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General: Fractional ownership - Peter Esders, Chebsey & Co

The mystic being that is Fractional

Fractional Ownership has been the “big thing” in overseas property for the last couple of years. However, it worries me that there are simply too many people dealing with it who simply don’t know what they are doing (although there are some who clearly do). I fear that these misunderstandings will cause problems down the line and may be the thing that kills what is being perceived as the golden goose of international property.

Before I start I should explain a bit about fractional ownership. Very basically fractional ownership is where instead of buying a whole property you buy a fraction of it. It really is that simple. At one level you could get together with three friends and buy a quarter of a property each. That is fractional. At the other end of the spectrum you could buy one week use of the property. That is also fractional. So Fractional is Timeshare I hear you say. Well, yes and no, as I will explain later.

So let me set aside some myths about Fractional Ownership.

Myth Number 1 – “Fractional Ownership is a new way of buying.” No it isn’t. My first recollection of a Fractional Purchase was when I helped somebody buy one nearly 15 years ago, and this way of buying had been around for some time before even that. Of course back then they had different names, like “co-ownership”, but make no mistake, they were Fractional purchases. Changing the name doesn’t make the product new or any different.

Myth Number 2 – “Fractional Ownership will save the overseas property market.” Possibly, but if it is done incorrectly it could also destroy it. The idea is that people can no longer afford to buy a whole property but could afford a fraction of a property. Therefore with less disposable income and the desire to minimise exposure Fractional is seen as the solution. However, if the fraction is priced too high or it is the wrong property in the wrong location even Fractional is a bad idea, and if that happens the public will loose confidence Fractional products and possibly the Overseas Property Market. I sincerely hope that this won’t happen.

Myth number 3 – “Fractional Ownership is not Timeshare”. It is impossible to talk about Fractional without mentioning Timeshare. I have always said that Timeshare is a form of Fractional Ownership, but that Fractional Ownership isn’t necessarily Timeshare. One is a sub set of the other. The European Timeshare Directive of 1994 set out the definition of Timeshare. Over the last few years I have had developers approach me with their ideas for fractional ownership. Virtually every one of them fell into the definition of timeshare according to the EU Directive. The problem is that most people don’t understand enough about timeshare to distinguish the two and think that just because they call it Fractional it won’t be Timeshare.

Most people believe that with Timeshare you don’t actually own the property and therefore Fractional is different. It is correct that many Timeshare structures simply allow you the use of the property for a certain period of time but it is possible to have timeshare where your ownership of the share of the property is registered at the land registry. In fact I have such a title deed on my desk as I type this. Similarly Fractional doesn’t necessarily have your name on the deeds. The Timeshare Act of 1992 defines timeshare act as any living accommodation in the UK or elsewhere, used, wholly or in part, for leisure purposes by the owners for a period of no more than one month and where the rights are for no less than 3 years. Using this definition (which I have paraphrased) much of the Fractional that I see is actually Timeshare.

Myth number 4 – “Timeshare is bad”. Actually, for some people Timeshare can be a good product. The problems with Timeshare are generally the way it is sold (lies and pressure tactics) and the spiralling cost of maintenance on some resorts. The sale of Timeshare also has more regulation than the sale of overseas property (although organisations such as AIPP and FOPDAC are trying bring regulation to the overseas property market).

So, should you buy Fractional? That depends on you, the structure, the price and the property. Is Fractional important to the industry? Undoubtedly, I just hope for the right reasons.

Peter Esders

Peter Esders is a UK Solicitor who studied Spanish law in Spain and who has been dealing with Spanish law for over 15 years. He can be contacted at Chebsey & Co, 51 London End, Beaconsfield, HP9 2HW www.chebsey.com Tel; 01494 670440

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