Should Timeshare Management Associations Operate Their Own Timeshare Exchange Program?
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The depressed economy and housing market of the past several years has hit Florida’s timeshare industry especially hard. As unit owners become delinquent on their management fees and default on their payments, timeshare management associations find themselves in a credit crunch due to decreased revenues. Many associations are seeking ways to increase, or simply maintain, their revenue stream. If the association has the capacity and oversight capability, managing its own unit owner exchange program can be an excellent means of creating additional revenue.
Florida statutes § 721.05(16) (2012) defines exchange programs as “any method, arrangement, or procedure for the voluntary exchange of the right to use and occupy [timeshare units], accommodations and facilities among [timeshare unit] purchasers.” Stated another way, exchange programs provide timeshare unit owners with flexibility in planning vacations as they can swap units and vacation dates with other unit owners. There are different varieties of exchange programs. One is the multisite exchange program where unit owners can exchange actual timeshare locations for their vacations. Another is where unit owners simply exchange vacation dates and/or unit rooms at their usual vacation destinations. This blog focuses on the benefits of a timeshare management association facilitating the latter type of exchange program on behalf of its unit owners.
The exchange program is one area of timeshare management that many associations outsource to a third-party property management company. When an outsourced company acts as the facilitator for a timeshare resort’s exchange program, that company is referred to, under Florida law, as an exchange company. Fla. Stat. § 721.05(15) (2012). Major exchange companies include Interval International and RCI, and most resorts are affiliated with a major exchange company. When the unit exchange involves multisite swaps, the resources and streamline capabilities of major exchange companies can be most beneficial. However, when the unit exchange merely involves date or unit swaps between unit owners at the same resort, outsourcing this task, and relinquishing the fee revenue for doing so, may be unnecessary for many resorts. The result of outsourcing this type of unit exchange program could be an enormous missed opportunity for the timeshare management association to receive a constant, and relatively easy, stream of additional revenue.
Florida statutes do provide the opportunity for a timeshare management association to act as its own exchange company. In fact, the Florida legislature allows an exchange company and a management association to be one in the same as long as that relationship is disclosed to timeshare unit owners. Fla. Stat. § 721.18(1)(c). Moreover, the Florida legislature allows the timeshare management association to collect fees for operating and facilitating its own exchange program as long as those fees are also disclosed to the timeshare unit owners. Fla. Stat. § 721.18(1)(l). This means that it is not a breach of the association’s fiduciary duty to operate a timeshare exchange program for its unit owners and to collect a fee for doing so.
Unit owners are, of course, free to enter into a direct exchange with one another. However, the very nature of timeshare ownership makes such an unassisted exchange unlikely. The various unit owners of any given timeshare resort are not only from all across the United States, but quite possibly, from all over the world. Unit owners do not know one another and have no way to initiate contact to even discuss possible exchanges. The resort will obviously have a list of all unit owners and their contact information, but the Florida legislature prohibits the disclosure of that private information. Specifically, Florida statute § 721.13(3)(d)(4) states that, “the managing entity may not furnish the name, address, or electronic mail address of any purchaser to any other purchaser or authorized agent thereof unless the purchaser whose name, address, or electronic mail address is requested first approves the disclosure in writing.”
This environment of unit owners not knowing one another and having no way to communicate places timeshare management associations in a unique position to provide a needed service in which they can collect easy revenues. For those unit owners who wish to participate in the association’s internal exchange program, the association simply needs the unit owners to consent to having their contact information included in the program.
The association can even freely distribute that unit owner contact list to the participating unit owners without worrying whether the owners will contact one another and reach a swap agreement without the association being the middleman. Why? Because even if unit owners connect and enter into an unassisted, direct exchange with one another, the association can still require them to go through the association, and pay a fee, to make the exchange official. Florida statute § 721.18(1)(f) does require exchange companies to disclose that participation in an exchange program is voluntary, but if the unit owners do participate in the program provided by the association, the association can then require that unit exchanges be confirmed through their offices for a fee.
This means that two unit owners within the same timeshare resort can mutually agree to transfer their timeshares, but then be required to confirm the transfer with the association and to pay the association a fee for that transfer. Creating such an internal exchange program would allow a timeshare management association to retain the revenue currently collected by third-party exchange companies that are outsourced this task.