The purchase of a timeshare requires due diligence on the part of the buyer. Before the decision to buy is made, the governing documents of your timeshare should be studied carefully. One often overlooked area of the documents is the self-destruct clause (also known as a sunset clause). Timeshare is not alone in this area, many types of contracts include a self-regulating clause for "what if" situations. For instance, in technology, contracts might address: how does a regulatory body adjust and adapt to ever-changing technological innovations? Or when does a product become obsolete? Timeshare has shown to survive the test of time up until now, but what happens if innovations in vacationing one day make timeshare obsolete? This is where the self-destruct clause in your contract comes in.
The Self-Destruct Clause
The self-destruct clause emerged in the timeshare governing documents of the 60's. Timeshare was a new commodity. The first developers thought they had something good, but wondered if everyone would still think so in 25-50 years. As protection, a self-destruct clause was written into the timeshare contract and continues into today's documents. It usually features a date in the foreseeable future when the timeshare would terminate, unless a vote is used to continue the timeshare form of ownership.
According to The Timeshare Board Members Association (TBMA) there is no industry standard on the self-destruct clause. Resorts have different provisions for due diligence, the need to obtain votes from owners and the need to comply with state statues concerning the issue. Your resort management should know if a self-destruct clause exists and what that clause requires of owners. Owners should be prepared years in advance of the clause end date, in order to provide the best possible outcome for all.
Research Study Will Look at Governing Documents
The TBMA considers the self-destruct clause and your governing documents one of the top issues facing timeshare in 2015. They’ve commissioned a study with Ph.D. Jeffrey Weinland to do an academic review of the governing documents and their impact on current owners and new buyers, as well as how disclosures are handled as part of timeshare resales. Many issues will be reviewed including what happens after interval ownership is terminated.
Importance of Preparation
If your timeshare governing documents contain a termination clause that ends the interval ownership what does that mean to the owners? Weinland states that "it does not end ownership of deeded property. The owners still own the pieces. What they lose is their right to occupy a unit for a week. Instead they might all become tenants in common of the real estate and co-owners of the furnishings, fixtures and supplies."
A decision has to be made at this time as to what to do with the property. This is another reason timeshare owners should be prepared ahead of time. If owners and HOA board members know their options well in advance, they can make a more educated vote should the time come. Says Weinland, finding a knowledgeable professional can help "place a value on an ongoing business and also market a resort to developers who may convert it to a hotel or a condo, or raze it and build something entirely different."
First Things First
Weinland suggests some steps to help you to take control of the destiny of your resort:
- Find out if your resort has the kind of clause discussed above and not one that kicks in after a disaster like a fire or earthquake.
- Determine how the clause operates. (Is the default a termination unless the owners vote to continue, or is the default a continuation unless the owners vote to terminate, or is no vote contemplated at all and the only way to avoid termination is to amend the governing documents.)
- Consult with professionals and establish a long-term strategy for communicating with owners so when the time comes you are in control.