ARDA Previews 2012 Legislative Efforts

Posted by Dave Waller on December 19, 2011

The legislative process is constant, as indicated by our recent posts on timeshare/fractional legislation in Florida and Wisconsin.  However, the end of the year is always a good time for both looking back and making educated guesses as to what lies ahead. 

The ARDA Government Affairs team put on an hour-long webinar to do just that on December 15, which you can currently access at https://www2.gotomeeting.com/register/790568186.  Based on comments during that webinar, 2012 looks to be a busy year for shared ownership legislation.  And that's before efforts get complicated by the emergence of unexpected surprises (e.g., bills focused on homeowner associations) and unexpected alliances (e.g., those built around the dynamics of redistricting), as well as a presidential election that may be preceded by a long primary cycle.

Here is the order of jurisdictions in the U.S. and Caribbean discussed during the webinar, organized by presenter:

  • Stephany Madsen
    • Arizona
    • Arkansas
    • Nevada
    • New York
    • Texas
    • Wisconsin
  • Chris Stewart
    • California
    • Colorado
    • Missouri
    • Utah
  • Keith Stephenson
    • Maine
    • Massachusetts
    • New Hampshire
    • Tennessee
    • Virginia
    • Bahamas
    • St. Maarten
    • U.S. Virgin Islands
    • Aruba 
    • Dominican Republic
  • Jason Gamel
    • Florida
    • Hawaii
    • South Carolina    

Hospitality Development - Advantages with Transit-Oriented Development

Posted by Jonathan Langer on November 22, 2011

At first glance, the growing trend in transit oriented real estate development may appear to apply only to developers of multi-family, multi-use properties in urban core areas. However, the concept of designing real estate developments to both utilize and compliment existing and planned transit can be beneficial to hotel, fractional, timeshare, and resort developers as well.

Hotel developers have a clear role in transit oriented development. For example, the plan submitted by Union Station Alliance for the redevelopment of downtown Denver’s historic Union Station involves a 130 room hotel in the center of the new downtown transit hub.  

Yet hotels are not the only means by which the hospitality industry can engage in transit oriented development. There is evidence that timeshare and fractional developments in urban cores, such as Palazzo Tornabuoni in Florence, Italy or the St. Regis Residence Club in New York can attract customers who want to experience an urban lifestyle in a luxurious residence.  And just like hotels, shared ownership projects can beneft from the proximity to frequent and reliable public transit.

Developers of resort properties, including timeshare, hotel, whole ownership, or any combination can make their properties even more desirable by considering future transit in their siting and design. Rail transportation from airports is expanding in cities across the United States. In Colorado, rail links from Denver International Airport to major ski destinations are already in the planning stage, while the 190-mile LA to Las Vegas bullet train proposal recently won an important approval from the federal Surface Transportation Board.  Looking further out, the Sun Rail commuter line could be the first step to a rail network between Florida’s cities and its world class beaches.  Click here for a map of what a high speed rail network could look like within the next 20 years.  

Developers of resort properties who plan new and renovated properties near transit stops in resort towns—whether in the mountains or at the beach—will have a competitive edge as more consumers make vacation plans involving automobile-free travel. 

Hospitality Industry Growing Local Economies: Benefits of Resort Development and Environmental Preservation in Jericoacoara, Brazil

Posted by Jonathan Langer on October 10, 2011

When I first visited Jericoacoara in 2002, hotel development and international tourism were just starting to boom. The Brazilian government had recently designated the surrounding landscape as a national park, protected from development and limited in use.

Located about 200 miles from the city of Fortaleza on the northeast coast of Brazil, Jericoacoara was originally a tiny village of fishermen and their families living in a small cluster of simple brick buildings situated in a breathtaking natural setting. The Atlantic Ocean embraces the town on two sides, with a sandy half moon beach soaring from town for over ten miles. Behind the beach and the town lie gigantic sand dunes interspersed with lagoons and mangroves, filled with birds, fish, and crustaceans, plus the occasional roaming donkey or dune buggy packed with visitors. All of the ways into town involve driving several miles over sand.

I concluded back in 2002 that the natural environment would be sufficiently protected by the status as a national park, but that the original inhabitants of the fishing village would be driven out by high land prices, since the national park boundary limits the area of land in the town that can be developed. I believed that in the not-too-distant future, the only residents of Jericoacoara would be North Americans and Europeans, both as owners of, workers in, and visitors to the new hotels and restaurants.

I recently returned to Jericoacoara and discovered, happily, that my conclusions of ten years ago were wrong. The original residents of Jericoacoara and the surrounding fishing villages, as well as Brazilians from around the country, have found ample opportunity to work in and own businesses, capitalizing on the influx of foreign and domestic visitors. In addition to the hotels and guest houses that line the beach and fill the center of town, there is a new neighborhood full of Brazilian families, who all appear to have a quality of life that would be the envy of millions of residents of Brazil’s biggest cities.

The resort development and environmental preservation in Jericoacoara over the past fifteen years have created pareto optimal results. The unique landscape is protected as a national park, so development cannot destroy the scenic beauty that fuels the town’s tourist industry; the economy of the town has expanded exponentially, creating economic opportunity for locals that were unimaginable a generation ago; international hotel developers have the opportunity to build state-of-the-art hotels in a fantastic location; and tourists can visit a majestic place, stay in comfort, and support a vibrant part of the local, national, and international economy.

TripAdvisor Getting Its Own Review

Posted by Dave Waller on September 07, 2011

Last week, the Guardian reported that the UK Advertising Standards Authority had initiated an investigation of TripAdvisor over false online reviews.  The investigation was initiated by an official complaint filed by KwikChex.com, an online reputation management company.  KwikChex reportedly backed up its complaints with months of research on allegedly derogatory and false hotel reviews posted on TripAdvisor websites.  According to the ASA statement:

KwikChex has challenged whether the claims “Reviews you can trust”, “...read reviews from real travellers”, “TripAdvisor offers trusted advice from real travellers” and “More than 50 million honest travel reviews and opinions from real travellers around the world” are misleading and cannot be substantiated, because they believe that TripAdvisor does not verify the reviews on their website and therefore cannot prove that the reviews are genuine or from real travellers. 

So What Is the Advertising Standards Authority?

The ASA is charged with overseeing compliance with the UK’s CAP Code, a set of rules for advertisements created by the Committee of Advertising Practice, a self-regulatory body.  If someone believes an ad is misleading, offensive or makes an unsubstantiated claim, he/she can complain to the ASA. If the ASA believes the complaint is credible, the ASA can alert media organizations so that advertising space is denied or, if laws have been broken, refer the complaint to the Office of Fair Trading.

Until recently, the CAP Code was limited in application to ads in print, posters and emails, text messages and marketing communications in “paid-for-space” (i.e., banner ads and pay-per-click ads).  But in March of this year, the scope of the code was expanded to include ads and other marketing communications by companies on their own websites or on social networking websites “that are directly connected with the supply or transfer of” goods and services.  Not surprisingly, the extension resulted in a “significant” increase in workload.      

For a (possibly) humorous example on the extent of the ASA’s authority, check out this story.     

Right Idea, But Wrong Question? 

The quality of information at user-review websites such as TripAdvisor has been questioned for some time.  Just last month, Cornell announced that it had created a software program that could sniff out bogus positive hotel reviews – or what the researchers termed “opinion spam.”  Ten days later, David Streitfeld of the the New York Times wrote a mini-expose on “review factories” – companies that hire people to write positive reviews for $10 each.  As a consequence, Mr. Streitfeld reported that “the average of the 50 million reviews [on TripAdvisor] is 3.7 stars out of 5, bordering on exceptional but typical of review sites.”         

That apparent positive bias notwithstanding, KwikChex appears solely focused on proving that TripAdvisor posts false negative reviews.  A year ago, KwikChex announced that it was attempting to rally hoteliers behind a class action against TripAdvisor to fight reviews it termed “untrue and damaging to their business, or legally unsubstantiated.”   And now, in addition to the ASA, Kwikchex is trying to get both the FBI and FTC to investigate TripAdvisor’s “misrepresentation, misleading statements and unlawful practices of advertising using reviews where no substantiation is available and from a source where fraudulent reviews are known to be posted.”

Four Years in a Row - Chambers USA Recognizes Baker Hostetler as a Top Hospitality Law Firm

Posted by Dave Waller on July 19, 2011

We would like to thank our friends and clients who responded to the most recent Chambers survey.  For those not familiar with Chambers, its intensive and unbiased survey methods make it the most respected legal directory available.   

Based on the strength of comments Chambers received, Baker Hostetler was, for the 4th year in a row, recognized as having one of the country’s strongest hospitality law practices.  Most impressively, we were one of only three firms recognized for excellent client service and keen commercial awareness.  As stated by some survey respondents:       

They have our interests at heart

Their focus is bringing all the parts together

We would also like to congratulate Rob Webb and John Melicharek as Chambers made special note of their exceptional skills.  Rob was highly recommended by peers as an acknowledged expert in timeshare-related matters.  As for John, Chambers quoted one survey respondent as follows:

He understands that it's not just about the fundamentals, there's business implications as well. He finds ways to get a deal done, and he also has a very good sense as to which issues are important and which aren't, and that saves us time.

Overall, Chambers recognized Baker Hostetler in 14 different practice areas:

  • Bankruptcy/Restructuring
  • Construction
  • Corporate/M&A
  • Corporate/M&A & Private Equity
  • Employee Benefits & Executive Compensation
  • Healthcare
  • Intellectual Property
  • Labor & Employment
  • Leisure & Hospitality
  • Litigation: General Commercial
  • Natural Resources & Environment
  • Real Estate
  • Tax
  • Zoning & Land Use

Major Changes Underway for Internet Domain Names

Posted by Jonathan Langer on July 12, 2011

The Hospitality Lawg would like to thank Deborah Wilcox for submitting this post.  Deborah coordinates our Cleveland IP/Tech/Media practice and manages legal issues associated with online advertising for Baker Hostetler's clients.

The Internet Corporation for Assigned Names and Numbers (ICANN) recently approved the launch of the new top level domain (gTLD) program.  Existing organizations can apply to own and run registries for new top level extensions.  These new “dotcoms” may be based on a brand (“.bakerhostetler”), a generic term (“.law”) or a  geographic term (“.miami”).   ICANN expects to release hundreds of gTLDs in the near term and likely thousands in future roll-outs not yet specifically scheduled.

Application Window

The three-month application window is scheduled to open on January 12, 2012, and will close on April 12, 2012.

If you are interested in potentially applying for ownership of a new gTLD, you should review the ICANN Applicant Guidebook now and consult with your strategists, including marketing personnel, IT specialists and legal counsel to plan accordingly.

Community-Based gTLD

Hospitality companies could collaborate and create an industry-specific domain name registry.  In addition to a “.brand” or “.generic”  gTLD application, organizations can apply for a Community-based gTLD, which must be operated for the benefit of a clearly defined community. The Community-based gTLDs are subject to additional application requirements, but will have the benefit of priority over other applications for the same or similar strings.  Cooperation by hospitality companies on a Community-based gTLD could benefit the companies who collaborate by reducing the costs of dispute resolution or string contention at later stages of the application process.

Applying for a gTLD

The application will require you to provide general information about your company or organization, as well as information regarding its financial, technical, and operational capacity to run a domain registry.  Applications for community status must include a community endorsement.  Applications for a geographic gTLD string must include a statement of government support or non-objection.

The application fee for a single gTLD is $185,000. Prior to accessing the full application, applicants must register with the TLD Application System and pay a $5,000 deposit. Partial refunds of the application fee are available at various stages of the application process. These fees do not include the internal costs of preparing and submitting the application materials, the potential costs of a successful auction bid in the event that there are multiple applications for the same string, or the cost of establishing and operating the registry if the application is approved.

Italy and Portugal Implement EU Timeshare Directive; Still Waiting on Spain

Posted by Dave Waller on July 05, 2011

The deadline for EU Member States to enact legislation implementing the new EU Timeshare Directive was February 23, 2011. As we reported back in a February post, not all countries were expected to act prior to the formal deadline. 

Catching Up

In the interim between the February deadline and this post, Italy, Portugal, Cyprus, Finland, Slovakia, Luxembourg and Malta have implemented and begun enforcement of the EU Timeshare Directive.  Sweden has also adopted the necessary legislation, but enforcement does not begin until August 1, 2011. 

Still Waiting

As we understand it, while the following countries may be considering legislation, the EU Timeshare Directive is still not in force in: Belgium, Hungary, Lithuania, Poland, Slovenia and Spain. 

Of course, Spain's absence causes the most concern for EU regulators.  As stated just today in a HotelNewsNow article on Accor’s expansion plans for Spain, the country is the third-largest tourist destination in the world and, with a world-wide tourism rebound underway, had an 8.5% increase in foreign visitors for the first quarter of 2011.  Underlining this, STR Global reports that Spain’s occupancy rates for 2011 have increased 6.9% to 60.9%, with ADR up 1.8% and RevPAR up 8.9%. 

 

 

International Hospitality Development & The Foreign Corrupt Practices Act

Posted by Dave Waller on May 18, 2011

Last week, the business news was dominated by the results of the Galleon hedge fund insider trading case. But the federal government had another big win during that same news cycle.  On May 10, Lindsey Manufacturing became the first company to be tried and convicted on Foreign Corrupt Practices Act violations.  Notably, the District Court adopted the DOJ's broad definition of the term "foreign official" and concluded that a bribe paid to a state-owned enterprise or its employees could violate the FCPA.  Full details of the Lindsey Manufacturing case can be found here.  

Ominously, the Department of Justice press release declared that Lindsey Manufacturing "will not be the last" company convicted under the FCPA.  That declaration follows on from comments by Assistant Attorney General Lanny Breuer that:

From now on, would-be violators of the Foreign Corrupt Practices Act should stop and ponder whether the person they are trying to bribe might really be a federal agent.

Those comments followed a successful “first of its kind” undercover sting operation wherein FBI agents posed as representatives of an African Minister of Defense who were willing to take bribes to divert lucrative military and law enforcement contracts.  The investigation netted 16 indictments against officers and employees of U.S. and international companies and the arrest of 21 individuals at a convention in Las Vegas.  In connection with the indictments, approximately 150 FBI agents executed 14 search warrants in locations across the United States.  

Hotel and other hospitality companies should take notice of these FCPA enforcement actions as they rapidly expand their footprints into Asia, Brazil and other foreign business and leisure destinations.  As reported in the Wall Street Journal, at least one hospitality company - the Las Vegas Sands Corp. - is being investigated by the SEC and the DOJ based upon complaints made by a former executive.

Given the DOJ's obvious interest in FCPA enforcement, John Carney and George Stamboulidis of the Baker Hostetler FCPA Practice Team encourage hospitality companies to implement meaningful and effective FCPA compliance protocols that will allow for the prevention and detection of FCPA violations:

  • Internally, companies should establish FCPA reporting mechanisms, anti-bribery standards for employees at all levels, annual training, record retention policies with periodic vetting, accounting procedures that ensure accurate record keeping, and, at larger companies, FCPA compliance chiefs or committees that report directly to the board.
  • As Lindsey Manufacturing highlights, the actions of agents and third parties can have dire consequences, whether those actions are known or unknown by the company.  Companies should accordingly maintain internal controls over agents and third parties, including checking references, identifying all owners or partners of an agent's business, carefully reviewing contract terms and reserving audit and termination rights, requiring agents to certify that they understand the FCPA and will abide by its terms, and requiring well-connected agents to disavow in writing any attempt to use their connections in a corrupt fashion.
  • If a company discovers a possible FCPA violation, it should commission an internal investigation conducted by experienced FCPA outside counsel, terminate the employees or agents who committed the violation, and consider reporting the violation to the DOJ.   

Report from the Jamaican Tourism Outlook Seminar

Posted by Rob Webb on April 25, 2011

I was honored when American Resort Development Association CEO Howard Nusbaum asked me to represent ARDA at the 2011 Jamaican Tourism Outlook Seminar, which was held in Montego Bay, Jamaica on April 19-20.  I attended the seminar with Keith Stephenson, ARDA’s Director of Legislative and Regulatory Affairs with responsibility for ARDA activities in the Caribbean.  Keith and I were the guests of Jamaican Minister of Tourism Edmund Bartlett, Director General of Tourism Carrole Guntley, and Jamaica Tourist Board Chairman John Lynch.  Representatives of both RCI and Interval International also joined us at the conference.

Jamaica Considering New Legislation

Like many other jurisdictions where travel and tourism is a large part of the economy, Jamaica has been considering the adoption of landmark timeshare legislation that will, for the first time, spell out the terms and circumstances under which timeshare plans can legally be offered, developed or managed in Jamaica.  Although ARDA has not yet been favored with a draft of the proposed legislation, both Minister Bartlett and Director General Guntley indicated to us that the Jamaican Cabinet is about to take the issue of timeshare regulation up for consideration.  It was in the context of that consideration that we were invited to speak to this large gathering of island hoteliers and media about the many incremental benefits that a vibrant timeshare industry, properly constituted and regulated, could bring to Jamaica.

The Benefit of Perspective

My focus for my part of our presentation was to give the audience a brief primer on timesharing in general, its origins in Europe and history in the U.S., and the role that ARDA and its many volunteer members have played over the years in shaping effective product regulation and in enhancing the industry’s reputation and platform effectiveness around the globe.  I explained that Jamaica has a rare opportunity to fashion a timeshare law that is not merely a reaction to consumer complaints against an immature business model, as were so many U.S. state timeshare laws, but that is instead a legislative endorsement of a mature segment of an international industry and an encouragement to developers, hoteliers and brand managers to incorporate Jamaican timesharing into their hospitality portfolios.

Keith’s portion of our presentation included an explanation of the various ways that timesharing benefits the economies of major resort destinations.  He focused in particular on the significant success that the U.S. Virgin Islands—a serious competitor for Jamaica’s tourists—has experienced in recent years from timesharing.  Keith also detailed the many ways that timesharing is compatible with and supportive of the local hotel industry, including the housing of marketing stays; providing important economies of scale for hotel management, amenities and infrastructure in mixed-use projects; and broadening the hospitality tax base, rather than necessarily being directly competitive or parasitic to hotels as many believe.

I cited Puerto Rico’s adoption of its comprehensive timeshare law revision in 1995 as an example of how creative a tourist destination can be that really wants to encourage timeshare development.  In negotiating that new law with the Puerto Rican government on behalf of ARDA and Hyatt, we encountered some conflicts relating to Puerto Rico’s very strong public policies (and politics) underlying its long-established condominium, mortgage and notary laws.  The fact that Puerto Rico’s laws are based on Spanish Civil Law instead of English Common Law also presented us with some challenges.  Rather than undertaking the difficult (if not impossible) task of trying to amend all of those laws so that Hyatt and others could do business in Puerto Rico the way they were used to doing it on the mainland, we persuaded the government to create a whole new kind of real property interest for timeshare—a vacation ownership regime—that had its own rules and policies affecting those sensitive areas.  The legislation passed, and Hyatt proceeded with construction of its beautiful Hacienda del Mar resort.

In closing, Keith and I both stated that ARDA would be willing to work hard to assist the Jamaican government in finding solutions to any of their issues regarding timesharing so that Jamaica could join the international timeshare community soon, and in a big way.

Turks & Caicos Moves Toward Adoption of Fractional Law

Posted by Dave Waller on March 23, 2011

The Hospitality Lawg would like to thank Emma Riach for submitting this post.  Baker Hostetler has had the pleasure of advising Emma and her team as they work to implement this new law.  Emma is based in the Turks & Caicos and can be reached at emmariach@karammissick.com.

The Turks and Caicos Advisory Council recently approved the introduction of Fractional legislation in the Turks & Caicos Islands and it is expected that the draft Ordinance will be enacted in the coming months.

The Turks and Caicos Islands are a high-end tourist destination and a British Overseas Territory located at the bottom of the Bahamian chain.  Its world famous Grace Bay is home to a number of condominium resort developments, marketed primarily to investors from North America.  Nearly all these properties have sold through whole ownership as access to deeded shared ownership has been limited in the islands.  This is largely due to the complicated approval process under the 30-year old Time Sharing Ordinance.  To date, only one development has successfully navigated the approval process, leaving others to instead offer a percentage of shares in a company owning the underlying real estate.

The new draft legislation should radically change the way that investors can purchase real estate in the Turks and Caicos Islands.  The proposed draft legislation is simple and will allow owners or developers of condos or villas to divide their properties into increments of up to a minimum of 1/12th interests.  Such interests will be separate registered proprietary rights, with an individual register created for each proprietary interest at the Land Registry; and the name of the owner will be registered on each individual Register for the designated fraction (and hence akin to what North Americans refer to as deeded interests).  The Turks and Caicos Land Register is certified by the Crown and hence gives secure protection to investors.

The application to create fractional interests in the property will require, by the anticipated statute, the lodging of fractional By Laws that will inscribe the usage rights, cost sharing rules and rights to attend and vote at condominium or homeowners’ association meetings.  The attorneys who prepared the draft Fractional Ordinance recommended the registration of such By Laws at the Land Registry in the same manner that Condominium Strata By Laws must be registered at the Registry, in order to mandate a public record of such rules and to ensure that all subsequent owners are fully bound by the By Laws.

In contrast to the Time Sharing Ordinance, the proposed system under the draft Ordinance is intended both to facilitate the registration of new fractional properties and to provide an efficient means of administration thereafter.  It is hoped, by the attorneys involved in the initiative and by the Turks and Caicos Government, that such a system will be considered by investors and lenders as a highly secure and simple means of obtaining registered rights in Turks and Caicos that reflect the time and monetary investment that owners would like to make in our islands.  The proposed legislation should, for the first time, allow luxury Grace Bay condos to be available to persons wishing to invest $500,000 or less in our real estate market.  The timing of the new laws is much welcomed as we see new airlines such as JetBlue and Continental flying into Providenciales and the airport extension, which is hoped to increase the transatlantic flight options.

New UK Timeshare Regulations Take Effect

Posted by John Melicharek on February 23, 2011

As discussed in a prior post, the UK's new Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (the “Regulations”) will come into effect on February 23, 2011. The Regulations will implement the EU Timeshare Directive into UK law, replace entirely the current regime in the UK by repealing the Timeshare Act 1992 and revoking the Timeshare Regulations 1997, and add certain additional consumer protections.

For those involved in fractional and timeshare developments subject to UK law, some key elements of the Regulations include:

• requiring important key information (i.e. an Information Statement), in a standardized form, to be provided in advance of a contract being agreed

• setting forth provisions for regulation of the form and content of the purchase contract (including no deposits, standard cancellation language and “no investment intent” language)

• mandating the use of an Information Statement related to exchange and resale transactions

• providing consumers with a right to withdraw from a regulated contract within a standard 14 day cancellation period, and the additional right to withdraw from a long-term holiday product contract when payment of the second and subsequent installments become due

• banning any payment in advance of the completion of the withdrawal period of the regulated contract

• setting out provisions for payment for a long-term holiday product contract by way of yearly installments

• providing for the automatic cancellation of a related credit agreement and other ancillary contracts when the regulated purchase contract is cancelled

• including sanctions and, where appropriate, criminal offences for non-compliance with the Regulations (notwithstanding that the Regulations also provide for contractual remedies for consumers)

The foregoing is just a brief introduction to the new UK Regulations that we wanted to bring to your attention.  More information on the Regulations can be found by reviewing the summary published by the UK Department for Business Innovation & Skills.

EU Timeshare Directive Implementation Deadline Approaches

Posted by Roger Vinayagalingam on February 16, 2011

After two years, the February 23 deadline for EU Member States to adopt the new EU Timeshare Directive is just a week away.  Special thanks goes out to Stephany Madsen at ARDA who helped us confirm some details regarding implementation schedules.     

Hit and Miss Deadline Compliance

The significant consumer states, Germany, France and the UK, have already adopted versions of the Timeshare Directive as part of their national law.  Finland, Slovakia and Sweden are also expected to meet the implementation deadline.  Not surprisingly, EU Members States Greece, Hungary, Ireland, Portugal and Spain are not expected to implement the Timeshare Directive by the deadline as their governments have been preoccupied with other more pressing concerns.  This variance in compliance is not unusual as previous directives have been passed into national law with some delay. 

Purpose of the EU Timeshare Directive

The first EU Timeshare Directive, adopted in 1994, offered consumers basic rights to clear information, a 10-day “cooling off” period during which the buyer may cancel the contract without penalty, and a ban on deposits during the “cooling off” period.  The new Timeshare Directive aims to strengthen these protections and to tackle perceived loopholes in the current legislative framework.  Perhaps most importantly, the new Timeshare Directive extends the scope of the current rules to cover new products which have emerged in the marketplace like discount holiday clubs (i.e., travel clubs) and non-real estate based products (e.g., timeshare-like holidays on cruise boats, canal boats and caravans).  The new Timeshare Directive also covers timeshare resales and exchange providers, requiring these companies to provide comprehensive information about their product offerings and limiting advance payments. 

Harmonization of Essentials

It is important to note that although the Timeshare Directive has been adopted by the European Union, each Member State must implement the Timeshare Direct objectives within the framework of their respective national laws.  That stated, unlike the 1994 Timeshare Directive, the new Timeshare Directive is a maximum harmonization Directive, meaning that EU Member States are obligated to implement it in national law in a way that does not exceed or fall below the Directive’s requirements.  In other words, EU Member States are not permitted to create national legislation diverging from the requirements of the 2008 Timeshare Directive.  These requirements include:

  • A 14-day “cooling off” period during which the buyer can cancel the contract without penalty.  Note that, with respect to long-term holiday products, there is an additional 14-day right to withdraw after each installment payment becomes due.
  • An absolute  ban on the seller taking deposits during the “cooling off” period.
  • Mandatory use of a standardized form of both pre-contractual information and timeshare contracts setting out basic information about the timeshare property in the buyer’s chosen language.

Mexico's Rules Regarding Shared Ownership Sales Go Final

Posted by Dave Waller on January 31, 2011

As discussed previously, the sale of non-deeded frcationals and timeshares in Mexico (or “servicio de tiempo compartido”) are primarily governed at the federal level under a set of administrative regulations titled “Norma Oficial Mexicana NOM-029-SCFI-1998” (“NOM”). These rules, first adopted in 1999, have been undergoing a legally mandated updating process for some time.

Apparently, a lot of folks got tired of waiting and unilaterally declared that the NOM would go effective last summer.  Based on the final tweaks being considered by the Mexican government, this reaction was understandable.  But as of January 13, the amendments became official and NOM-029-SCFI-2010 will go into full effect by mid-March.  Here is what you need to know: 

The Amendments Are Fairly Significant

For some reason, the Mexican government thought it best for developers to be liable for the difference by which budgeted expenses are exceeded by expenses actually incurred, even if caused by unpredictable circumstances.  Further, sales contracts will need to include “opt-in” provisions whereby a purchaser must affirmatively agree that the developer and its affiliates are allowed to contact that purchaser in connection with subsequent marketing efforts.  Sales contracts must also be revised to include an explanation of how assessments will be calculated and paid. Developers are expressly obligated to notify purchasers of any changes in those provisions.

On the positive side, timeshare plan termination provisions were simplified.  This was one of our suggestions that was accepted by the Mexican government during the 2008 comment round. 

There are more changes, but too many to discuss here.  As we were the only law firm recognized as participating in the comment process, your Baker Hostetler contact can give you the full rundown.  

What Do You Do Next?

Sales contracts will need to be deemed NOM-compliant prior to their use by PROFECO, the Mexican consumer protection agency charged with enforcing the NOM.  Unfortunately, PROFECO has undergone key changes in personnel that will likely result in approval delays. 

More importantly, existing developers in Mexico are going to have to deal with a peculiar consequence of the NOM amendments being effectuated through sales contracts.  With respect to resorts currently in sales, this would appear to create two classes of purchasers. The first group – those who execute sales contracts revised to comply with the new rules – would receive the benefits and assume the obligations dictated by the just-approved NOM.  However, existing purchasers – those who executed sales contracts subject to the old rules – would apparently have different rights and obligations. From an administrative perspective, tracking the rights and obligations of two separate classes of purchasers would appear to be extremely difficult.

Mexico's Shared Ownership Sales Rules Move Toward Approval

Posted by Dave Waller on January 03, 2011

As detailed in a prior post, the Mexican Timeshare NOM has not yet been finalized, leaving Mexican developers with some questions as to their regulatory obligations.  

Well, some of the answers were received on December 27, 2010.  That's the date the Mexican government published its responses to comments received during the last comment round in September.  Not surprisingly, those comments (including ours) were uniformly critical of the proposed rule that would make developers solely responsible for the difference by which budgeted expenses are exceeded by expenses actually incurred.  It also wasn't much of a surprise that the Mexican government uniformly rejected this criticism (including ours), thereby endorsing the rule.

As the publication was limited to comment response, we expect that the NOM as published last July will substantially reflect what developers can expect to see in the final rule.  We will continue to monitor the situation, but again strongly suggest that developers with interests in Mexico become familiar with the changes proposed and begin game planning for implementation. 

 

Mexico's Shared Ownership Sales Rules Still in Limbo

Posted by Dave Waller on December 20, 2010

The Ministry of Economy has still not published the final-final version of the Norma Oficial Mexicana NOM-029-SCFI-2010, which regulates the sale of shared ownership projects in Mexico (“NOM”).   

A quick history is in order here.  Back in 2008, the Mexican government announced its intent to update the NOM, which had been in effect since 1999.   On May 17, 2010, it published a revised NOM that was to become effective in mid-July.  But in July the Mexican government tweaked the revised NOM and pushed its effective date back to mid-October.  The government also opened up an additional comment period for the re-revised NOM that expired last September. 

Since that comment period expired, the Mexican government has not provided the industry with any formal notice that the July version of the NOM has taken effect.  But it also hasn’t indicated that the NOM is undergoing additional revisions in light of the comments received. 

Back in September, we evaluated the proposed NOM and outlined some of the more significant proposed changes.  However, until the Mexican government provides some clarity as to the status of the NOM, those selling and/or providing “time share services” in Mexico can’t be certain whether they must follow the 1999 NOM, the new NOM as published in July, or some other as-yet-unpublished version of the rule.  Nonetheless, we would advise developers to take a close look at the new NOM as published in July and determine what changes may need to be made in their operations and sales documents.  As sales documents must be certified by PROFECO as NOM-compliant prior to their use, developers will want to act quickly once the Mexican government provides clarity.