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Variations on a Timeshare Theme in Colorado Resort Communities

In the mid-to-late nineties the economy created unprecedented wealth for many Americans. Even with the current downturn, most are better off now than they were ten years ago, and they are looking for ways to reward their efforts. Prominent among the options is a Rocky Mountain getaway. The limitations on leisure time, together with cost parameters, have re-focused attention on the timeshare format to allow many to realize this reward.

During the late 1970s and early 1980s, the timeshare industry was in its infancy, and its reputation suffered from sales and marketing abuses. Since that time, communities such as Vail, Aspen and Snowmass have adopted ordinances designed to protect timeshare consumers by imposing strict sales disclosures, escrow rules, buyer rescission periods, marketing restrictions, and project operating guidelines. Colorado also enacted similar state laws.

Today, timeshare ownership of second homes is back in favor as a method of acquiring vacation property. Colorado resort communities report an increase in timeshare development. This article will provide a brief overview of the legal framework relating to timeshares and related membership clubs, and attempt to resolve some of the confusion surrounding their designation and use.

Timeshares. The Condominium Ownership Act (C.R.S. 38-33-101, et seq.; "COA"), while largely replaced by the adoption in 1992 of the Colorado Common Interest Ownership Act (C.R.S. 38-33.3-101, et seq.; "CIOA"), contains several provisions relating to timeshares that survive, including the definition of "timeshare". CIOA, while not addressing timeshares per se, controls the creation and operation of the underlying condominium regime that is common to most timeshare communities.

Under COA, a timeshare includes "interval estates" and "time-span estates". In an interval estate actual title to the unit, usually a condominium (but increasingly single family homes as well), circulates among the interval owners of the unit, vesting in each owner according to an annually repeating, fixed schedule. In a time-span estate each owner has a present undivided interest in the unit. Only the exclusive right to occupy the unit, not actual title, rotates among the owners during annually recurring intervals, as determined by recorded covenants or a side agreement. Both interval estates and time-span estates are deeded and titled interests in real estate.

Time-span estates are sometimes known as "fractional interests" or "fractional fees", which are also favored marketing euphemisms for timeshares generally. While Colorado statutes do not specifically recognize the terms fractional fees and fractional interests in this context, some local community codes do so. Vail's Town Code, for example, contains a definition of fractional fee that largely parallels the COA definition of the time-span form of timeshare estate.

Vacation Clubs. Some timeshare projects also involve participation in "vacation clubs". Although there is no legal definition of vacation club in Colorado's statutes, in general, the term is used to describe certain additional membership rights of a timeshare owner in programs offering access to expanded amenities not otherwise appurtenant to the unit that the member has an interest in, such as golf and other recreational facilities. In addition, vacation clubs may also allow members access to exchange programs where they can swap their occupancy rights with owners of other projects, nationally and internationally.

While the most common variant of a vacation club involves membership based on ownership of a deeded timeshare interest, other vacation club structures provide for unit occupancy rights, and access to amenities and exchange programs, but without members holding any interest in title to real estate. For example, a vacation club may offer a membership interest in a non-profit corporation (or other form of entity) where the non-profit, not the members, owns the resort real estate. The owner's membership interest entitles the owner to occupy units at the resort for certain periods or based simply upon availability. Resorts may advertise this as an "equity club" membership. The non-profit entity manages the resort according to operating agreements adopted at the time of the project's development.

Other vacation clubs utilize a "non-equity club" membership approach. Again, members acquire no title interest in real estate. In a non-equity club, in general, the developer retains ownership and everyday control of the resort property. Members of the club hold essentially a license, or "right to use", units and certain amenities. Thus, members have neither an ownership interest in any unit nor in the entity that owns the units.

The described equity and non-equity club forms are not "timeshares" as defined by COA because members hold no real estate interest; although some mountain towns have expanded their definition of timeshare to include these club membership interests, and others prohibit this non-real estate interest approach to vacation club membership. It should be noted that the COA definition of "timeshare" and the related definitions employed by some resort communities do not coincide.

Still other resorts blend the statutory timeshare and equity club concepts. In such programs, club membership may be conveyed by transfer of an undivided deeded interest in a particular unit (like a timeshare); but, a member's occupancy rights are not set by a fixed schedule or limited to a particular unit. Properly organized, this approach can avoid the statutory COA definition of timeshare while steering clear of a town's prohibition against the non-real estate interest approach to club membership.

Registration. In Colorado, before a developer can sell a timeshare, it must register and become licensed as a subdivision developer with the Colorado Real Estate Commission. This process is governed by C.R.S. 12-61-401 et seq. ("Subdivision Developer Registration Statute") and by regulations promulgated by the Commission. These regulations are consumer-protection oriented and are intended to protect buyers from fraudulent marketing practices. Registration involves submitting an application, providing background information regarding the developer and the project, and submitting for approval the developer's intended sales documentation and project disclosure forms. The Commission also imposes escrow rules and grants a limited right of rescission to buyers. Registration must be renewed annually while sales are ongoing. Adding another layer of complexity to the legal matrix, the Subdivision Developer Registration Statute employs a broader definition of timeshare than does COA. While COA provides that a timeshare includes only the deeded interest form, not the equity and non-equity clubs as we have described here, the Subdivision Developer Registration Statute would likely include some forms of equity and non-equity clubs except in instances where the member's interest can be terminated at the will of the member.

Conclusion. Timeshares and their variants are back in vogue. Owing in part to heightened regulation, their reputation is on the rise. The entry of prominent hotel brands, such as Hyatt and Ritz Carlton, into the timeshare and vacation club marketplace enhances this credibility. The regulatory framework has become more complex and, some would say, confusing. The timeshare developer must look to several State statutes, the State Real Estate Commission's regulations and local ordinances to understand the challenges and how best to organize their resort community. As more people discover the beauty of Colorado's high country, expect to see new twists in organizing timeshare and vacation club development and ownership, and new regulation to meet them.

Copyright © 2008 Fairfield and Woods, P.C., ALL RIGHTS RESERVED

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About this Author

Christopher Kinsman, Fairfield & Woods, real estate lawyer

J. Christopher Kinsman's practice focuses on real estate development, affordable housing and mortgage lending law. His practice encompasses all aspects of acquiring, financing, entitling, developing, leasing, selling and operating residential, commercial and mixed use real estate projects in the Rocky Mountain region. Chris represents large national and regional, as well as local entrepreneurial, developers and builders of mixed use, office and multi-family projects.

Chris is a recognized expert in the creative formation and strategic operation, lease-up and sell...

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