Written by: Richie Kock Esq at Richie Kock Attorneys Aruba
Timesharing was first introduced in Europe in the 60’s and later in the Caribbean. Timesharing has grown into a billion dollar industry in the Caribbean. The Caribbean region offers over 200 timeshare resorts.
The former Netherlands Antilles offers 22 percent of the Caribbean total, just behind the leader of the region, the Dominican Republic with 23.8 per cent.
The Dutch Caribbean timeshare comes in many shapes and forms, and can be best defined as one wherein a unit in a timeshare resort is shared by a certain number of timeshare holders. The resort grants the timeshare holder the exclusive right to use the unit, including the amenities of the resort, during a certain minimum period or periods of time per year.
The Dutch Caribbean laws provide certain protections to the timeshare holders. It appears however that daily practice has not yet caught up with the law, as a consequence of which some protections are currently not being taken advantage of. This discrepancy will be pointed out and discussed in this article.
Timeshare in its many forms
As mentioned above there are many versions of timeshares in the Dutch Caribbean, amongst others:
● The owner of the resort sells the timeshare to the buyer. The buyer pays a one-time amount as well as yearly maintenance fees and is granted the shared right to use a unit (or units) of the resort, including the amenities offered by the resort (e.g. swimming pool, tennis courts). The timeshare holder is required to become a member of an association of timeshare holders which body regulates the rules and regulations of the timeshare hotel.
● The same principle as above, except the timeshare is sold through an association (usually named the Cooperative Association of XYZ) instead of directly by the resort owner.
● The “rental pool”. The person buys a unit of the resort and agrees to make the unit available for rental to third parties. The resort or agent is responsible for the lease and maintenance of the unit. The owner may also use the unit when it is not rented and vice versa. The rental pool does, in my opinion, not meet the definition of timeshare (as defined above). Hence, for the purposes of this article the rental pool will not be further discussed.
The abovementioned versions (with the exception of the ‘rental pool’) have one common flaw: the timeshare buyer does not acquire a proprietary right on the unit. The timeshare buyer instead acquires a personal right of use in relation to the unit.
Under Dutch Caribbean law, holders of proprietary rights are far better protected than holders of personal rights. For instance, the timeshare holder has no recourse in case the resort goes bankrupt. He is an unsecured creditor without any preferential rights. The holder of a proprietary right, however, is not affected by the bankruptcy and may enforce his title ‘as if there were no bankruptcy’.
Based on Dutch Caribbean law, timeshares are in principle considered to be lease agreements, unless the conditions of the timeshare contract are of such nature that the characteristics of a lease agreement are lost. Why is this important? Because under Dutch Caribbean law, lease is protected against sale. In case the property is sold, the lease remains intact and fully valid. Hence, timeshares are in principle protected in case the resort is sold. The timeshare holder remains vulnerable in case of bankruptcy, however.
The introduction of timeshare laws in the Dutch Caribbean
In order to better protect the timeshare buyer, specific timeshare laws were introduced in the Dutch Caribbean. This first timeshare law (hereinafter: Timeshare Ordinance) was introduced in the former Dutch Antilles in April of 2005 (the Dutch Antilles consisted of the islands of Curaçao, Saint Maarten, Bonaire, Saint Eustatius, Saba). Aruba introduced its Timeshare Ordinance in June of 2012. The Timeshare Ordinances are uniform in content.
The timeshare contract
The Timeshare Ordinance codified the definition of a timeshare contract as one with a duration of at least 3 years, whereby the buyer remits a one-time payment to the seller in return for a proprietary or personal right of an apartment, or the duration of at least at least 1 week per year. Furthermore, the contract is required to be concluded in writing, and should include certain lawfully prescribed information. Moreover, the contract has to be hand delivered to the buyer. Lastly, the buyer may cancel the contract, without reason, within 5 days after receipt of the contract. If this last condition is left out of the agreement, the agreement is null and void. If other lawful prescribed conditions are not met, the evaluation period is extended to a maximum of 30 days.
The part-time right of apartment
Furthermore, in order to further protect the timeshare holder, the Timeshare Ordinance introduced the option to transfer the timeshare to the buyer in the form of a ‘part-time’ right of apartment (hereinafter referred to as the ‘protected timeshare’).
The units of the resort constitute individual rights of apartment. The buyer of a unit acquires the ownership of the right of apartment pertaining to said unit. A right of apartment is a proprietary right. In case of timeshare, one right of apartment (i.e. one unit) is shared by several timeshare holders. Hence, said right of apartment is subsequently subdivided into as many sub-rights of apartment as there are timeshare holders (in case of one week timeshares: 52 holders for each week of the year). These sub-rights of apartment are called ‘part-time’ rights of apartment.
Part-time rights of apartment are also proprietary rights. Therefore, the timeshare holder acquires a proprietary right (and the lawful protection that it provides).
Current status of timeshares
Currently, timeshares are continued to be sold as personal rights of use. Following a short enquiry with timeshare providers and the notary, the cause is evident. The resorts are simply not aware of the option to transfer the timeshare as a part-time right of apartment. I have not enquired with timeshare holders. However, I think it is safe to assume that they also are not familiar therewith.
It should be noted that protected timeshares will result in additional costs, compared to timeshares currently sold at the moment.
Firstly, the transfer of the time-share has to go through the notary. This will result in notary costs.
Furthermore, based on Dutch Caribbean law, transfer tax is due on the sale and transfer of apartment rights. The rate amounts to 3% or 6% for Aruba and 4% for Curaçao and Sint Maarten, which is calculated over the purchase price of the right of apartment. The individual timeshare buyer would be due an amount in transfer tax equal to his pro rata timeshare in the unit.
Registration at the Land Registry
In order for the transfer and ownership of the part-time right of apartment to become official (to the public), the notarial deed should be registered at the Land Registry.
Longer closing period
It may also take longer to close the timeshare deal due to the intervention of the notary.
Disadvantages vs advantages of protected timeshares
Despite the increase in costs, I am of the opinion that the implemen-tation of the protected timeshares is advisable. First of all, I do not expect the extra costs to be substantial. It is yet to be seen what the notary costs would amount to (these could also differ per notary office). The transfer tax would be due pro rata over the number of part-time rights of apartment in a unit (which results in a fraction of the total transfer tax due in relation to said unit).
For the registration of the part-time right of apartment, there would also be a (relatively small) registration fee due. The longer closing period should not weight too much either in my opinion. Notarial deeds are passed within 1 to 2 months, depending on the case. The registration may be done immediately following the closing at the notary. Keep in mind that the extra costs are only due once, i.e. at closing. In return, the timeshare buyer acquires a real right and the protection that it provides. In doing so, Aruba and the rest of the Dutch Caribbean would provide a better product to future timeshare buyers.
The tax-free maintenance fee reserve
As per January 1st of this year (2016), the option has been introduced for the timeshare resort to create a reserve for the maintenance fees for a period of 10 years. The reserve is exempt from Aruban Profit Tax, provided the reserve is effectively used for the maintenance of the resort within the 10 year period.
Reduced Profit Tax rate
And finally, as per January 1, 2016, the timeshare resort may be subject to a special reduced Profit Tax rate of between 10% and 15% provided certain conditions are met.