As the sun sets on “Legacy” timeshare resorts across the country, many owners are wondering what will happen to their deeded timeshare unit once the resort property reaches its expiration date. For some long-time owners, the sunset clause may be a welcome relief, as it offers an opportunity to walk away from their ongoing obligation. Others, on the other hand, may find themselves desperate to keep their timeshare afloat and want to hang on to their deeds.
The challenges with an aging property however are many. With each new year, the property will require more upkeep, and as the number of active original owners dwindles, it becomes increasingly difficult to keep a resort running operationally smooth. In some circumstances, the developer or HOA board may decide to retire a timeshare to avoid costly maintenance or improvements on a timeshare that has exceeded its predicted lifetime.
What Is A Sunset Clause?
Essentially, a sunset clause is a provision in the agreement that says the timeshare ownership will expire or be terminated at a specific point in time. Timeshare resorts that were developed in the late 70s, 80s, and 90s often included this type of clause in their contracts.
At the time, independent timeshare resorts were still relatively new and the sunset clause was also a safety net for developers unsure about how popular timeshares would be or how long they would endure. It was also referred to as a “self-destruct” clause.
Many first-generation timeshare resorts were constructed in popular tourist destinations, and the properties’ values relative to their worth have risen significantly and are being quickly recaptured and repurposed as resorts begin a termination process. In some cases to the benefit of the owners.
How Does A Sunset Clause Work?
Most sunset clauses set a date in the future, usually 30 to 40 years after the resort was built, when the timeshare would automatically terminate unless the owners voted to continue its operation. To do that a majority vote by the timeshare owners would be required, and as long as the required number of owners are still active, the status of the resort can remain as a timeshare with a governing body.
A sunset clause is generally triggered when a certain number or percentage of owners have died, stopped making payments, or otherwise become delinquent on their obligations. In some cases, a sunset clause may be triggered if the property is not being used or maintained to the standards set by the HOA. The latter is occurring more frequently as the original timeshare resorts reach a stage of obsoleteness.
What Happens When A Sunset Clause Is Triggered?
When a sunset clause is triggered, the ownership of the resort transfers to the HOA or developer, who then has the option to sell, convert, or redevelop the property. In some cases, the shift in control over time, diminishes owner control in smaller timeshare properties, reverting to developer proxy control. The owner board may lose director seats and votes as a result of intervals obtained and controlled by a developer or management company. When this happens, it can be difficult to make changes to the property, including a decision to extend or terminate the timeshare.
In many cases, the original developers or management companies no longer exist, and the current board may not have any authority to make changes to the property. To make matters worse, there may not be enough owners remaining or a quorum to hold a vote on the issue. That leads to very real problems with managing and making decisions about the future of an aging resort.
What Are The Benefits Of A Timeshare Termination?
For developers, a sunset clause provides an exit strategy and a way to avoid being saddled with an obsolete property. For owners, a sunset clause can provide financial relief and the chance to get out from under onerous timeshare maintenance and assessment fees.
When a sunset clause is triggered, the timeshare property is typically sold and transferred to a new owner, developer, or management company. In some cases, the property may be sold at auction or private sale.
A Resort About To Sunset
The Southcape Resort and Club is a timeshare located in Mashpee, Mass. It’s just one of several legacy properties that are scheduled for sunset. One owner shared with Enterprise news that “There are at least several hundred elderly people who still have timeshares and are in a quandary as to what is going to happen.”
Phase 1 of the Southcape Resort and Club consists of 31 units and is scheduled to terminate as of December 2022. More than half of the timeshare holders who own one-week intervals must vote to extend the deed for Southcape Resort to continue in its current timeshare model.
At a recent board meeting back in May, it was reported that several owners became upset over what they said was a lack of transparency from the resort’s board of trustees and representatives of Festiva Resorts Adventure Club—which bought the resort about 15 years ago and manages the resort property.
The Enterprise interviewed several owners who said, the board changed the meeting’s agenda at the last minute. Owners were in attendance at the meeting to learn more about the voting procedure, potential closure process, and projected reuse of the property.
Owners were not given a financial status report as the Treasurer was not present at the meeting according to the article. In addition, the Trustees did not answer questions about resort assets and solvency. Owners were advised however that the Trustees had agreed to accept Festiva’s best offer on the timeshare units in a private sale without competition, should the timeshare owners vote to terminate. The Enterprise reported that there are no timeshare owners on the Southcape Resort’s board of trustees. The board is made up of only Festiva employees and is the successive developer.
Only around 200 votes are required to terminate the timeshare since the developer already owns more than 300 intervals and will vote to terminate the timeshare and disband. The vote should be completed at the next board meeting, with operations to presumably cease after that.
This article is for information purposes only and does not represent legal advice. Always consult with an attorney for any matter that may require legal attention.
The Finn Law Group is a full-service law firm representing timeshare and vacation ownership clients nationwide in all aspects of their interests including deeded property, points-based contracts, developer disputes, collections, litigation, and arbitration. The firm is based in St. Petersburg, FL, and offers free consultations by appointment. Contact timeshare attorneys Michael D. Finn or J. Andrew Meyer. Follow us on Twitter