November 2019

Has time run out on timeshare resorts?

What was once a great investment and an appealing holiday destination, may have lost its gloss. Gone is the glamour of a few weeks holiday each year at a resort that you own in a lovely regional setting, along with other families enjoying the same opportunity. Instead, there is the reality of paying rising levies on your fixed retiree income to maintain an ageing facility in a regional area that your family and friends no longer wish to visit.  And when you ask around to sell your interest in the resort, you quickly discover that it isn’t worth very much at all.

So, when developers start showing some interest in the land the resort is located on, the option of selling out looks very attractive. 

This was the case for Vacation Club Ltd (Club), which had operated a timeshare resort in Port Macquarie called ‘Vacation Village’ since 1980 for its approximately 494 members who owned and were entitled to stay at the resort.

At an Extraordinary General Meeting in November last year, the members voted in favour of a series of resolutions to wind up the Club which ultimately resulted in the appointment of trustees by the NSW Supreme Court for the sale of the resort property. 

The resolutions were passed with overwhelming majorities ranging from 85% to 89%, in circumstances where:

  • many members were approaching, or were in, retirement and couldn’t afford the levies;

  • levy default amongst members was growing placing the Club and members alike under increasing financial pressure;

  • as members were ageing with virtually no ability to exit the timeshare there was a high probability that defaults would accelerate;

  • the Club couldn’t afford to pursue the levy defaulters; and

  • holiday rents were not covering the maintenance fees in many cases, leading to a strong move amongst members to favour the realisation of their interest through the sale of the resort land for future development.

Bartier Perry acted for the Club in Vacation Club Ltd v A.G.G. Properties Pty Ltd [2019] NSWSC 1357, in which Vacation Club successfully made an application to the Supreme Court of NSW for orders appointing trustees for the sale of the time share resort property under section 66G of the Conveyancing Act 1919 (NSW).

The 66G application was necessary because the title to the land on which the resort was located had been divided into 1248 sub-folios with 501 members, many of whom could not be located and communicated with. In these circumstances, the court needs to make orders for the title to be consolidated so it can be sold, because everyone with an interest in the land may not have notice of the orders sought, and may not have an opportunity to raise any objection or consent to the process.

As you might imagine, the logistics of dealing with 501 owners and 1248 land titles poses particular issues for litigation of this type, and formulating a clear strategy for the process and implementing it efficiently is imperative to ensuring the orders sought are obtained with minimum delay and expense.

A copy of the judgment can be found here - http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2019/1357.html

Once the appointed trustees have marketed and sold the land on which the resort was located, the members will be able to resolve to wind up the resort company and finalise the process of bringing the timeshare venture to an end.

If you and fellow members of your time share resort have determined that the time has come to wind up your timeshare arrangement and realise the value of your resort, here is a basic checklist of some issues to consider.

Key takeaways from the judgment to assist with the sale process

Convene a meeting for the passing of the necessary resolutions

The majority of members of the timeshare will need to pass the necessary resolutions to begin the process, including:

  • The nomination of the resort owner and the relevant members who will be the applicants for the court proceedings.

  • The orders that will be sought from the court to appoint trustees under section 66G of the Conveyancing Act for the sale of the property and other ancillary orders, including:

    • production of certificates of title to sub-folios, and their cancellation;

    • the issue of a new single title for the land;

    • authority to terminate any leases and management agreements; and

    • how the sale proceeds will be distributed, including payment of any debts accrued by members.

Identify the appropriate defendants to the application

All the members of the timeshare resort who are the owners of the property must be listed as defendants to the proceedings.

When compiling the list of defendants, it is important to identify:

  • whether any owners have passed away. If an owner who has passed away held their share in the property as a sole owner or as a tenant in common with another owner, then consideration needs to be given to involving the deceased owner’s estate in the proceedings; and

  • whether any company owners are deregistered. If a company owner has been deregistered, the Australian Securities and Investment Commissions will need to be contacted and possibly involved in the proceedings or the company reinstated.

Properly effect service on all of the members

In circumstances where you may be dealing with hundreds of owners, the simple issue of ensuring they have all been served with court and other documents is not straightforward. Depending on how the proceedings are pursued, you may be able to take advantage of the provisions in the resort’s constitution or rules to effect service more easily and cheaply than by personal service, saving significant time and money.

Request production of the certificates of title from the owners

Before the Court will exercise its power to cancel the certificates of title of the sub-folios and order a new consolidated title be issued, it must be satisfied that any missing certificates of title have not been, or are unlikely to be, produced by the members.  

The company operating the timeshare will therefore need to exhaust all reasonable enquiries it is able to make in obtaining the certificates of title from the member owners.

Confirm whether the titles are unencumbered

The position regarding encumbrances will be clear from the available certificates of title.

For those missing certificates of title which have not been produced by the member owners, title searches will need to be obtained in order to confirm that the certificates of title are not encumbered by any interest or mortgage. The court will need to be satisfied of the position in this regard before any orders will be made cancelling the certificates of title of the sub-folios.

Contact any caveators

Attempts will need to be made to notify any caveators noted on title of the sub-folios of the existence of, and the orders sought in, the proceedings.

Contact us

Bartier Perry’s dispute resolution & advisory team can assist in providing advice on and effecting the sale of timeshare resorts through the appointment of trustees for sale.

If you or the board of directors of your timeshare require assistance in effecting the sale of the timeshare resort, please contact Gavin Stuart on 02 8281 7878 or at gstuart@bartier.com.au or Phoebe Martin on 02 8281 7879.

Authors: Gavin Stuart and Phoebe Martin