Payments & Notice Periods
Timeshare Exit Payments & Notice Periods. In some timeshare agreements, there may be terms that provide for an exit payment to be paid by an owner to the developer or owner committee to release the owner from the contract (and all its rights and obligations). In some situations, there may be a notice period which runs from when the owner gives notice of their wish to be released from the contract to the time when that release takes effect.
In principle while these could be fair terms, they would require careful assessment for fairness under the UTCCRs. The factors that a court may have regard to are likely to include:
1.
The circumstances in which the term was concluded and the way it is being used
2.
Whether the payment is excessive and more than a reasonable pre- estimate of the loss. It is our view that any payment representing more than a fair and reasonable notice period would have significant potential for unfairness, as it is the company's responsibility to mitigate losses by trying to resell or rent out the returned weeks
3.
Whether the term allows the consumer to cancel the agreement at any time, but leaves the consumer liable for future payments. We would consider such terms to be unfair, as the consumer is substantially deprived of the benefit of cancellation
4.
Whether the term includes an over-long cancellation notice period in a contract which otherwise continues indefinitely. Consumers entering such contracts normally expect to be able to end it a reasonable time after they decide they no longer want or can no longer afford what is provided under it
UTCCRs
The UTCCRs are concerned with the intention and effects of terms, not just their mechanism. If a term has the effect of an unfair penalty, it will be regarded as such, and not as a 'core term' (which may be assessed for fairness only in a limited way).
Therefore a penalty is unlikely to be capable of being made fair by transforming it into a provision requiring payment of a fee for exercising a contractual option.
Similarly, we consider that, where businesses seek payment of excessive or punitive cancellation fees in reliance on unfair terms, this may be aggressive and/or in contravention of the requirements of professional diligence and materially distorting the behaviour of the average consumer (namely, by pressuring them to agree to the unfair payments).
Finally, in some circumstances, a business's use of a discretionary exit policy may be considered an aggressive practice under the CPRs and/or to contravene the requirements of professional diligence and materially distort the behaviour of the average consumer. For example, this could be the case where, having tied the consumer into a long-term agreement with no clear termination provision, the business offers a very limited or specific exit policy. Where the business makes excessive or unreasonable demands for payment or notice in return for exit, putting pressure on the consumer to retain a timeshare they do not want or cannot afford, or dispose of it on unfavourable terms that they would not otherwise have agreed to, this practice may be unfair.
Exchange Products/Upgrades in Lieu of exit
Owners who wish to exit timeshare are sometimes offered exchange, transfer or 'upgrade' products.
For example, for a fee, they can enter a new agreement, which replaces their old one. While this practice may be in the interests of some consumers, it is important that businesses do not engage in practices that infringe the CPRs when offering these products.
For example, where the consumer may have the right to exit timeshare, it is likely to be misleading to give the consumer the impression that the only way they can exit the contract is by purchasing or accepting a replacement product.
Further, there may be a risk that a court would consider this business practice to be aggressive or otherwise unfair under the CPRs. For example, where a business is perfectly capable of granting the consumer the right to exit the contract, even for a modest fee, it could be considered aggressive to insist that the consumer buys a new product at a high price, in order to exit the existing timeshare.
It may also be aggressive if the consumer is pressured by a business into accepting an exchange product (for example, by threatening to pursue the consumer for outstanding management fees) when they could otherwise have cancelled the agreement altogether.
There may be a benefit to a consumer in moving to a short-term timeshare product, but the consumer must be able to take an informed decision having been provided with all material information. This may include information about any transfer fee and the terms of any subsequent contract (including the new product's exit opportunities).
Failing to provide this information would likely constitute an unfair misleading practice under the CPRs.
Where a consumer does decide to agree to or accept a new timeshare product, it is likely that the Timeshare Regulations will be applicable, meaning that the consumer must be provided with the required statutory pre- contract information, including the existence of the mandatory withdrawal period.
In circumstances where the consumer subsequently exercises the right of withdrawal under these Regulations, it is likely to be unlawful for the business to insist that the previous contractual obligations are re-instated where the parties have agreed that the new product has been offered as a replacement for the old one (that is, a new contract).
It is therefore necessary to distinguish been the formation of a new contract and a mere variation which qualifies the existing rights and obligations. If a new contract
has been formed, the old contract is extinguished; if only a variation, the contract continues to exist, albeit in an altered form.
Subject to any express terms, it is always open to the parties to mutually agree a variation to an existing contract. However, a rescission (that is, an extinguishing) of the contract will be implied where the parties have changed the terms of the agreement in such a way as to clearly enter into a new, substituted contract.
This will be the case where, for example, the parties enter into a 'new' agreement which is inconsistent with the old to a fundamental extent, reflecting the clear intention of the parties to rescind / substitute the old agreement.
For example it would seem likely that a change to the resort or apartment that the consumer has chosen and is entitled to use, as specified in the original agreement, would give rise to a new agreement.
Whether or not the parties have intended to replace the old contract or merely vary the existing contract is therefore a question of fact. In the event of a dispute this will be determined from an examination of the terms of the new agreement and all the surrounding circumstances attending its conclusion.
Should the business mislead the consumer about the nature of the exchange/replacement product offered, whether by action or omission, they will commit a breach of the CPRs.
In summary, businesses should be careful not to breach the CPRs when offering exchange, transfer or upgrade products to existing timeshare owners.
Where the new product replaces the old one, rather than varies the existing contract, the Timeshare Regulations and its cancellation rights are likely to apply.