The Texas Timeshare Act
Timeshares have been and continue to be a popular method to secure affordable vacation destinations. For timeshare properties located in or offered for sale in Texas, Texas Property Code Chapter 221, also known as the “Texas Timeshare Act” (“Act”), governs and regulates timeshare interests. “Timeshare interests” are comprised of “estates”, “properties”, and “uses”.
A “timeshare estate” is any arrangement under which the purchaser receives a right to occupy a timeshare property along with an interest in real property. A “timeshare property” is one or more accommodations and any related amenities that are subject to the same timeshare instrument, and any other property rights that may co-exist. An “accommodation” includes apartments, condominiums, cooperative units, hotel or motel rooms, cabins, lodges, or other private or commercial dwellings attached to real property. An “amenity” includes any common areas, recreational facilities, or other common components of timeshare property. A “timeshare use” is any arrangement which allows the purchaser the right to use timeshare property, but does not grant any other interest in such property.
It must be noted that any timeshare interest located outside of Texas is not subject to the Act’s provisions relating to the creation of the timeshare regime (subchapter B) and the rules relating to a timeshare owners’ association (subchapter I). So long as out-of-state timeshare interests are offered for sale in Texas, then the provisions of the Act relating to registration (subchapter C), disclosures and advertisements (subchapter D), cancellation and rescission rights (subchapter E), exchange programs (subchapter F), escrow deposits (subchapter G), deceptive trade practices (subchapter H), and the transfer or termination of timeshare interests (subchapter J), will apply.
Only timeshare properties in existence on or after August 26, 1985, are subject to the Act. There are also certain types of offerings and dispositions which are exempt from the Act.
If a timeshare property is subject to the Act, a person may not offer or dispose of a timeshare interest unless a timeshare plan is registered with the Texas Real Estate Commission. “Offer” means any advertisement, inducement, solicitation, or encouragement to attempt to cause a purchase of a timeshare interest. “Dispose” means a voluntary transfer of any legal or equitable timeshare interest. Offering or disposing of a timeshare interest which has not been registered is a Class A misdemeanor. However, it is permissible for a developer to accept a reservation and deposit from a prospective purchaser on an unregistered property and place the deposit in a segregated escrow account with an independent escrow agent, so long as such deposit is fully refundable upon request by the purchaser.
Any advertisement or promotion related to a timeshare interest offering must comply with the Contest and Gift Giveaway Act (Chapter 621 of the Texas Business & Commerce Code). Any advertisement must make it clear that it is soliciting purchasers of timeshare interests and anyone whose name is obtained during a promotion may be solicited, and must set forth the developer’s name and the name and address of any marketing company involved in the promotion, unless affiliated with the developer. A developer must also provide a timeshare disclosure statement to any prospective purchaser before entering into a purchase agreement. The required contents of a timeshare disclosure statement can be found in Section 221.032(b) of the Act.
If the timeshare interest includes an exchange program, the party making the offer must also provide an exchange program disclosure statement. The details of the exchange program disclosure statement can be found at Section 221.033(d) of the Act. An “exchange program” is any method, arrangement, or procedure for the voluntary exchange of timeshare interests between owners. Typically the company administering an exchange program is not responsible for misrepresentations of the developer or for the denial of any exchange privileges. So long as the developer’s contracts and sale documents have been approved by the Texas Real Estate Commission or a licensed Texas attorney, the developer may charge a reasonable fee for completing such forms, including the disclosure statements, purchase agreement, and closing documents.
Section 221.043(c) of the Act sets out the requirements for the timeshare purchase contract. The contract must advise the purchaser of his or her right to cancel the contract without penalty. This right to cancel extends through the 5th day following the purchaser’s execution and receipt of the contract or the purchaser’s receipt of the timeshare disclosure statement, whichever is later. The cancellation right cannot be waived.
Enforcement of the Act may be accomplished through the filing of an administrative complaint with the Texas Real Estate Commission or by private enforcement through the Courts. Several violations of the Act also constitute violations of the Texas Deceptive Trade Practices – Consumer Protection Act (Texas Business & Commerce Code Section 17.41 et. seq.). Upon a finding of a material violation of the Act, the Texas Real Estate Commission may suspend or revoke a developer’s registration, place it on probation, issue a reprimand, impose an administrative penalty of up to $10,000.00, or take any other disciplinary action authorized by the Act.
Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at [email protected] and www.dentonlaw.com.