A relatively new concept to become popular in the Cayman Islands, timeshare ownership is now available at several existing resorts in the Cayman Islands. The timeshare concept of ownership has long been popular in the United States and the enthusiasm for this flexible, variable type of condominium ownership is becoming increasingly popular in a modern real estate market where buyers have a thirst for easy maintenance property ownership and the flexibility to exchange (for example) their timeshare at a ski resort property for a island condominium in the Cayman Islands, and vice versa. Timeshare offers many people the chance for an ownership interest in a beautiful five star resort that may have been cost-prohibitive to buy outright, particularly if the owner only intends to use the condominium a few weeks per year.
Major hotel chains worldwide, including Marriott and Wyndham worldwide are embracing the timeshare concept and putting their flag on many timeshare resorts, making the timeshare concept more attractive than ever to purchasers who are brand conscious. Even the Ritz-Carlton offers a type of ownership that is based on the timeshare concept, where owners have a right to use their condominium for only a certain fixed period of weeks and the rest of the time the condominium is managed by the hotel and generates income for the owner.
However easy it may be to use your timeshare once acquired, in reality the legalities and terminology of the timeshare industry can be confusing and I hope that this article will help readers wade through the flood of information that is available about timeshares and get to the essence of what timeshare is, as understanding timeshare will open a world of benefits to purchasers that traditional property purchases cannot offer.
I. Types of Timeshare
Timeshare, which is also commonly known and referred to as vacation ownership or interval ownership, essentially means ownership of the rights to use a particular property a certain amount of time per year together with other owners. Traditionally sold in units of one week, fifty-one owners will "buy" a condominium and share the time to use it depending on which weeks they purchase. One week of each year is usually held back by the developer for maintenance and is not sold. The weeks that are sold can be fixed or floating weeks (discussed below).
There are essentially four types of timeshare programs: deeded ownership, right-to-use/leasehold, points clubs and club/trust structures. Deeded ownership involves receiving an actual title deed for your timeshare interest and is primarily available in the United States. As deeded ownership is not available in the Cayman Islands, this article will cover the three types of timeshare programs that are possible in the Cayman Islands, as well as an overview of a few important timeshare concepts.
The most common form of timeshare program in the Cayman Islands is a right-to-use a week, or a block of weeks (called a fraction), of a resort club or membership company, backed by a long term lease of the resort property from the developer to the club or membership company of anywhere from 50 – 999 years. The lease is registered on the title of the resort and should contain protections for the club/membership company from the sale, transfer, assignment or foreclosure of the resort property by the developer for the duration of the lease.
The interest of the purchaser in a right-to-use program is essentially a contractual interest, a right to use the property, rather than an actual property interest but this holds several advantages for the purchaser. First, and most importantly, the purchaser does not have to pay stamp duty on their purchase as is the case with purchasing property and taking title, which would currently attract a stamp duty of 7.5% in the Seven Mile Beach area. Second, the purchaser receives significant savings in purchasing only the weeks that they want to use the property considering that in exchange for a fairly reasonable investment and no stamp duty costs, the purchaser receives the yearly use of a beautiful five star condominium, usually on the beach which if purchased outright would cost millions of dollars in the most prime locations. Third, with most resorts belonging to an exchange program (see below) the purchaser has the advantage of exchanging their weeks in other exotic locations.
Right-to-use timeshares are usually structured very carefully in order to ensure that the purchasers are given binding contracts that guarantee the right to use the timeshare. Right-to-use timeshares are comprised of several detailed binding contracts which will endure for a long period of time. Purchaser’s counsel will be able to ensure that all the protections available to the developer have been undertaken and put into place. Whereas when purchasing property freehold a purchaser actually takes title, with timeshare in the Cayman Islands there is no registry of timeshare interests or means of registering title to timeshares so the contractual documents underlying a timeshare purchase are of utmost importance.
Some timeshare resorts sell points instead of weeks where purchasers receive a certain number of points that represent a particular size of unit and week at a certain resort. Timeshares at older resorts get you less points than newer resorts. A week in high season will cost more and give you more points than a week in low season. Those points can then be used through the internal exchange of the company in which you purchased or through the company’s international exchange program, if it has one. The main advantage of a points system is flexibility, you can use your points for shorter vacations of two or three days rather than being confined to a week. Some systems also allow you to purchase airfare and cruises with your points. The main disadvantage is that your points are easily de-valued and susceptible to inflation in subsequent years and once new resorts within a company are built that require more points for usage. There is no guarantee in a points system that you will be able to use a particular week in particular unit every year as it works on a first-come, first-served basis.
c. Club/Trust/Company Membership
A few timeshare programs in Cayman are based on the most common form of timeshare ownership in the United Kingdom where members belong to a Club and their timeshare unit and the resort are held by Trustees or a Company who then grant right-to-use licences to members. This type of ownership is legally complicated and difficult to explain to United States timeshare purchasers who are not used to the concept. However, it is becoming popular world-wide as it does have several built-in mechanisms for protecting members. Trustees could be a bank, a trust company or a group of individuals who hold the timeshare resort ‘in trust’ on behalf of the owners. Trustees provide security for owners in the event that a developer fails financially. Some trustees may have added responsibilities such as ensuring the continuity of the Club.
II. Protecting Timeshare Owners
As discussed in Part I, although the timeshare purchaser in Cayman does not receive a registered property interest, a good timeshare developer has other means of offering protections for timeshare owners in the event that the developer goes bankrupt, the resort is sold, or the developer’s financier forecloses on the resort. For example, great protection for timeshare owners can be structured in a long term registered lease between the developer/owner of the resort and the resort manager whereby any subsequent purchaser of the underlying freehold timeshare property would have to purchase the resort subject to the long-term lease of the membership/management company. The lease should contain provisions that stipulate that the rights of members should not be disturbed if the developer/owner sells the resort or transfers the lease of the resort property, or where the lease is terminated. Clauses should also be included which stipulate that timeshare members receive their proportionate share of insurance proceeds and (in certain cases) their share of proceeds of the sale of the resort property should the resort be destroyed in a hurricane and a decision taken not to rebuild.
Where the developer/owner receives financing for the development of the resort and is required to give its financier a charge over the resort property, it is of utmost importance that the charge contains a "non-disturbance clause" whereby the financier expressly agrees to not disturb the rights of the timeshare owners in the event of foreclosure of the resort property.
These protections are crucial in ensuring that timeshare owners are protected from situations where developers sell the timeshare resort without the consent or knowledge of the timeshare owners, and without adequate compensation, as happened in Cayman with one resort following Hurricane Ivan.
III. Private Residence Clubs
The crème de la crème of timeshare, private residence clubs (PRCs) are becoming popular in Grand Cayman, with projects like the Waterford Private Residence Club and the Residences at Beach Bay leading the way. These exclusive clubs offer country-club type benefits including luxurious accommodation and facilities, as well as exclusive services designed to make your stay as effortless as possible for you, including the use of luxury vehicles during your stay, boat & captain service, stocking your fridge with your choice of groceries, and the list goes on. These clubs and the special privileges that come with ownership are extremely attractive to certain purchasers who are looking for the exclusivity of high end properties without the management and strata plan headaches that sometimes come with owning their own condominium.
Private Residence Clubs are usually sold as fractions, which is a type of right-to use a block of time per year, for example, six weeks, which can be taken all at one time, or spread out throughout the year. Membership is usually governed by Rules and Regulations, Reservation Policies & Procedures and a membership agreement. The terms of the documents are often similar to the by-laws of a strata corporation but also have elements of hotel rules incorporated to address reservation procedures for reserving your weeks, for allowing guests to use your weeks and for re-scheduling.
Club dues, similar to strata plan fees, are paid, as with most timeshares, and the dues cover your proportionate share of the overall expenses of maintaining the timeshare resort. Most timeshares also have provisions for special assessments that might become necessary, after a hurricane (to cover a policy deductible), or to cover a major expenditure such as roof replacement. As there are so many owners, the club dues and special assessment charges are usually less than what you would pay for a comparable quality strata plan condominium.
IV. Fixed and Floating Weeks
A fixed week is a week purchased at your timeshare resort that is for a specific unit and a specific week every year. A floating week is sold within a specific time period or season for a particular size or type of unit but is not for the same particular unit every year. While the floating weeks give you flexibility they are usually offered on a first come first served basis although some resorts do offer floating week members a rotation system to ensure that they all have the opportunity to reserve a high season week on a regular basis.
V. Exchange Programs
Most timeshare resorts belong to one of two international exchange programs, either RCI (Resort Condominiums International) or Interval International. Exchange programs are part of what makes timeshare so attractive. These are the programs that enable owners to exchange their week for a week in another resort in another state, province or country. In order for timeshare resorts to be accepted as members into one of these premier exchange programs the resort must meet certain criteria for acceptance. Membership in either RCI or Interval International is one of the criteria purchasers should look for in deciding whether to purchase a timeshare at a particular resort.
VI. Timeshare and Tourism
Timeshares are not only great investments for purchasers, they are great for tourism, they bring high volume of tourists from all over the world on a consistent basis year after year. Timeshare resorts enjoy some of the highest and most consistent occupancy rates in the Cayman Islands. As few resorts here are truly all-inclusive in the sense that timeshare owners never leave the resort, most of those tourists spend money in the local economy by seeing local attractions, trying new restaurants and purchasing goods. Many families pass their weeks onto their children and the children keep up the tradition. Even owners who regularly trade in their weeks every year still help tourism, as new tourists who own timeshares elsewhere will come to the Cayman Islands and hopefully, fall in love with it and buy their own week. Understanding timeshare will bring benefits not only to purchasers personal investments, but also to the Cayman Islands as a tourism destination.
Magda Embury is the Head of the Property & Finance Department at law firm Solomon Harris and has developed a specialty in timeshare law, and advises local as well as international timeshare resort developers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.