Friday, January 20, 2006


Surge in Timeshare Activity Highlights Need For Change

New York's timeshare sector has seen a significant uptick in activity during the past few years. Three timeshare projects are currently operating in Manhattan with a number of others on the drawing board. Existing regulations, however, are outdated or cumbersome, creating unnecessary obstacles for developers interested in converting residential real estate or hotel properties for use as timeshares or in selling timeshares to New York residents.

Current regulations affecting the timeshare industry were drafted by the New York State Attorney General's office in 1985 and were modeled after regulations governing condo and co-op developments. At the time, there were only a few timeshare projects nationwide. Many of these regulations add unneeded and costly delays, and must be addressed to remove the roadblocks.

One unnecessary delay is added to the sale of timeshare units. A full 15 percent of the total units in the timeshare property must be sold before a timeshare developer can legally close on the first sale. No other state imposes a pre-sale requirement on timeshare units. While this requirement makes sense when dealing with whole ownership condominium or cooperative properties, as long as the timeshare unit is built and taking into account the magnitude of the purchase--$15,000 to $25,000--this rule deprives the customer of getting what he or she paid for on a timely basis.

The regulations also deal with timeshare structures that are now outdated, such as fixed week products. For example, they do not address timeshare point systems. Most of the major hospitality companies have some form of custom-tailored, point-based system that provides the customer with significant flexibility in vacation planning. Owners may utilize their points to reserve stays at other resorts in the vacation ownership system and in some cases, use the points to pay for traditional hotel rooms and even plane tickets.

While it was originally believed that the traditional weekly purchase product offered more product integrity, provided a company does not sell more points than they have in inventory, the flexibility of the points product outweighs any added difficulties in tracking inventory. More and more, customers have gravitated to a point-based system, which attests to the fact that the system really works. Existing regulations also do not make it easy for out-of-state properties being marketed to customers in New York. A company seeking to sell a timeshare property in Orlando, Fla., to a New York resident would have to file an offering plan in New York with the Attorney General's office. While that in itself is not a problem, the level of disclosure required by New York is far greater than that required by most other states, including the state where the project exists. New York also requires a restatement and reformatting of much of the same information that is contained in the situs state offering. In contrast, a company wishing to sell a Florida timeshare to a New Jersey resident only needs to file two or three pages worth of information with the state of New Jersey. New Jersey, as is the case most other states, relies on the registration information filed in the state where the timeshare is located.

Another instance of form over substance is in the area of timeshare budgets. For example, the company with the Florida timeshare would have filed a budget with the state of Florida for the first year of the annual period of timeshare registration. Unfortunately, the information filed in Florida does not meet the requirements and the level of detail required by the New York registration process. The Attorney General requires the developer to recast its budget as if the project were in New York, literally impressing New York regulations on a Florida project and adding significant cost and delays.

Another area of difficulty is New York's property reports requirements, which indicate the timeshare's physical status such as number of units, method of construction and structural integrity. Most states do not require the amount of detail in property reports that New York demands. Companies registering an out-of-state timeshare in New York must hire structural engineers, mechanical engineers and experts in nearly all the building trades to thoroughly examine the timeshare, adding another level of expense and delay to the process.

New York attempted to modify the timeshare regulations in 1997 to allow an architect to certify that the project was constructed according to the initial plans and specifications. However, the process remains unnecessarily complicated and expensive. Timeshares in cities such as New York have become increasingly popular. These projects are attractive to vacation users and to corporations or individual business people who find that they return to the city on a consistent basis. Because of the expanding interest of purchasers in the timeshare product, New York regulators must begin to break down the barriers so developers can bring more of their product to New Yorkers.

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