FRACTIONAL OWNERSHIP OR SHARE OWNERSHIP

Shared Ownership products are frequently combined with traditional hospitality and other leisure-based services & facilities in a mixed-use resort environment. The phrase “fractional ownership” is typically used to describe shared ownership of a vacation or resort property by people in an arrangement which allocates usage rights based on time. In other words, only one owner will be allowed to use a particular home or apartment at a particular time. Fractional ownership arrangements can be applied to a single home or apartment (typically referred to as a “one-off fractional”) or to a multi-unit building or resort development. In multi-unit developments, each co-owner may have ownership rights to all the units, some of the units, or only one unit, and his/her usage rights, and cost obligations, may or may not correspond to his/her ownership rights. Groups can be assembled by a real estate development or hotel company, an individual builder, Realtor or seller, one or more of the prospective buyers/users, or groups of friends or family members.

The terms private residence club (or “PRC”), timeshare, shared ownership, vacation home partnership, and fractional co-ownership are also used to describe these arrangements, and there are no consistent distinctions in the use of these descriptions. Since property usage is allocated based on time, this type of co-ownership falls within most legal definitions of a “timeshare”, which means it can be subject to restrictions and requirements applicable to the creation and sale of the timeshare property.

How does fractional ownership differ from Timeshares?
From a strictly legal standpoint, most definitions of the term “timeshare” encompass any arrangement under which a group of people shares uses of a property based on time, regardless of whether they own the property and regardless of whether a management company or developer is involved in organizing or operating the property. But from a practical standpoint, there are significant differences between most of the arrangements historically referred to as timeshares, and most fractional ownership arrangements.

Contrary to popular belief, the difference between a fractional and a timeshare is not whether title to the property is conveyed to the purchasers. I can say definitively that many “timeshare properties” involve direct, titled ownership, and many “fractional properties” do not. This misconception about the difference between a fractional and a timeshare often leads to two significant problems: (i) an assumption that timeshare restrictions and regulations do not apply to fractional projects, and (ii) failure to evaluate the important elements of an offering to make sure that it really is better than the old-fashioned timeshares with bad reputations.

The meaningful differences between most old-fashioned timeshares and most modern fractional ownership arrangements are (i) the extent to which each participant’s rights and responsibilities are limited to a particular home or group of homes, and (ii) the extent of each participant’s ownership and control. Having deeded ownership to a particular home or condominium does not necessarily mean that a co-owner has the right to use the home he/she owns (as opposed to others in the development) or has expense responsibility which is limited to that home.