ULC

Real Estate Time Share Summary

There has been more innovation in real property transactions in the U.S. since 1970 than in the preceding one hundred ninety­-four years of U.S. history. The most significant symbol of this innovation is the condominium, but a resurgence of interest in co-operatives, coupled with accelerated usage of PUDs and planned communities, parallels the rise of condominiums. Another form of real property ownership, the real estate time share, is but the latest innovation. The law pertaining to all these new forms of ownership and the brisk commerce they have generated is mostly inchoate. Therefore, in keeping with its other efforts to modernize the law of real estate transactions, the NCCUSL has promulgated a Model Real Estate Time-Share Act.

Real estate time shares are frequently confused with condo­miniums. Sometimes, this form of ownership is sold as "time­share condominiums." The distinction, however, should be clearly recognized. A condominium combines ownership of a unit, or an estate in a unit in the condominium development, with joint owner­ship of, or a joint estate in, the common areas with all other unit owners. The glue holding the owners' association together is the common ownership they all share.

Time-share ownership may be based on an estate in land, or it may not. It may be based on a mere right of occupation which the Model Act designates as a "license." The right to occupy a given unit in a development characterizes both time-share "estates" and time-share "licenses." The right of occupation arises for separated time periods. A characteristic time share would provide, for example, a right of occupation of a given apartment in a resort complex for the first two weeks in August in each cal­endar year. The Model Act, to qualify this right as a time share, would require that this right exist for at least five years. Nothing more need exist to establish a time share.

Given the inherent differences between condominiums and time­share developments, the law pertaining to them can still be very similar. The Model Real Estate Time-Share Act clearly derives from the Uniform Condominium Act. The reasons for this parallelism is evident from two facts: (1) the critical phases in the life of a development are the same for condominiums and time shares (these are financing, creation, management, and termination) and (2) the problems which confront owners under either mode of owner­ship are similar in terms of ownership control, rights against developers, and maintenance of the property. The major practical difference is the number of owners. The number of time-share owners is potentially much greater in any project than in a condominium project with the same number and character of units.

  

The Model Real Estate Time-Share Act is divided into five articles. The first is devoted to definitions and some general rules pertaining to time-share transactions. The definitions of "time-share estate" and "time-share license" are the fundamental definitions for this type of ownership. Pertinent general rules include such matters as unconscionable contracts and the obliga­tion of good faith.

 

Article II covers the creation and termination of time-share development. Like condominium development under the Uniform Con­dominium Act, the developer creates the project with a specific instrument, called a declaration for condominium, and a time-share instrument for time shares. The time-share instrument provides information on the development, including a description of the land, the time shares to be offered, expense liability and voting rights. The formula for time-share expense liability, the amount of expense which is allocated to each time share, must be stated. Voting rights nay be equal or proportionate, or a combination, but must be established and stated in the time-share instrument. It is not necessary for time-share licenses to receive voting power. The time-share instrument is the source of basic information con­cerning a time-share development.

           

Termination of time-share estates requires agreement of 80% of the time-share estates, or more, as an instrument may specify. The agreement determines the allocation of interests, expenses, and profits of the time-share owners after termination takes place. Termination of time-share licenses, however, is "governed solely by the terms of the time-share instrument.

 

Article III governs management. Management of a time-share property may be by a managing entity, which can remain the de­veloper, or by an association of time-share owners. The manage­ment powers are broad and concurrent with the maintenance needs of the development. There are provisions providing for alloca­tion of tort liabilities, responsibility for insurance coverage, and financial records.

 

Because of the potential numbers of time-share owners and because there will not necessarily be an owners' association, special provisions are made for owner participation in manage­ment. There may be a great number of owners. For example, 100 units divided into equal time shares of two weeks each for one year provides for 26 owners of each unit and 2600 total owners. Contrast this to a condominium development with a similar number of units. The number of owners is not likely to exceed 100 by a very great margin. Most of these will, also, likely be permanent or semi-permanent residents. The Model Real Estate Time-Share Act, therefore, provides for initiative, referendum, and recall for owners of time-share estates. By initiative, the owners may amend project documents and approve or disapprove expenditures. No project document can be amended by the managing entity. Anything not initiated must be subjected to referendum. In addition, managers may be recalled by vote of the owners. These procedures help owners to redress situations which are not properly handled by the management.

 

Article IV provides for protection of purchasers. The key provisions are derived from the Uniform Condominium Act. Disclosure of all essential information must be made in a public offering statement. The statement includes the clear identities of all de­velopers, all plans for sale of, or conversion to, time shares, and all other information relevant to a potential purchaser. With disclosure of terms, Article IV provides for warranties of sale. These may be express or implied. These warranties assure the buyer that there will be liability for defects.

 

Article V provides for an administrative agency to govern time-share development. It may investigate claims of abuse, issue cease-and-desist orders, and bring actions for violations of the Act and rules promulgated pursuant to it. Article V is an optional Article. Many states will not desire to create new administrative powers. Article V is provided for those states which wish to do so.

 

Specific law pertaining to time shares is practically non-existent. The Model Act establishes the form of ownership and provides rules to govern it. It is the NCCUSL's hope that the states will respond to it enthusiastically.