMS WHICH PRE-EXISTED ACT 42/1998 OF 15 DECEMBER UNTIL THE COMING INTO FORCE OF REGULATION (EC) 593/2008 CONCERNING THE LAW APPLICABLE TO CONTRACTS ENTERED INTO AS FROM 17 DECEMBER 2009 (ROME I).

Before the aforementioned Judgements of the Supreme Court were rendered, the validity of the personal timeshare systems which pre-existed the REA 42/1998 was almost unanimously never questioned provided that they simply complied with a consumer protection rule of adjective law, i.e. that they be given public status by registration thereof at the Land Registry (without the obligation, therefore, to transform them into the new in-rem or leasehold right of rotational enjoyment); also, where the lifetime of the pre-existing system was in excess of the 50-year term laid down ex novo by the new Act for all new schemes, the pre-existing duration could be preserved provided that such longer validity was expressly mentioned in the Deed of adaptation-publication.

When an Act or its pre-legislators and legislators deliberately ignore the problem which may be posed by the existence of other rules, including higher-ranking rules, they can create an even bigger problem and, eventually -15 years later–, a seriously detrimental situation for the citizens, whether they are entrepreneurs, consumers, users or employees, as is to be expected after the Supreme Court Judgements.

The National Association of Timeshare Businesses (currently the Spanish Chapter of RDO), acting responsibly, raised these issues at various forums and directly to the General Secretariat for Tourism, the bodies of the Ministry of Justice with jurisdiction on the matter, Regional Parliaments and Members of Parliament and the Senate who generally, without denying the existence, validity and scope of the 1980 Rome Convention (which had already been pointed out by the State Council in its Report on the Bill preceding the Act), chose a set of confusing regulations for the sake of increasing the level of protection to consumers through an exclusive system of rights in rem, the consequences of which had become evident even before the Judgements of the Supreme Court which, in our view, go far beyond what was justified by the Rationale and provided for by the Articles of the REA 42/1998 itself.

By virtue of a surprising interpretation which, as far as we know, had never been adopted in any Treaty or by the vast majority of the Provincial Courts in establishing their Case Law over the last fifteen years, these Supreme Court Judgements basically indicate that the adaptation of any scheme pre-existing the REA 42/1998 was not valid if performed by simply publishing all or part thereof as they should have involved the “transformation or conversion” of both the pre-existing limited or full ownership rights in rem (i.e. community of property on a multi-ownership basis) and the also pre-existing personal rights (whether subject to Spanish Law or otherwise, such as the Club-Trustee system) under penalty of absolute nullity of the contracts marketed after that deadline.

Indeed, the aforementioned Supreme Court Judgement no. 774/14 (and no. 431/15 in a similar sense) literally states as follows:

However, the interpretation of said paragraph 3 of the second transitional provision adopted by the appellant on which it rests its case, does not respect the sense arising out of the systematic connection thereof to paragraph 2 of the transitional rule itself, whose content the former respects in any case – “[without prejudice to the provisions of the last preceding paragraph…]” – and which sets forth that any titleholder –consequently also the current appellant – wishing to “commercialise the occupation periods not yet transferred, after the Deed of Adaptation, as rotational enjoyment rights”, was to constitute the scheme “with regard to the available periods and in compliance with the requirements established in this Act”, among them the temporal requirement laid down by Article 3, paragraph 1.

As mentioned, while we respect the doctrine contained in these Judgements, we understand that it is radically contrary –and therefore not shared by them from the start– to the position of virtually all the treaty writers who addressed the issue before and on complying with the Act within the timeframe thereby established for “adaptation” of the pre-existing schemes, the numerous notaries who authorised the adaptation thereof by publication and the registrars who entered the deeds on the Register, who almost unanimously (!) understood that something entirely different is clearly inferred from the Transitional Provisions in relation to the Rationale of the REA 42/1998.

We further understand that this Supreme Court doctrine comes into conflict with, and fails to take into account, the prevailing application of the higher-ranking rule which is the 1980 Rome Convention over the lower-ranking REA 42/1998 (possibly because debate in a trial is confined to or limited by the respective petitions of the plaintiff and the defendant by virtue of the principle of consistency of rulings –ne ultra petita– and this was never a subject of debate in the cases which gave rise to the Supreme Court Judgements).

Such a possible conflict of rules during the pre-legislative and legislative process which resulted in the enactment of the REA 42/1998 existed previously and was as evident as noted by Hernández Antolín in a premonitory article entitled “The So-Called Right Of Rotational Enjoyment Of Real Property: Its Peculiar Problems Within The Framework Of The Current Timeshare Market Worldwide”, which he published months before the publication of the REA 42/1998 in issue no. 33 of the Magazine “Civil News” of 14 September 1998, out of which we should cite and transcribe –in italics– the following:

5) The projected legislation is a deterrent to cross-border transactions.

The fundamental goal of the European Union is the creation of a single market of products, services, capitals and factors of production.

However, the Project, far from being instrumental in achieving this goal, imposes a brake on an activity in which most of the purchasers and most of the promoters are not resident in Spain.

– Because it attempts to prevent the constitution of timeshare schemes under foreign Legislation (1st Additional Provision).

– Because it demands that service companies have to be domiciled in Spain (Article 16.1), which seems to prevent the existence of multinational companies (unless they set up affiliated companies of Spanish nationality).

– Idem as regards the owner or promoter insomuch as, if it is a company, the obligation is thereby imposed (as documentary evidence is demanded) to be registered with Companies Registry, which seems to exclude promotion by an EU company which does not have a branch, agency or office (only foreign companies with access to Companies Registry): Article 9.9.

– Idem as regards exchange companies, albeit in this case it is thereby demanded that they have an open, registered branch in Spain (Article 5.2).

This attempt to exclude foreign entities is all the more serious given that major multinational companies in the tourism and leisure sector (Disney, Marriott’s, …) are now entering the timeshare sector. It seems clear that, if the Spanish legislation is restrictive and deterring, we can expect the diversion of these investments to other countries whose legislation is more flexible (France, Italy, …).

But, perhaps more importantly, after the rationale he goes into an analysis of this matter considering the “legal system as a whole” by stating:
“6) The Bill may come into conflict with various international Treaties signed by Spain”.

“The validity in Spain of International Treaties is set forth in Article 96.1 of the Spanish Constitution, which states that they are part of our internal regulations (Constitutional Court Judgements 76/82 of 14th December, 30/86 of 20th February and 37/88 of 3rd March, and many others) and that their provisions may only be repealed, modified or suspended in the form established by the Treaties themselves or in accordance with the general rules of International Law”.

“The Project lacks rules concerning conflict of laws and jurisdictions: it only has one rule, the 2nd Additional Provision, which sets forth that «all contracts, whatever the place and date of execution, which relate to real property located in Spain, are subject to this Act. The covenant of express submission to the law of another State shall be deemed to be made in circumvention of the Law».

In my judgement, such a precept may be in contravention of various International Treaties entered into by Spain in relation to conflict of laws and jurisdictions. The most striking thing is that in paragraph VII of the Rationale it is stated that the said 2nd Additional Provision is supported by the Brussels, Lugano and Rome Conventions.

Conflict of applicable Laws: the Rome Convention

Spain has ratified the Rome Convention On The Law Applicable To Contractual Obligations of 19th June 1980, amended in Funchal on 18th May 1992, which was published in the Spanish Gazette on 19th July 1993 and came into force on 1st September 1993.

Three Articles of the said Rome Convention must be examined:

— Article 3: It provides that contracts shall be governed by the law expressly or tacitly chosen by the parties and that a change of applicable laws shall be admitted after the execution of the contract except insofar as this may affect third parties’ rights (paragraph 1).
An exception is thereby provided (Article 3.2) where the law of the relevant country does not allow this (Safeguard Clause), provided that all the elements of the relationship are located in said country (place of execution, place of compliance, residence of the parties to the contract…).

-Article 4.3: It states that, where the subject of the contract is a right in rem or a right to use a real property, it shall be presumed that the contract has closer ties to the country where the property is located. But this precept is only applicable in default of any choice of applicable law.

-Article 5: Where contracts are entered into by consumers, the consumer may not be deprived of the mandatory rules of the country where they habitually reside.

During the processing of the EU Directive, the Spanish Delegation –who were not unaware of the problems which the application of the Rome Convention could pose– proposed the following wording for Article 9.1 of the Directive Project: «Where the real property to which the rotational enjoyment contract relates is located in a Member State, the contract shall be subject to the legislation of the relevant Member State».

The Legal Services of the European Community (Document 7719/93 of July 1st) issued a Report in which they cast doubt over the compatibility of the Spanish proposal with the Rome Convention, as a result of which the Spanish proposal was not accepted.

By reason of the foregoing, I consider that the 2nd Additional Provision may clash with the Rome Convention, at least with regard to contracts entered into by non-residents or executed outside Spain, insofar as there is no room for the Safeguard Clause in such cases. In order to find compatibility, and considering that our Civil Code sets forth that the transfer of rights in rem demands the concurrence of title and handover (609.2 Civil Code), a distinction would need to be made:

— The contract itself: submission to foreign law is possible on the terms of the Rome Convention.

— Right in rem: As the right involved relates to real property, exclusive sovereignty of the State can exist in this case.

Conflict of jurisdictions:

After several considerations concerning the conflict of jurisdictions, Hernández Antolín raises the following question:

And what does the Project say on the matter of conflict of jurisdictions? And he goes on to answer it:

It is mentioned in the Rationale that the 2nd Additional Provision prevents submission to the jurisdiction agreed on by the parties, which seems to point to the exclusive and excluding competence of the Spanish jurisdiction. This instruction is said to be supported by the Brussels and Lugano Conventions, which the Act claims to respect. But if we consider the wording of the said 2nd Additional Provision, it turns out that it does not contemplate the possibility of a conflict of jurisdictions. Therefore, the aforementioned Conventions must be regarded as fully applicable notwithstanding the spirit of the Project: this will entail the more than certain possibility that the foreign jurisdictional Body may stress the full validity of the foreign legislations to which the parties have agreed to submit themselves (by application of the Rome Convention), a conclusion which is radically contrary to the aforementioned 2nd Additional Provision.

In light of all the above, and going back to the title of this Article, we can now answer the question which it poses:

Is the Club-Trustee system valid in Spain after the coming into force of the REA 42/1998 of 15 December?

With express authorisation from its author, Hernández Antolín, this question can be answered by the literal transcription of his lecture given at the “Rotational Enjoyment Seminar” held on October 1st, 1999, which was organised by the Spanish Association of Timeshare Businesses (A.N.E.T.C.), currently the Spanish Chapter of the European entrepreneurial organisation “Resort Development Organisation” (RDO), specifically the following section:

“XII.- ADMISSIBILITY OF THE CLUB-TRUSTEE SYSTEM AFTER THE APPROVAL OF THE ACT.

Experience tells us that, of the numerous systems under which timeshare (hereinafter TS) is currently operated, the most widespread system in our country is the one called Associative System and, within it, the Club-Trustee System. Can this system continue to be operated in our country?

To answer this we need to make a distinction between the EXTERNAL SCOPE and the INTERNAL SCOPE:

* External Scope: Can the Club or any other foreign form of association which, according to the rules of the country in which it was constituted, has full legal capacity, hold title to a real property? The answer can only be AFFIRMATIVE, as it is so acknowledged by the Spanish Constitution (Art. 13.1), the Civil Code (Art. 27), the Code of Commerce (Art. 15) and various International Treaties entered into by Spain (particularly the European Union Treaties which establish the free movement of persons, whether physical or legal, and of capitals).

* Internal Scope: Can the relationship, of a PERSONAL nature, between the Club and the users of the properties on a timeshare basis be governed by the foreign law to which the parties freely agree to submit themselves? This is the key point.
This subject is far from being uncontroversial, as the intention of the drafters of the Project was the inadmissibility thereof so that all new schemes should be constituted in accordance with the new “rotational enjoyment right” created by the Act, or the so-called “holiday leasehold”. It is thus clearly inferred from:

a) The Rationale of the Act, in which it is stated that: “The key question in terms of legislative policy was to determine whether several institutional formulas should be regulated or such regulation should be limited to one formula, all the others being left out. A middle path was chosen which consisted of the detailed regulation of a rotational enjoyment right while at the same time allowing the configuration of the right as a variation of the seasonal leasehold…”.

b) The articles of the legal text, of a markedly MANDATORY nature, as evidenced by:

– The contract by virtue of which any in-rem or personal right relating to the use of one or more real properties during a pre-determined or determinable period each year is constituted or transferred outside the scope of this Act shall be regarded as executed in circumvention of the Law and shall not prevent the application thereof…(Art. 1.7).
– All contracts relating to rights of use of one or more real properties located in Spain during a pre-determined or determinable period each year, whenever and wherever executed, are subject to the provisions of this Act (2nd Additional Provision).

As mentioned in the last preceding section, the 2nd Additional Provision may in certain cases clash with the Rome Convention, at least where the contract has been entered into by non-residents or executed outside Spain, provided that a right of a BINDING nature is thereby attributed to the parties and that the parties EXPRESSLY CHOOSE the law which is to be applicable.

The following can be inferred from the above:

-We are discussing the choice of the rule applicable to a contract relating to the use of a real property on a TS basis, not the submission to the competent jurisdiction as, this being a consumer relationship, both the European Community’s regulations and the domestic regulations impose restrictions on the consumer’s waiver of their own jurisdiction.

-At least one of the elements must be external as, otherwise, if all the elements are located in one only country, the safeguard clause can operate where mandatory provisions are involved. Such a foreignness requirement is met insofar as the Club is of foreign nationality (as the Spanish legislation does not confer a legal personality on Clubs outside the scope of the Associations Act or of sport rules).

-The guiding principle of the Rome Convention is the free choice of applicable law, and such a choice of applicable law does not need to refer to the law of one of the countries which have signed the Treaty, as its purpose is to establish uniform rules of conflict. It is thus provided for by Article 2 of the Convention, which sets forth that the designated law shall apply “even if it is the law of a non-contracting State”. Therefore, the choice of law is admissible whether or not the chosen law is that of a Member of the European Community and whether or not it is a signatory to the Rome Treaty (see: list of countries which have entered into the Treaty).

In the case of schemes constituted under foreign legislation which establish rights of a personal nature of the consumer over the property (whether in the case of the so-called multi-ownership configured as a personal right or in the case of the so-called associative multi-ownership), the aforementioned SAFEGUARD CLAUSE may not operate (and it was thus stated in the Report issued by the Legal Services of the Community). Hence this case must be excepted and no CIRCUMVENTION OF LAW may be deemed to have taken place, as the parties have exercised a legitimate right (see: definition of Circumvention of Law contained in Article 6.4 of the Civil Code: “Actions performed under the text of a rule with the intention to achieve an outcome which is prohibited by, or contrary to, the legal system”

The following should also be taken into account:

– The European Union intends to create a Single Market of products, services, capitals and factors of production.

– The transnational element is particularly important in the Timeshare Sector: this justified the drafting of a European Community Directive.

– The existence of important MULTINATIONAL COMPANIES in the business sector aiming to operate the various resorts located in different countries under the same system of operation and always on the basis of a scheme of PERSONAL RIGHTS.

For all these reasons, it would have been advisable (and it was thus proposed by some amendment brought to Parliament which was not finally adopted) for the text of the Act to contain some precept establishing that its content should be understood to have the exceptions provided for by the International Treaties entered into by Spain. A precept, however, which would have been unnecessary in any case (because, as mentioned, Treaties prevail over domestic rules), all the more so because it is thus acknowledged in the Rationale of the Act.

CONCLUSIONS OF THIS SECTION:

Respecting the doctrine of the Supreme Court contained in the aforementioned Judgements –albeit disagreeing with its interpretation of the transitional rules of the REA 42/1998– we could say that contracts commercialised after the REA 42/1998 based on pre-existing schemes of a personal nature and subject to non-Spanish law, despite not having been adapted to become in-rem or leasehold rights of rotational enjoyment, continue to be fully valid.

On the other hand, all contracts based on pre-existing systems (of a personal or in-rem nature) subject to Spanish Law which were not adapted by the transformation thereof into in-rem or leasehold rights in the form provided for by Article 1 of the REA 42/1998 are null and void and, as a consequence, the following contracts are null and void following its enactment:

• Almost all contracts commercialised on the basis of the so-called system of community of property on a multi-ownership basis.

• Contracts commercialised on the basis of other types of in-rem rights, but also of personal rights based on Spanish Law.

At this point, we should address the reason why this article has focused on showing the, in our view, obvious lawfulness of the Club-Trustee system, as well as of other systems of personal or merely binding rights subject to non-Spanish law, as according to the 1980 Rome Treaty they are perfectly valid in Spain if they are valid according to the law of the country to which they were submitted.

And they are, like we say, because the transitional rules of the REA 42/1998, the way they have been interpreted in the aforementioned Judgements, contravene the higher-ranking rule which is the Rome Treaty open for signature in 1998 and also, after its coming into force, the Rome I Regulation. That is:

• The obligation to transform pre-existing systems to the REA 42/1998 does not operate and is not applicable to pre-existing systems of personal rights subject to non-Spanish law. A consequence of this could be that contracts based on systems subject to non-Spanish law which pre-existed the REA 42/1998 and which have not been adapted according to the only possible method of adaptation, i.e. the mandatory transformation, continue to be valid. I am aware that this may be a bold statement, but if we go by the doctrine of the Supreme Court, we can conclude:

o That there is one only form of adaptation, the purpose of which is the conversion of the pre-existing scheme (whatever its legal nature and governing law) into a system of rights of rotational enjoyment constituted in accordance with Article 1 of the REA 42/1998.

o That the adaptation of the pre-existing system for publicising purposes does not preclude the nullity of the contracts after the enactment of the REA 42/1998.

o That the lower-ranking rule –REA 42/1998 – which demands the adaptation-transformation may not be applicable to systems of personal rights based on the higher-ranking rule which is the Rome I Regulation.

o It may be further considered that, if the docrine to be applied is that contained in the Supreme Court Judgements concerning the mandatory adaptation-transformation, then we will find that any contracts commercialised after the coming into force of the REA which are based on “Spanish” systems of “community of property on a multi-ownership basis”, other kinds of rights in rem (i.e. “multi-usufruct”), “multi-leases”, associative systems in general or those involving merely personal obligations, which were adapted by publication and without such a transformation, all of them, are fully null and void.

These Judgements of the Supreme Court declare the radical nullity of such contracts of personal rights subject to non-Spanish law without applying the provisions of the 1980 Rome Treaty as a higher-ranking rule, and they do so, in my view, because the reply to the claims filed with the Court did not raise any opposition to the application of the Safeguard Clause of the 2nd Additional Provision to the REA 42/1998 on the grounds that it contravenes the 1980 Rome Convention. It is fair to say that, in my opinion, the mandatory application of the higher-ranking rule to the detriment of the lower-ranking rule was not raised or requested, without a doubt, because Case Law of lower courts and provincial courts –including that of the Supreme Court which handed down the Judgement which resulted in an Appeal for Reversal– subsequently changed its own jurisprudential criteria, going back to the former interpretation which is now contrary to that of the Supreme Court.

Consequently, it may be possible in future court claims to oppose the likely action for nullity requested by the claimants based on the above-mentioned Case Law of the Supreme Court by arguing that the obligation to “adapt/transform” the pre-existing right into the rotational enjoyment right typified by the REA Act 42/1998 may not (could not) be demanded in the case of contracts relating to schemes subject to non-Spanish law by virtue of the mandatory application of the 1980 Rome Convention.

Some final comments to abide by the title of this chapter, not in relation to pre-existing schemes but to those constituted, also subject to Spanish Law, after the coming into force of the REA 42/1998 and until the Rome I Regulation started to be applied:

1.- It is our view that rotational enjoyment or timeshare schemes of personal rights subject to Spanish law –or any rights other than the in-rem and seasonal leasehold right of rotational enjoyment – may not be constituted since the coming into force of the REA 42/1998.

2.- However, it has been possible validly to constitute schemes of personal rights subject to non-Spanish law under the provisions of the 1980 Rome Convention and of the Rome I Regulation after the latter came into force to replace the former.

-III-

AFTER THE COMING INTO FORCE AND APPLICATION OF THE ROME I REGULATION AND UNTIL NOW.

1.- RIGHTS SUBJECT TO SPANISH LAW. During the validity of the REA 42/1998, of Royal Decree-Law 8/2012 of 16th March and since the enactment of the current Act 4/2012 of 6th July, the only valid systems subject to Spanish Law are those constituted by the transformation or creation ex novo of the in-rem or seasonal leasehold right of rotational enjoyment of property for tourist use.

2.- PERSONAL RIGHT SYSTEMS SUBJECT TO NON-SPANISH LAW: Those previously constituted, before and after the REA 42/1998, during the validity of Royal Decree-Law 8/2012 of 16th March and since the enactment of the REA 4/2012, as well as new schemes now created –albeit the latter no longer based on the 1980 Rome Convention but on the Rome I Regulation– continue to be valid.

This is an opinion article written without prejudice to a more knowledgeable or better informed opinion.

Francisco J Lizarza
Lizaza Abogados S.L.P.

APPPENDICES TO “THE CLUB-TRUSTEE SYSTEM IN SPAIN”

These Appendices to the Article published in this Blog regarding the “Legal Validity of the Club/Trustee System in Spain” are not intended to provide additional legal arguments but, rather, to explain the reasons it was introduced in Spain, despite the confusion which has been created in this Sector (of the Tourism Industry) as regards the general denomination of this kind of contracts, and the importance to the Spanish economy of Timeshare, particularly where it relates to the main market of timeshare tourists in relation to our country as main destination of the latter.

(I)

ISYNOPSIS OF THE CLUB/TRUSTEE SYSTEM

The summary figures we have taken from the Study on the Economic Impact of Timeshare (see below  -Paragrph III) illustrate its importance, not only for the European Economy, but particularly for Spain, which is currently the country receiving the third most timeshare tourists (after the USA, which is also the country with the most consumers of this kind –although it is certainly an internal market– and Mexico, which currently ranks second).

But they have also shown us a very important and conclusive fact to understand the different structures or systems used to operate timeshare businesses in Spain since its inception in the 1970s, i.e. that the majority of promoters were British and, more importantly, that most timeshare consumers and users in Spain come from the United Kingdom. Spain is still today the main destination for timeshare tourists and Spanish promoters represent a substantial part together with British promoters, but also most of the tourists who access Spanish resorts through timeshare continue to be British, with a strong entry of Irish, Scandinavian, Finish, etc who, while not purely Anglo-Saxon, are familiar with many of the Anglo-Saxon legal institutions due to their commercial leadership?.

Consequently, if the operators in Spain were mostly British at the beginning and so were the majority of these new consumers, it made sense to import into Spain (with the relevant process of adaptation) the legal systems or structures which in their country had proved most efficient and flexible for commercialisation purposes; an efficiency and flexibility which the British, pragmatic as they are, knew would be inextricably linked to consumer protection as a means to earning their trust. And the legal system or structure which aimed to provide consumers and users (the owners or holders of those timeshare rights) with such protection was no other than the Club/Trustee system, which we will in this section try to summarise, at least in its most widespread formulation.

In time, and with the boom of this economic activity, Spanish operators entered the market, and so did consumers from Spain and from other European areas, for whom it was felt that it was necessary to operate under other structures which would be more understandable in the context of their own legal culture, which gave rise to various formulas using Spanish legal concepts, such as civil partnerships, “multi-leases” or the better known “multi-ownership”. And all of them –including the Club/Trustee system– were obviously subject to the principles of our legal system of free will and freedom to contract, as well as that of being subject to foreign substantive laws provided that they would not come into conflict with Spanish public order legislation, and also under international treaties entered into by Spain.

After this introduction, it is necessary to summarise the purpose of the globally widespread legal system known as Club/Trustee, which is no other than to offer, fundamentally, “safety” to the purchaser. Such safety is the key to its success, together with its simplicity (once familiar with it), its adaptation to specific needs in each case and its ability to serve as a means to preventing numerous conflicts.

The very name of this system contains its two main elements, i.e. the “Club” and the “Trustee”.

  • THE CLUB

 A Club is not a legally-typified entity in the United Kingdom, but one based on a spontaneous creation in the Anglo-Saxon tradition and is often defined as a unincorporated entity in the sense that it simply constitutes an “associative” covenant which does not have a legal personality of its own and does not need to be registered with Companies Registry or entered on any register of associations or any administration, nor does it require any special formality such as a public deed, etc.

It is therefore a contract of association which is governed by its own rules and to which third parties may adhere for a specific purpose.

For merely explanatory purposes, we will refer to the version of this system (of which there will be as many as freedom to contract allows so long as they do not go against the law) which is most commonly used in this sector of tourism.

The Club was normally set up by two members, usually two companies, which entered into an Association or Club Constitution Contract which basically defined:

  • The Founder Members (or promoters of the Club in commercial terms), who had the right to admit new members (to whom we could refer as Ordinary Members).
  • The Purpose of the Club: To enable its members to use and enjoy an apartment, house, room, etc, whether pre-determined or determinable, during a pre-determined or determinable annual period until the end of the Club’s lifetime according to its own Rules.
  • The Rules of the Club (or Constitution), which included the rights and obligations of the Founder Members (promoters) and of the Ordinary Members (users), the Governing Bodies of the Club (its Committee), its length (normally in perpetuity, 80 years, etc, although the current tendency is to make it shorter owing to market demands).
  • Admission of Members: As many Members could be admitted as “Rights of Occupation” were available, i.e. as many as occupation periods there are (normally weekly periods, which means 51 or 52) per apartment or accommodation unit “ATTACHED” to the Club.
  • Commercialisation. Form of Admission of new Members, which is normally for valuable consideration following an agreement freely reached by the seller of the Membership or Affiliation (the Founder Member) and the purchaser (the consumer). The Affiliation would be acquired by a “Purchase Contract”, but the right to effective use of the Unit was reflected in the “Club Membership Certificate”.
  • Obligation to pay an Annual Fee for the provision of services to the holder of the right and to the Unit and the Resort in which the Unit is located, as well as the consequences of non-payment.
  • Management Committee of the Club, on which the Founder Members and the “Ordinary” Members were represented and whose members were normally elected by the (normally Annual) General Meeting of Members.

But, what happened if a fraudulent promoter sold more rights of occupation than were available or sold the units registered in its own name, for example, without any liens noted on the Register?

A response to this important question which, at least at the beginning, was one of the main points of contention, was provided by the operators with the formulation of legal structures which allowed an effective control of the commercialisation of these affiliation rights, the main ones being, on the one hand, the so-called “multi-ownership” system or functional or fixed-purpose community of property, which made use of the controlling role of notaries and registrars and eventually was somehow adapted by the REA 42/1998 in the form of an in-rem leasehold right of rotational enjoyment –the registration of which at the Land Registry was mandatory– and, on the other hand, the “Club/Trustee” system, of proven practical efficiency in the United Kingdom, i.e. in the main origin market for these consumers in all of Europe and specifically those with Spain as their destination, which made it a suitable option insofar as these consumers and users were familiar with it.

It was not, therefore, some clever invention, but a system already known by the majority of the consumers to whom it was aimed –a knowledge which would later become widespread– which worked as an actual provider of protection to the consumers.

  • THE TRUSTEE

The Trustee is a typically Ango-Saxon concept, widely spread across the whole world and very particularly in the context of trade activities, whereby –in the case at hand– ownership of the property or the rights to be used by the Ordinary Members or timeshare purchasers is vested or owned by a third party (the Trustee) on whom confidence is placed to hold title thereto and to keep them free from liens and encumbrances, so that they can be used at all times by the Members, and to ensure that the Founder Members (promoters), even if they hold a majority –which at the beginning they always do- , will be unable to administer or mortgage or dispose of them in any way that would prevent the rights of occupation from being exercised.

  • THE DEED OF TRUST

The Trust is created by virtue of the Deed of Trust, whereby the Founder Members of the Club (its only members at the beginning) appoint a special company or ‘Trustee’.

Under the law governing its legal structure, the Trustee is an independent company which, as every company, has its own personal assets, its own income and expenditure and its own profit or loss, and whose mission is to provide a specific service to third parties (in this case the Club and its Members), such as holding title to the property “attached” to the Club thereby assuming a custodian role.

These assets, which in this case mainly consist of real property (apartments or other kind of accommodation for tourist use in Spain), are acquired by a holding company whose owner is the trustee albeit not for its own benefit but for the benefit of the Members of the Club. These assets, therefore, are kept separate from the trustee company’s own assets as, like any other company, it is exposed to the circumstances affecting any business, bankruptcy included, and must therefore meet its liabilities out of its own assets, but never out of the assets held in trust, which are separate and independent and which, if things came to that, would all be transferred to another trustee without the problems of the former trustee to hold them as custodian on behalf of the beneficiaries of the Club (mainly its timeshare members).

By virtue of the Deed of Trust, the Club, as a subject capable of having rights and obligations, instructs the special trustee company to purchase, through a company denominated “Owning Company” which is solely owned by the Trustee and whose only business is to hold property for the benefit of the Club Members –hence it is called a non-trading company– the real property to which the timeshare rights inherent in the membership relate. Neither the Founder Member, fundamentally, nor the Ordinary Members may, even by majority decision, obligate the Trustee to administer or dispose of these properties in any way which contravenes the Rules and Regulations of the Club and which, therefore, prevents the members-users from using and enjoying the occupation period to which they are entitled.

In summary, once the properties to which the members’ rights of occupation relate have been acquired, the commercialisation process is as follows:

  1. When the promoter or marketer enters into a contract with the consumer, the contract, as well as any monies paid or to be paid by the consumer, are sent to the Trustee.
  1. The Trustee verifies that the marketer has proper authority to do this and to transfer the right insofar as relating to an existing apartment which is “attached” to the Club and on which there are no liens or encumbrances nor has the same right already been sold. Once this has been ascertained, the Trustee issues the Membership Certificate to the purchaser and then sends the money obtained from the sale to the marketer. Otherwise, the money will be reimbursed to the purchaser-consumer.
  1. The Trustee will support a proper operation of the Club as an “independent third party” by, among other things, attending the General Meetings of Club Members at which the annual Budget is to be approved in the form pre-established in the Club Rules. This Budget contemplates the income of the Club, which mainly comes from the annual fee payable by the Club Members for the services provided to them, and all the expenses the Club has to meet –including the Resort-, among which is the remuneration payable to the operating or management company-service provider, which is normally set at between 10% to 15% of the total Budget in order to prevent abusive remunerations.

The foregoing is certainly a very abridged explanation, but the conclusion of this section is very simply that the Club/Trustee system has been generally accepted until now and has been adopted in many countries, including those which have their own system of rights in rem, such as the Portuguese “Derecho de Habitacion”.

(II)

-DENOMINATION AND OBJECTIVE DELIMITATION OF THE ROTATIONAL ENJOYMENT / TIMESHARE CONTRACT  

A).- AS REG:ARDS DENOMINATION

The legal definition of aprovechamiento por turno –rotational enjoyment– in Spanish encompasses and includes all in-rem or personal rights whose objective scope is that defined in Directive 1992/47/EC, the Spanish REA 42/1998 or in Directive 2008/122/EU and the Spanish REA 4/2012.

The variety of names given to this kind of schemes and reflected in the contracts concluded for their commercialisation has from the start, after the coming into force of the 1994 Directive and the 1998 Spanish Act and until now, led to confusion which, I dare say, has in this case been particularly detrimental to the marketer as regards the use of such names in the legal forum, although certainly also to the consumer.

Therefore, my personal opinion is that aprovechamiento por turno,  or even tiempo compartido –Spanish translation of ‘timeshare’, the most widely used term throughout the world–, must or can be used as a general, equivalent denomination which encompasses all these contracts.

In addition, the specific denomination corresponding to the legal right to which these contracts relate or could relate must be clarified both in any informative and promotional documentation intended for the commercialisation of this kind of rights and in the specific contracts of transfer thereof.

Without aiming to be thorough, it would be advisable or necessary in this sense to list the following rights insomuch as their denomination refers exclusively to their very legal nature:

  • Right in Rem of Rotational Enjoyment of Real Property.
  • Personal Right of Seasonal Leasehold or Rotational Enjoyment Leasehold of Real Property.
  • Personal Right of Membership or Affiliation to a timeshare Club or Club-Trustee.
  • In the case of the pre-existing “multi-ownership” right, such a word may not be used for commercialisation purposes, which has not precluded its commercialisation provided that it was first adapted to the REA 42/1998 by publication but without any transformation of its legal nature (although this is what the Supreme Court has now denied in the aforementioned Judgements) and that the sale contract and the mandatory informative document included an explanation of its legal nature, which is doubtlessly that of a “functional or fixed-purpose community of property or of property owners”, as an undivided share of ownership is thereby acquired.

B).- AS REGARDS OBJECTIVE SCOPE: 

From the various definitions of this kind of rights, particularly the most recent definition contained in the European Directive and in the Spanish Act currently in force, we can take the characteristics which make up the objective scope of the contract or right to which rotational enjoyment or timeshare refers which, in my view, are:

  • It relates to a “service” for the occupation of holiday accommodation.

The elements of such a service are, in my judgement, as follows:

  • The accommodation may not be a residential home but an accommodation unit (room, apartment, home, country house, caravan on a camping site, etc) which is part of a holiday accommodation establishment (hotel, apartment-hotel, holiday apartments, hostels, country homes or even private homes for tourist use, etc).

Such establishments must contain the architectonic specifications, furniture, facilities, installations, means of access, etc which are determined by the legal rules on tourism and, consequently, both the operating company and the establishment itself have to be registered with the “Tourism Registry” of the Autonomous Community –Region of Spain– in which they are located.

  • Specific services. The services inherent in this kind of establishments according to their type, category, location and other parameters need to be provided: reception, restaurants, number of beds, water, electricity, telephone, cleaning and linen, restaurants, etc.
  • Temporary nature. Use of the units is essentially temporary.
  • Commercialisation: This is fundamentally done either directly at the establishment itself or through what is nowadays known as touristic supply channels and in any way admitted by Law, such as:
  •         Direct contracting at the establishment.
  •         Advanced contracting, whether individual or for groups.
  •         Reservations through own or third-party channels.
  •         Multiple reservations.
  •         Contracting as a “rotational enjoyment right”.
  •         Indirect contracting by “exchange of rotational enjoyment rights”.
  • It is a tourism-related product, not a real property product.

Therefore, it is not a real estate product but a purely touristic economic activity and, just as a hotel stay or a “Bancotel” voucher or multiple reservations or similar rights of occupation are not a real estate product, neither is this specific form of commercialising bed nights in holiday accommodation units. Rotational enjoyment is thus regarded by the rules governing tourism: It does not relate to a type of touristic accommodation unit but merely to a way of commercialising this kind of units (i.e. rules of Andalucía and the Canaries).

It is a matter, therefore, of banishing the idea that this is a real property-related right, a tendency which started with the REA 42/1998 by prohibiting the use of the word ownership or multi-ownership for marketing purposes, a prohibition which, I understand, only relates to “ownership of a real property”.

This leads us to two basic considerations:

  • Contracting for this kind of right to stay overnight in tourist accommodation units may fundamentally take the form of contracts involving personal obligations subject to non-Spanish law, without prejudice to the alternative of doing it, if so allowed by the lex rei sitae, as a contract involving an in-rem or leasehold right.
  • The REA 42/1998 was from its coming into force intended to exclude (without prejudice to the personal rights which existed previously) the commercialisation of any personal right on a timeshare basis. And it failed to achieve this, to a considerable extent, due to the strength of the facts: The Land Registry is not the right Body to control this kind of tourist contract, nor are Notaries and Registrars, who were made to act as the “police of the system” but were never provided with appropriate instruments or tools to perform such a role which, on the other hand, was not their own.

    The business sector of timeshare carries out an economic activity like any other, according to specific regulations and generally abiding by the applicable legal rules. However, as with every human activity, there are and there will be pathological behaviours, but this does not justify a general demonisation of the sector, as can also be said of politicians, airlines, taxi drivers, judges, public servants, trade unionists or any human activity, although such pathologies must certainly be cracked down on using the right means.

(II)

THE TIMESHARE INDUSTRY IN SPAIN

The aforementioned Judgements rendered by the 1st Chamber of the Supreme Court, to which all the operators in the Sector have expressed a general –or, rather, virtually unanimous– disagreement and which, if they become consolidated Case Law, can be hugely detrimental to entrepreneurs, workers, suppliers, users and even private individuals who transferred their rotational enjoyment right (in summary, to the national economy), unexpectedly embraced an interpretation of the REA 42/1998 which has come as a surprise to virtually all the legal operators, from an absolute majority of first instance or provincial court Judges (if we go by what they have more than repeatedly stated in their Judgements) to Case Law, lawyers, the notaries and registrars who authorised Deeds of Adaptation and the Registrars who registered them and, I dare say, all those who somehow or other participated, whether directly or indirectly, in the drafting of this Act. Obviously, this does not mean that we must not respect –albeit not necessarily share– the opinion of the Judges of said 1st Chamber and certainly observe their Judgements in each specific case, without prejudice to our belief that the Court of Justice of the European Union may rule on this matter (certainly in the long run) in similar cases.

But if we talk about a detrimental impact on the national economy, it would not be fair simply to make such a statement without anything to support it, so it seems appropriate to provide some data to explain what this sector means to the national economy. While the following figures are from 2007, we believe that they have since experienced a growth.

The Study “Market Characteristics and Economic Impacts of the Euopean Timeshare Industry 2008” was prepared by The Christel DeHaan Tourism & Travel Research Institute – University of Nottingham, United Kingdom.

The Christel DeHaan Tourism & Travel Research Institute has undertaken project work for national and regional government organisations, international organisations and tourism businesses, and it has led projects for the World Tourism Organisation (UN), the European Commission, ASEAN (Association of Southeast Asian Nations), OIT, OCDE, United Kingdom Ministries and international organisations in Brazil, Spain, Cyprus and Malta.

This Study provides figures –which are even more important today – of the Industry in 2007, among which, by way of a summary, the following should be highlighted:

General characteristics of the Timeshare Industry in Europe:

  • In 2007 over 1.5 million European households owned timeshare. It should be taken into account that almost all the timeshare consumers are “households”, so if we consider an average 3-member household, this amounts to over 4.5 million people.

 The UK and Ireland form the largest market having 589,653 timeshare owners (an average 1,768,905 people), followed by Germany and Italy.

  • Most resorts are concentrated in Spain with 26.3% of the total, 14.94% in Italy and 11.05% in the UK & Ireland.

 There were a total of 1,312 resorts in Europe.

  • The total number of units in European resorts is 73,540, resulting in 67,590 million bed nights.
  • Average occupancy levels across completed European resorts were 71.7%.

 Economic impacts of the timeshare industry in Europe

 € 3.2 billion of expenditure was generated by the European timeshare industry in 2007.

  • European timeshare owners spent € 1.6 billion during their timeshare vacation, plus € 957 million on timeshare purchases and € 618 million on timeshare maintenance fees.
  • The top spending market is the UK, generating € 1.4 billion (about half the total expenditure) in timeshare.
  • The average expenditure per trip (or vacation) was €1,588 per family, which was mainly spent on restaurants, car rental, parking and petrol, groceries, accommodation and gifts, souvenirs and clothes.
  • In terms of employment, a total of 69,836 jobs are directly sustained by the timeshare industry.
  • The overall employment costs for the timeshare developers sector across all resorts is €1.28 billion (€1.06 billion if considering only resorts on the twelve European countries of this study).

Figures for Spain. From the figures reflected in the Report for Europe, we can extract the following figures in relation to Spain:

Spain is one of the markets with the highest potential for development of the timeshare industry and leads the European ranking for number of resorts, accommodation units and bed nights.

  • Number of timeshare owners (households) in Spanish resorts: 715,000.

The above includes 623,000 non-Spanish households (with three family members on average) and 92,000 Spanish households. United Kingdom is the country with the most timeshare users (278,000), followed by Germany with almost 106,000 users.

  •  47% timeshare owners in Europe have bought into Spanish resorts.
  • Number of timeshare resorts in Spain: 345
  • 26% of all European resorts are in Spain.

Distribution of resorts:

  • Balearic Islands: 35
  • Canary Islands: 150
  • Costa del Sol: 98
  • Rest of Mainland Spain: 62

– The Spanish resorts contain approximately 23,000 accommodation units, which represents 31.2% of the European supply.

– The average number of bed nights in timeshare accommodation units per annum is 22 million.

  • Impact of the Timeshare Industry in Spain:

-Timeshare owners generate about 500 million euros per year in Spain.

– The average expenditure per family and trip during their holidays in Spanish resorts was €2,349.

 These figures show the importance of timeshare to the Spanish economy, to employment and to overcome the seasonality of the tourism industry in general.

 

Lizarza Abogados

September 2015

 

 

 

 

 

 

SIGNIFICANT INCREASE IN HOME SALES TO BRITISH CITIZENS IN SPAIN

ICONO PEQUEÑA BRITANICA Many factors are contributing to an important  increase in housing purchases by British citizens in Spain, including the following:

PRICES ARE STILL RELATIVELY LOW

House prices are still relatively low compared to the period before the economic crisis.

MORTGAGE MARKET OPENING

During the economic crisis, and specifically during the correlative banking crisis, banks and saving banks practically stopped granting mortgages.- This trend has completely reversed and especially for foreigners, who are favored by it.

SAFE DESTINATION

Due to the political uncertainty in the Arab countries of the Southern Mediterranean, the economic instability of Greece and the geopolitical situation of Turkey,  Spain’s perception as  a comfortable and safe destination is being consolidated.

SPANISH ECONOMIC GROWTH

After the debt crisis, Spain is now the fastest growing economy in Europe, currently growing at more than 3% and, according to the latest predictions, it  will reach 4% by the end of the year.

FAVOURABLE EXCHANGE RATE OF STERLING AGAINST THE EURO

If last January the Euro exchange was approximately €1.25 per Pound, it now exceeds 1.41 Euros for one pound, which is a great advantage for the British. Pound sterling Libra esterlina Sterlina britannica

CANARY ISLANDS: NEW REGULATIONS ON THE RENTAL OF PRIVATE HOMES FOR TOURIST USE.

OLD CANARY MANSION

The operators of tourist accommodation establishments in Spain (hotels, apartment-hotels, holiday apartments, etc) have for many years strongly opposed the existence of what they regarded as a clandestine activity of seasonal rental of private homes to national or international tourists by their owners (first or second residence).

Indeed, many owners of homes which are not part of a tourist establishment would during the high season rent out to tourists their own homes, which were in some cases their firstHIresidence and in some other cases their second residence, so they would even vacate the property and move in with some relative or into cheaper tourist areas during that period.

Tourism operators used to and still claim that this constitutes a source of fiscal fraud, a service which in some cases does not meet the appropriate conditions and may even pose risks and, in any event, an instance of unfair competition, as while they and their facilities were obligated to meet strict safety, quality, etc requirements, the private owners didn’t meet any.

Private renters, on the other hand, claimed that renting out a home is as lawful an activity as any other and that, if their home is legally fit for habitation by them, then it should also be fit for habitation by third parties, and they argued that the rent thereby received is like any other income on which the person receiving it has to pay tax.

It was in this context that the Urban Lease Act (L.A.U.), which regulated urban land and property and, very particularly, “living accommodation” contracts, was amended in 2013. But living accommodation for the purposes of this Act is not to be regarded as a building in which it is possible to live, but as a much “narrower” concept based on the intended use thereof, as the “rental of living accommodation as regulated by the L.A.U.” is “that which relates to a habitable building which is intended to satisfy the renter’s need to have permanent living accommodation” (Article 1 L.A.U.). On the other hand, “seasonal” house rental contracts were also included in the scope of this Act.

The aforementioned amendment of the L.A.U. in 2013, on the other hand, excluded (by virtue of article 5.e L.A.U.) the “temporary assignment of use of a house in its entirety which is furnished, equipped and fit for immediate use and which is marketed or promoted through tourism offer channels with a view to obtaining a profit, where it is subject to a specific scheme as a result of its zoning regulations”.

The content of this article pointed to the way of regulating houses for tourists use; a regulation which does not fall within the jurisdiction of the State but of the various Autonomous Communities.

An analysis of the aforementioned precept shows us the characteristics of the activity and the contracts which should be met by those referred to as “living accommodation for tourist use”, i.e.:

1.- These rentals are euphemistically referred to as “temporary assignment of the use of a home” instead of seasonal rental.

2.- The rental must refer to the “house in its entirety”.

3.- It must be furnished, equipped and fit for immediate use.

4.- Marketed and promoted through tourism offer channels.

5.- The purpose of the rental must be that of obtaining a profit.

6.- And it must be subject to a specific scheme arising out of its zoning regulation. It must be noted that such a specific scheme has to be regulated by the legal rules of the Autonomous Communities, which have exclusive jurisdiction in this regard.

The Autonomous Communities (albeit not all of them) have more or less recently started to regulate this kind of tourist accommodation. In the Canaries, for example, the process of publication of the aforementioned decree project has now started, thus opening the legislative way to its coming into force.

In the meantime, I think it would not be unreasonable to say that, in default of such a rule, the rental of these houses constitutes a seasonal leasehold regulated by the current Urban Lease Act (L.A.U.).

Of all the characteristics which according to the L.A.U. define “tourist houses” as a reason to exclude them from its regulatory scope, the most defining or important one is that it must be <<marketed and promoted through tourism offer channels>>. All the other characteristics mentioned above certainly are or can be common to the rentals regulated under the L.A.U., particularly as regards seasonal rentals. The last characteristic, or rather in this case, requirement, is the “subjection to the tourism zoning regulations”; in other words, the acknowledgement that all the former requirements are met (including that of being offered through tourism channels).

I believe, on the other hand, that it would be highly questionable to say that homes may not be rented out as “tourist accommodation” until such time as legal regulations on the matter have been established.

It is my view (unless otherwise justified) that the following conclusions can be gathered from the above:

Roques de Tejeda Gran Canaria 180911 (27)

  • Seasonal rental of homes to tourists is legally feasible where the renter is attracted outside the tourism offer and promotion channels.
  • It would be more questionable to state that homes may not be rented out to tourists until such time as specific regulations on the matter are in place, even if they are rented through those channels. Obviously, this doubt will be cleared in each territory once the zoning legislation has been enacted, as now intended in the Canaries.

PROJECT TO REGULATE PRIVATE HOMES FOR TOURIST USE IN THE CANARY ISLANDS

The Regulation Project starts by defining private homes for tourist use as, fundamentally, those meeting the requirements mentioned in article 5.e of the L.A.U. which result in exclusion from its scope of application, which have been listed above. Of all those requirements for exclusion, which on the other hand are listed in such wide terms that they should be construed on an ‘included but not limited to’ basis, the condition relating to promotion and marketing through tourism offer channels is particularly emphasised.

It is important to stress its operation regime, in which respect we would highlight that:

  • Use of the home must be assigned to one only user (although the latter may be accompanied by their family, friends, etc). That is, the home may only be marketed as a whole, not divided into units.
  • In homes or buildings subject to a ‘horizontal property’ system, ‘authorisation from the Community of Property Owners’ is required.

We consider that this is an essential point to determine the feasibility of this kind of operation, so it will be dealt with in more detail at the end of this article.

  • Registration with the Canary Islands’ Tourism Registry.
  • The owner of the home must upon formalising the contract submit a document containing information such as the name of the owner of the property, registration number with the aforementioned Registry, number of persons who will occupy the property, etc.

On the other hand, the home must have a door sign identifying it as a property for tourist use, and the marketing thereof must comply with certain requirements relating to information and publicising.

Chapter II of the Decree Project, on the other hand, refers to conditions of use (habitability and safety regulations, cleaning, civil liability insurance, etc), technical requirements (furniture, minimum size, etc) and minimum equipment required (security locks, first aid it, lighting, household items, linen, kitchenware, etc).

In particular, a binding price list must be made available to the users in accordance with those publicly advertised or publicised.

Finally, Chapter III relates to the process of commencement and performance of the activity, and Chapter IV regulates claims and the inspection and sanction system.

REQUIRED AUTHORISATION FROM THE COMMUNITY OF PROPERTY OWNERS

We have commented above on the decisive importance of this requirement, which we believe will determine the greater or lesser feasibility of the operation of many homes for tourism purposes, as it can be a very difficult requirement to be met in many cases.

While we do not have any statistics concerning the number or percentage of homes in a horizontal property system which will need to obtain authorisation from the Community of Property Owners in order to be used for tourist use, we can certainly state that most newly-constructed homes are subject to such a system.

MANSION

Traditionally, the homes which are not subject to this system are old dwellings –whether on one or on several floors-, old multi-family and single-family homes located in streets of the town centre and in the countryside, and homes built as part of “de facto” developments. However, homes built as part of multi-storey buildings since the nineteen-sixties and those which are part of developments, even in the case of single-family homes, are normally subject to a horizontal property system, whether mandatorily or by reason of convenience (e.g. vertical property division). Nowadays there are probably more homes subject to a horizontal property system than not.

How is authorisation obtained from the Community of Property Owners?

First of all, if the Statutes of the Community included in its “Constitutional Title” contain a provision whereby such tourist use is allowed, in our opinion this will suffice and no agreement of the Community of Property Owners will be necessary, as the Community may only reject it by virtue of a unanimous resolution to amend the Statutes. However, it is highly unlikely for the Statutes of the Community to say anything in this regard insomuch as it has not occurred in the past, unless the existence in the Statutes of a general authorisation to carry out commercial or business activities –such as “…may carry out any lawful commercial activity”- is considered sufficient authority.

This certainly is a personal opinion, which also admits the opposite interpretation. That is, if the Statutes specifically prohibit the tourist use of the properties or the performance of commercial or business activities, then the Statutes would have to be amended by unanimous resolution in order for the amended text to envisage such an authorisation, whether specifically or generally and with or without the addition of the correlative authorisation from the General Meeting.

Normally, however, in default of such a Statutory clause, any owner wishing to use their home for tourism purposes will need to obtain authorisation from the Community of REUNIONProperty Owners, and this is the scenario in which it is necessary to define how the authorisation can be validly granted.  We consider that the President of the Community may not grant such an authorisation by themselves, as this is not a responsibility included in their Community representation duties, so it will need to be approved in General Meeting by a majority of owners who also represent a majority of participation coefficients.

The need to obtain the Community’s approval as aforesaid will probably be an insurmountable requirement in many cases for the home to be used for tourism purposes and, in any event, it will significantly reduce the number of homes which do have authorisation to such end.

One last comment to be made in relation to this activity is that it constitutes an economic-entrepreneurial activity (inclusion in the tourism registries being required) and, therefore, the relevant fiscal regulations need to be complied with, i.e. as an entrepreneurial organisation.

“PRIVATE RESIDENCES” AS HOMES FOR TOURIST USE”

CASA LUJO ANDALUCIAAn example of the highest quality products of the holiday industry, particularly as regards the so-called “new holiday products” (traditional rotational enjoyment, fractional, destination clubs, etc), are the so-called private residences, which are accommodation units aimed for one only user/client (obviously accompanied by their family, friends, etc), normally large in size, luxurious and with added up-market services such as private cook, vehicle with driver, etc.

From a legal point of view, this is normally formalised as a “Rotational Enjoyment” contract, so the clients purchasing this kind of enjoyment right do so for a longer period than the traditional week and with the inclusion of the aforementioned additional services, and the right normally does not (although it can) relate to a specific property but to various determinable properties in several countries. The “residences” to which these enjoyment rights relate are singular properties by reason of their location, age, magnificence, destination, etc, and they are rarely part of a traditional tourist resort.

We therefore believe that the operation of these residences as homes for tourist use can be very useful for their development in a professional manner.

 

 (See in internet:  Preferred Residences  &  and The Registry Collection

 

 

 

Lizarza Abogados

February the 5th – 2015