virna2017october2december

7 / 25

OCTOBER – DECEMBER 2017 VACATION INDUSTRY REVIEW
11
s many of you may have been hearing or reading
about in the past year, some Florida timeshare resorts have a termina-
tion date — commonly known as a sunset clause — in their association
documents. The sunset clause can terminate the condominium, the
timeshare plan, or both, and is unique to each timeshare plan and con-
dominium. While most sunset clauses are clear on what date or event
triggers termination, they generally lack direction on what happens
after termination or what can be done to avoid termination. This gen-
eral lack of direction for what will occur can create confusion and leave
HOA boards with limited options.
“All documents I’ve reviewed do not provide any instruction as to
what to do if or when the timeshare plan terminates,” says Jan Samson,
senior vice president of corporate and business development at Vacation
Resorts International (VRI). “Owners of timeshare interests may become
tenants in common in a specific condominium unit in the event of a
termination of a timeshare plan. And if both the timeshare plan and con-
dominium terminate, owners may become tenants in common over the
entire parcel of land. Many documents are written such that there is a
very short period of time in advance of the termination date to call a
special meeting and gather enough proxies or ballots to meet quorum
and the voting requirement.”
A Proactive Approach
The first proactive step for any HOA is to conduct a detailed review of the
association documents to determine if a sunset clause exists. If such a
clause exists, a complete analysis of the sunset clause should be con-
ducted and a plan created for addressing the sunset clause.
VRI has developed successful strategies for helping the company’s
managed resorts in Florida defuse any termination bombshells in their
documents. In addition, the American Resort Development Association
(ARDA) and ARDA-Resort Owners’ Coalition (ARDA-ROC) have shep-
herded legislation through the Florida Legislature, and a bill clarifying
termination procedures (CS/SB 818) was signed by Governor Rick Scott
on May 23, 2017.
“Florida timeshare owners need to know what comes next for their
older, but beloved resorts,” says Chris Stewart, state affairs managing
director for ARDA and ARDA-ROC. “This legislation will give associations
the proper guidance when deciding the next step of the resort’s life cycle.”
According to Stewart, the legislation gives owners the opportunity to
extend timeshare plans through practical changes in voting requirements.
For timeshare plans that terminate, the new law allows an HOA board to
continue to represent owners in handling post-termination activities. The
bill also clarifies language regarding each owner’s right to dispose of their
timeshare interest as they choose.
Resorts with sunset clauses in their documents have good reason for
concern, Samson says. “A sunset clause can affect so many areas. How
do you plan your reserve expenditures and replacements? Should you
replace high-ticket items knowing your resort association could terminate
in a few years? New buyers will need to be informed of the potential end to
the timeshare plan, and that could have an impact on the owners’ and the
resort’s ability to sell their weeks.”
The question about whether an association will be in existence after
its termination vote also has major implications regarding long-term
affiliation agreements and contracts. “Retaining and hiring qualified man-
agers and employees will become more difficult as termination dates
approach,” Samson notes. “Boards need to take action quickly to remove
any cloud of doubt over their resort’s future.”
Next Steps
Although the new legislation provides better direction and important owner
protections, resorts with sunset clauses in their documents should still
begin planning as soon as possible. “There may be sensible reasons to
terminate a timeshare plan, but some owners will want to continue to enjoy
their resort,” Samson says. “Resorts that want to avoid termination may
have elevated voting and quorum requirements that are difficult to obtain.”
The new legislation states that the quorum for an HOA meeting is
50 percent for all eligible voting interests in the timeshare plan, unless
the timeshare instrument provides for a lower quorum. In addition, the
bill provides that unless the timeshare instrument permits a lower per-
centage, 66 percent of the total voting interests in the plan may vote
to extend it, and 60 percent of the total voting interest in the plan may
vote to terminate it. Owners who have been delinquent for more than
two years aren’t counted in the quorum or voting requirements.
If an HOA wishes to extend or terminate the timeshare plan, vot-
ing action and legal documentation will be necessary. To assist its
managed properties, VRI has obtained legal counsel, and those attor-
neys have created master documents that can be tailored for each
resort affected. “We wanted to provide assistance while also saving
VRI–managed resorts money. This provides for that because some of
the research and other work that’s duplicative has reduced the cost to
individual resorts,” Samson says.
She advises other resorts to take the following steps:
1. Review timeshare documents and relevant statutes. Determine
if a sunset clause exists and, if so, what are the key dates and events. If
a termination date is approaching (even if a few years away), it’s crucial
for boards to understand how termination may be avoided, or if termi-
nation occurs, what happens then.
2. Act now! It may take months, if not years, to explore and carry out the
various options and obtain the necessary authority for a board to act,
based on the preferred option.
3. Retain expert consultants, which may include legal, title, and real
estate professionals. There are many issues surrounding termination,
and boards will need guidance to work through them.
4. Explore alternatives. Instead of simply accepting termination, the
board should investigate alternatives to the termination language in
their documents, including removing or amending the termination pro-
visions and continuing the current timeshare program. Boards may
consider establishing a committee that may include owners to deter-
mine the highest and best use of the property.
5. Educate owners about their options. Most owners will not under-
stand the ramifications of termination. Special mailings, weekly on-site
owner meetings, and the resort newsletter can all be employed, as well
as simply discussing with owners at check-in or checkout, or during
their stay.
6. Obtain owner proxy votes as soon as possible, in accordance with
legal counsel. CS/SB 818 makes proxies valid for three years, unless
revoked, which gives boards and/or their management company a
longer time to campaign. VRI–managed properties are using various
ways to collect required proxies. Whether it be via email (when autho-
rized), mail, newsletters, websites, or at the resort, there are a number
of ways to educate owners and collect required votes.
Whether the majority of owners choose to keep a beloved resort open
or find a higher or better use for an aging property, those who disagree
with the decision may become very emotional. For some, family traditions
will come to an end, while others may see an opportunity for a graceful
exit. “The board has to serve the majority, but must remain considerate
of the minority, as well,” Samson says. “It’s their job and ours to provide
prudent business and non-emotional leadership.”
Judy Kenninger, RRP, is principal of Kenninger Communications and has been writing
about the vacation real estate industry for nearly two decades.
MANAGEMENT
What Florida
Timeshare Resorts
Need to Know
magann/Deposit Photos
SUNSET
CLAUSE
Addressing the