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

GLOSSARY OF THE NEW HOLIDAY PRODUCTS, MIXED ENJOYMENT AND USE IN TOURIST RESORTS.

ICONO PEQUEÑA BRITANICA

fractional, club-trustee, OPC, lockers, ARDA, exchange, packs, RDO,lock off, RCI, points, cooling off period, DAT, Interval, destination club o, T0-T1-T2, fly-Buy, liner, off site, on site, TATOC, branded residences, lock off,  bienial systems, Botton line                          price, F.N.T.C, …                          

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GLOSARIO DE LOS NUEVOS PRODUCTOS VACACIONALES

boton bamder esp. pequeño

/fractional, club-trustee, OPC, cerrador, ARDA, intercambio, packs, RDO, lock off, RCI, puntos, cooling off period, DAT, Interval, club destino, T0-T1-T2, fly-Buy, liner, off site, on site, TATOC, branded                            residences,  lock off,         sistemas bienales, Botton line price,                                  condo,  multipropiedad, FNTC

GLOSARIO DE LOS NUEVOS PRODUCTOS VACACIONALES, APROVECHAMIENTOS Y USOS MIXTOS EN LOS RESORTS TURÍSTICOS.

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2014: THE BEST YEAR OF INCOME IN SPAIN TOURIST

While on January 21st 2014 we provided figures concerning the number of tourists visiting Spain in 2013 according to TourSpain, we are now reporting on the TOTAL EXPENDITURE IN SPAIN by those tourists during the past year.

Gifs Animados Turistas 7

The total expenditure by international tourists in 2013 amounted to 59,082 million euros, which constitutes a year-on-year increase of 9.6% and has resulted in 5,152 million euros more. This figure, which is the highest ever reached in the EGATUR (Tourist Expenditure Survey) series, has been a result of both an increase in the number of tourists (5.6%) and in their average expenditure (3.7%), which reached the sum of 976 euros. The average daily expenditure, on its part, reached the sum of 109 euros, which is a 3.3% increase over 2012. The Nordic, British and French markets made the highest contribution to the net increase recorded in Catalonia and the Canaries, the regions that benefited the most from this. In terms of year-on-year rates, Russia and China stood out with respective growths of 28.9% and 27.1%.

MARKETS OF ORIGIN

With 570 million euros and a 28.4% growth, Germany took the lead as the biggest market for tourist expenditure. Its average expenditure experienced strong increases: 8.4% in average expenditure per person and 11.1% in average daily expenditure.

United Kingdom concentrated 16% of the total expenditure, which amounted to 504 million euros, the exact same increase as that experienced by the number of tourists: 20.2%. The Canary Islands was its main destination, with 50% of the total expenditure.

The increase in expenditure by tourists from the Nordic Countries (17.6%) was much higher than the growth in number of tourists (12.1%) owing to their increased average expenditure per person (4.9%), which was among the highest: 1,261 euros. The Canaries received seven out of every ten euros.

Despite an increased number of tourists, France saw a decrease in total expenditure (-9.6%) as a result of a drop in average expenditure per person (-21.7%). Catalonia was the region worst affected by this.

TURISMO ESPAÑA

For the second month in a row, United States ranked fifth in most important markets, with a global figure of 125 million euros and a year-on-year variation rate of –4.8%.

As for the remaining markets, they all saw a general increase with the exception of Portugal. Of especial note is the good performance of the Netherlands and Russia.

TYPE OF ACCOMMODATION, 

Meliá Castilla de noche

Regarding the type of accommodation, it is worth noting the increase in hotel establishments (25.8%), which received 62% of the total expenditure.

ORGANISATION OF THE TRIP AND REASON FOR TRAVELLING

Regarding the type of accommodation, it is worth noting the increase in hotel establishments (25.8%), which received 62% of the total expenditure.

to-de-malaga_44179

As for the organisation of the trip, both modalities experienced strong increases: 14.7% in the case of tourists without a holiday package and 18.7% in the case of those on a holiday package.

Eight out of every ten euros came from leisure travelling, which has seen an increase of 17.2%.

Source: TourSpain

EXTRAORDINARY YEAR FOR TOURIST ARRIVALS IN SPAIN (provisional figures)

sol naciente

ICONO PEQUEÑA BRITANICA

The year 2013 has ended with a record 60,661,073 tourists arriving in Spain, which represents a 5.6% increase over a very good preceding year.

Most of the main markets registered a growth, Italy excepted. Of special note is the increase in the absolute number of tourists of the Nordic, British and French markets. Rusia and China stood out in terms of year-on-year rates, with strong increases of 31.6% and 35.1% respectively. 

In the month of December, Spain received 3.1 million international tourists, which is a 16.3% increase compared to the same month of the previous year.

MARKETS OF ORIGIN 

United Kingdom issued 20.3% of tourists in December and grew by 20.2%. The Canaries got 46% of UK arrivals with a 9.2% increase.

 German tourists grew by 18.4% and represented 15.4% of all arrivals during this month.

 The French market represented 17.2% of all arrivals.

The Nordic Countries saw a year-on-year increase of 12.1%.

Italy got off the decreasing path this month with a spectacular growth of 17.2%.

Of the remaining markets, Russia, the Netherlands and U.S.A. stood out with respective increases of 41.5%, 28.5% and 20.9%.

ACCESS ROUTES:

 Regarding access routes, both roads (16.1%) and airports (17.1%) saw an increase.

 ACCOMMODATION:

64.7% of all tourists chose hotel establishments, which have seen a year-on-year increase of 22.7%.

Non-hotel accommodation, on its part, increased by 6.2% in December.

 HOLIDAY ARRANGEMENTS:

71% of all international tourists visited Spain without a holiday package, which is a 20.4% increase compared to the same month of the previous year.

Source: TourSpain – http://www.tourspain.es

Glosario de los nuevos productos vacacionales……nuevas entradas


Se han incorporado nuevos término al Glosario:

TIMESHARE RENTALS

Los periodos en que los alojamientos que se explotan bajo la fórmula de “tiempo compartido” o aprovechamiento por turno que  están “desocupados”,  se suelen arrendar por su titular a terceros (turistas), con lo que de esa forma los titulares de los derechos de ocupación pueden tener un ingreso extra.

En España la naturaleza jurídica de esta clase de “arrendamientos” puede ser discutida tanto a efectos prácticos como teóricos, pero en todo caso no es una cuestión sin importancia, ya que si se trata del “arrendamiento de vivienda por temporada” nos podríamos encontrar con la obligación del arrendador de exigir al arrendatario una fianza equivalente a  dos mensualidades de renta (aunque el arrendamiento sea de una semana),  lo que no ocurre  si se trata de la ocupación de un alojamientos turístico.

La propia Ley de Arrendamientos Urbanos de 1994 (modificada el día 04.06.13 ) excluye como arrendamiento (Art. 5.e ):  “ la cesión temporal de uso de la totalidad de una vivienda amueblada y equipada en condiciones de uso inmediato, comercializada o promocionada en canales de oferta turística y realizada con finalidad lucrativa, cuando esté sometida a un régimen específico, derivado de su normativa sectorial”.

La diferencia es que en un arrendamiento llamémosle “ordinario” la edificación objeto del mismo es una vivienda, ya sea para su uso como vivienda habitual o temporal, y en la ocupación de un alojamiento turístico son dos los elementos esenciales que necesariamente han de concurrir: (i) la propia unidad de alojamiento ya sea arquitectónicamente una habitación, apartamento o vivienda singular y (ii) el servicio inherente a los alojamientos turísticos, como recepción, limpieza, etc., y además todo ello en un “complejo de alojamientos turísticos”  y bajo la gestión de una empresa explotadora única; ambos (el complejo y la empresa) inscritos en el registro de turismo correspondiente como garantía de que uno y otro cumplen con los requisitos de la normativa sectorial-turística.

TIMESHARE BRANDING

Una marca prestigiosa y ampliamente conocida es actualmente uno de los más importantes factores de éxito en la comercialización y obviamente ello es aplicable a la industria del alojamiento vacacional.-  Las grandes compañías con sus respectivas marcas han hecho de ello uno de sus principales argumentos de venta, pero las pequeñas compañías, con menor capacidad económica, difícilmente pueden competir por si solas en este sector que tal vez sea el más representativo de una industria globalizada. La respuesta es el  fenómeno del “branding”, es decir la generación de una  marca común de amplia difusión que agrupe a varias compañías del sector, ya sea por iniciativa de esas mismas compañías o por la creación de y la marca por una sola compañía cuyo comercio consiste precisamente en admitir a otros utilizar la marca común, bajo unas precisas reglas y con la retribución a su propietaria.

AND…..

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VACATION INDUSTRY GLOSSARY….NEW ENTRIES

New terms have been added to the glossary:

TIMESHARE RENTALS

In the periods during which the units operated under a timeshare or “rotational enjoyment” system are “unoccupied”, the units are often rented out by their owner to third parties (tourists) and the holders of rights of occupation can thus obtain an extra income.

The legal nature of this kind of “rentals” in Spain may be subject to debate both on a practical and on a theoretical level, but the issue is not without importance as, if we are talking about a “seasonal rental of a dwelling house”, we may find that the lessor has the obligation to demand that the renter pay a deposit amounting to two months’ rent (despite the rental period being one week), which does not happen in the case of occupation of a tourist unit.

The Urban Lease Act 1994 (amended on 04/06/13) does not regard as a lease “the temporary assignment of use of a dwelling house in its entirety, furnished and equipped for immediate use, marketed or promoted through tourism channels and rented out with a view to making a profit, where the house is subject to a specific system arising out of the regulations of its own sector”.

 The difference is that in a, let us call it, “ordinary rental”, the building the subject of the lease is a dwelling house, be it intended for use as permanent or as temporary living accommodation, whereas two essential elements must be present  in the occupation of a tourist accommodation unit: (i) the accommodation unit itself, whether from an architectonic point of view it is a room, an apartment or a singular dwelling house; and (ii) the service inherent in tourist accommodation units, such as reception, cleaning, etc., all of which must also be situated in a “tourist accommodation resort” and managed by one only operating company; both of them (the resort and the company) being registered with the relevant tourism registry as guarantee that they both meet he requirements of the sector’s tourism regulations.

TIMESHARE BRANDING

A prestigious, well known brand is currently one of the most important factors to marketing success, and this obviously applies to the holiday accommodation industry.- Large companies have, through their respective brands, made this one of their main selling arguments. Small companies, however, with a lower economic capacity, can hardly compete by themselves in this sector, which may be the most representative of a globalised industry.  A reaction to that is the “branding” concept, i.e. the creation of a common brand with widespread media exposure which comprises several companies of the sector, whether on such companies’ own initiative or as a result of the establishment of a brand by one only company whose business is precisely to allow others to use the common brand according to specific rules and for valuable consideration to its owner.

AND…………….

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