Many governing documents of timeshare associations define timeshare termination clauses. Some states also have laws that outline how legacy and/or potentially failing resorts can be wound down.
Florida laws, for instance, give specific guidance as to how to terminate a timeshare plan even if the governing documents of the association do not, and what happens after the plan is terminated. Sunset clauses were written in to governing documents as a protection mechanism back in the early days of the product and continue in many of today’s documents. However, there does not appear to be any industry standard, which makes each resort, situation and set of facts unique.
Start the Planning Process
More and more legacy resorts are finding themselves in this very scenario. So what do you do if your resort is approaching its self-destruct or sunset clause? For starters, getting a full understanding of the association documents is paramount. Do the owners of the timeshare become tenants in common over the entire property? Perhaps the owners become tenants in common of their individual units. Or maybe, you’ll find that the documents don’t address what happens at all.
Planning what to do before a sunset clause becomes effective is important for many reasons. Some additional questions that need to be asked are:
- How do we handle replacements and capital improvements going forward?
- What impact will the termination have on new sales and resales?
- Will it be more difficult to retain employees or negotiate long-term contracts with vendors?
- What steps need to be taken to extend the timeshare plan beyond the termination date, if that is the will of the owners and stakeholders?
These are just a few of many questions that should be addressed while developing a successful plan. Owners, board members and managers should be prepared years in advance to ensure the best possible outcome for the association and owners alike.
Get Professional Help and Educate Owners
Enlisting the help of experts in determining the best course of action is prudent and is a fiduciary responsibility of the Board. Governing documents and state laws can be confusing, so having your attorney guide you through the process is necessary to avoid any mistakes. Other experts, such as accountants or real estate agents, can also be consulted to help with potential pitfalls that might otherwise go unnoticed.
Educating the owners as to what the options are can be a time consuming process. Typically, resorts approaching their sunset clause have an aging owner base and have many owners that have lost interest in the product. Not every owner is engaged in the legal or operating affairs of the timeshare association and could be slow in voting on any proxy, if they feel the need to vote at all. There will undoubtedly be some that disagree with the chosen course of action decided by the association who will seek their own legal counsel potentially delaying the process. Getting an early start to the process is key to any successful plan.
Past Cases: Successful Timeshare Terminations
Three successful cases that can serve as examples for associations wishing to terminate their timeshare plans only recently happened.
- In October 2016, Waves Condominium in Ocean City, Maryland terminated their timeshare regime and successfully distributed millions of dollars to the owners.
- Forest Glen Inn Resort in North Conway, New Hampshire terminated their timeshare plan in December 2016 and sold the property to a hotel operation.
- In February 2018, the board of directors of Cedar Village Resort in Beech Mountain, North Carolina accepted a “tender offer process” from an investment company that allowed the owners to decide simultaneously what to do with their timeshare interests. The owners were given options to either sell or exchange their timeshares outright, remain as an owner and participate in proceeds from the eventual sale of the property, or acquire whole units at the resort. This allows the resort to continue operations until the sale of every unit is complete, thus giving the remaining owners continued enjoyment of the resort.
These associations were able to wind down their timeshare plans in an effective and equitable manner for the owners, but only after painstakingly developing a plan and obtaining the required votes for termination.
Conclusion
In summary, more and more legacy timeshare resorts are having to deal with the very real scenario of their plans terminating or sunsetting in the near future. If the boards and stakeholders of these associations are proactive in planning for what’s next, the process doesn’t have to be one of uncertainty and a favorable outcome for everyone involved is more likely. Preparation, planning and generally being informed are key to the success of creating a successful termination that is well executed and provides benefit to the most people.
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