Regulating the timeshare industry

examines the incoming timeshare regulations in Dubai and considers the possible impact they will have on the emirate’s hospitality industry.

Many leading hospitality companies worldwide pursue the concept of timeshare. There are now thousands of resorts across the globe, which are owned and sold on a timeshare basis. This now includes the UAE, although to date there has been no formal legal framework within the country permitting timeshare.

With Dubai’s focus on tourism, it is a natural progression for timeshare to be offered in the emirate. The largest tourism development in the UAE, Dubailand, has stated that it regards the development of timeshares as a key factor in its business plan and has launched a special subsidiary to develop timeshare and fractional ownership for its resorts.

This past month it has been reported that the Real Estate Regulatory Agency (RERA) and Dubailand have approved a set of regulations to govern the timeshare industry in Dubai which were formulated by Interval International and RCI, the largest of the timeshare exchange agencies.

It still remains for the regulations to be passed into law and they could well change in the meantime, but Dubai is now well on its way to having a timeshare industry.

The draft regulations are considerably more detailed than many other real estate-related laws in Dubai and make an undeniable attempt to impose clarity on the procedures which will apply to timeshares. Even so, these regulations are likely to be improved and amended over the coming years – but they are undoubtedly a good starting point.

Typically, a timeshare arrangement will have an owner purchasing a period of time at a specific resort. Timeshare owners can elect to stay at the resort during the prescribed period. These rights are sold to the owner either in perpetuity or for a finite period of time such as 20 years.

The owner would ordinarily pay a one off purchase price for the timeshare and then an annual maintenance fee. Timeshares then allow owners the possibility of exchanging their time period to stay at other resorts worldwide.

Timeshare sales in Dubai will be either a sale of the actual real estate interest or a purely contractual right to use a property. Both types will be regulated by RERA, which will establish a specific Timeshare Division. A publicly available timeshare register has also been proposed.

A purchaser’s right in respect of a timeshare will need to be registered with RERA and this registration will give those timeshare owners rights over any third parties who acquire an interest in the relevant property.

The intention is that the Dubai timeshare regulations will cover:

• registration of developers with RERA prior to any sales

• registration of timeshare management companies with RERA; these must be credible and professional organisations with experience in managing hotels, serviced apartments or timeshares.

• filing of sales contracts and disclosure statements with RERA before advertising or sales can commence, which include specific information relating to the timeshare development such the nature of the development and all related expenses and annual charges for the first year.

• a 10 day cooling-off period for purchasers to change their minds in respect of the purchase, with deposits in escrow.

• owners will be entitled to an itemised budget for their timeshare, including revenue and expenses, in the interests of transparency.

• there will be restrictions upon the level by which annual maintenance fees can generally be increased.

• where the developer amends to the nature of the timeshare development, purchasers would have the right to cancel their contracts in certain circumstances.

• as with other sales of real estate developments under construction in Dubai, there must also be an escrow account in place into which all purchasers’ funds must be placed pending completion of construction of a property – only upon suitable assurance from the developer in relation to completion of the timeshare would these funds be released.

Sharp business practices and misleading advertising has, at times, given the timeshare industry in Europe a bad reputation. The regulations seek to address this by specifically regulating the manner in which advertising is carried out and, vitally, making sure that no misleading impressions of timeshare are given and that no predictions of price increase or rental returns are given.

Building a timeshare industry with a good reputation requires skill and effort. The Dubai government has sought advice and assistance for the leading companies in this area and produced a comprehensive set of regulations.

Good regulation is of course required, but responsible developers and operators are also essential. Structuring a timeshare development needs careful consideration and appropriate documentation.

The financing structure being put in place by developers also needs attention and banks will need to accept that their rights will be subordinated to the rights of the timeshare owners. The draft regulations will allow a suitable legal structure to be put in place to give purchasers comfort in the timeshares that they buy.

Dubai is building its reputation as a premium vacation destination and the introduction of a regulated timeshare industry should reinforce this.

Trowers & Hamlins’ Dubai office offers a full range of legal services to hotel owners and operators in the Middle East and the UK and acts for a number of leading developers and international operators. Visit
www.trowers.com

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