Know What Is in Your Timeshare Contract

Timeshares come wrapped in polished sales presentations. However, the legal structure behind them is far more complicated. Owners quickly learn that contracts can be restrictive, obligations can last for decades, and getting out often requires navigating dense legal rules.

Before signing a timeshare contract, you should understand the legal obligations of the agreement. For legal review of a timeshare contract, reach out to a real estate lawyer.

Deed vs. Right-to-Use

There are two common types of timeshare ownership structures:

• Deed. Traditionally, timeshare companies would create and sell a deed for each unit at a resort. Each unit’s deed would be divided into weekly ownerships.
• Right-to-use. Instead of buying a specific property, owners purchase points that can be used at any resort in the developer’s network. Instead of holding a deed, owners are issued a certificate of ownership. These programs are more like a vacation club than real estate ownership.

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Parts of the Timeshare Contract To Be Aware Of

Timeshare contracts typically include several clauses, so it’s essential to read the fine print before signing:

• Usage rights clause. Outlines how the timeshare can be used. It identifies the timeshare as a deed or right-to-use. If there is a point system, it will outline the details of such a plan. This includes the number of points awarded, how they can be used, and if they can be transferred.
• Perpetuity clause. Typically associated with deed timeshares, this clause binds the timeshare owner indefinitely. The ownership doesn’t end on its own, but continues until the owner sells or returns the property. Right-to-use timeshares are more like an exchange of goods and services, so they have an end date.
• Timeshare transfer restrictions. Timeshare developers typically place restrictions on how a timeshare can be transferred to another owner. The owner could be required to obtain the resort’s approval. There may be associated transfer fees to pay to the resort.
• Additional timeshare fees. Timeshare fees include closing and administrative fees, maintenance fees, fees to swap vacation weeks or points with another owner, and fees for exiting or reselling the timeshare. Property taxes and utility fees may also be passed on to the timeshare owner.

In addition to contract provisions, timeshares must follow specific statutes governing the industry.

Timeshare Maintenance Fees and Special Assessments

One controversial aspect of timeshares is the hidden fees. During the sales presentation, a salesperson may gloss over financial obligations beyond the initial purchase price. It isn’t until after signing that owners realize they are facing a larger financial burden than they initially thought.

A common additional cost is annual fees. These are assessed to fund the ongoing upkeep and repair of the resort. Special assessments are fees that owners pay to cover unforeseen repairs, legal liabilities, or major improvements. These fees are typically associated with a specific purpose or project, such as repair of resort damage from a hurricane.

The consequences for nonpayment can be harsh. The timeshare association could place a lien on the property, which could lead to foreclosure. The lack of payment can also be reported to credit bureaus, resulting in a drop in credit score.

If the agreement is point-based, the developer may file a lawsuit or hand the debt over to a debt collection agency. This can lead to additional financial losses to pay for court costs and legal representation. Finally, the owner could be locked out of using their timeshare or points until they bring their account current.

The Timeshare Rescission Period and Your Legal Rights

Many states have passed laws requiring a timeshare cancellation period during which people can change their mind and back out. This is to protect consumers from falling victim to high-pressure sales pitches.

Generally, state laws require rescission information to be included in the contract as a non-waivable right. During the cooling-off period, a new owner can notify the developer or resort of their wish to cancel.

While some states may let you cancel with verbal notice, it’s best practice to do so in writing and by certified mail. This creates a record of your cancellation. The letter should include all relevant information about the contract parties. It also must clearly state that the owner wishes to rescind the contract. Once cancelled, the developer must return all payments within the statute allowed time frame.

A state’s attorney general will enforce these consumer protection laws. In addition, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) protect consumers from deceptive practices and financial fraud.

Timeshare laws are written in favor of the owners in the majority of states. In addition, most states require anyone involved in timeshare sales to be licensed. This includes timeshare exit companies.

Find Legal Advice on Your Timeshare Agreement

Understanding the legal structure of a timeshare is the first step toward protecting yourself from long-term financial and contractual obligations you never intended to take on.

When disputes arise or when you need clarity before making a major decision, an experienced real estate attorney can provide the guidance and leverage you don’t have on your own. A lawyer can review the contract, evaluate your rights, and help you pursue the most effective path forward.