Eamon Harrison Courtenay SC July 16 2015 The importance of legal advice for timeshare rights Courtenay Coye LLP | Private Client & Offshore Services - Belize Eamon Harrison Courtenay SC Private Client & Offshore Services FactsAgreementDecisionCommentIn the recent case of Lincoln Cane Ventures LLC v British Caribbean Bank International Limited, the Supreme Court highlighted the need to comply strictly with essential legal requirements when investing in property abroad. It found that more than 160 US citizens who had purchased timeshare interests in a residential resort pursuant to membership agreements could not exercise their purported rights in priority of a bank's mortgage interest on the property. This was because they had not registered their timeshares or paid the required stamp duty on their membership agreements.FactsTourism is a significant industry and driver of the Belizean economy. Belize possesses many features which make the country an ideal place for vacation or retirement. As a result, people frequently invest in Belizean timeshares and condominiums. Ambergris Caye, an island located off the coast of Belize, houses the residential resort of Sueño Del Mar Limited. The US citizens entered into membership agreements with Sueño Del Mar Limited for the purchase of timeshare interests. However, Sueño Del Mar Limited and the purchasers agreed that they would not register the membership agreements or pay stamp duty in an attempt to minimise costs.A separate company, Sueño Del Mar Holdings LLC, obtained loans totalling US$4 million, which were secured by various mortgages from British Caribbean Bank International Limited, for which Sueño Del Mar Limited stood as guarantor. The bank was unaware of Sueño Del Mar Limited's arrangements with the claimants.In July 2010 the bank demanded repayment from Sueño Del Mar Holdings and Sueño Del Mar Limited. Both companies defaulted on payments, and the bank appointed a receiver of Sueño Del Mar Limited. Four months later, the receiver informed the claimants that the bank did not recognise their interests or rights as timeshare members. By March 2011 the Sueño Del Mar Limited property was advertised for sale, and the claimants were prevented from occupying the premises.The investors initiated proceedings against the bank and the receiver, seeking declarations that their membership agreements were legally binding and that they would be recognised in rem and enforced by the bank, receiver and any subsequent purchaser or owner of Sueño del Mar Limited, pursuant to the Timeshare Act 2007. The claimants also asserted that the bank's mortgages were illegal and thus void, since Sueño Del Mar Limited was incorporated in Belize and therefore resident in Belize – a contravention of the International Business Companies Act, which authorises international business companies to carry on business with persons not resident in Belize only.AgreementAccording to their membership agreements, the claimants did not obtain any property interest by way of the membership agreements, but rather a revocable licence to use and occupy the premises. The claimants did not pay a purchase price, but gave a 30-year unsecured, interest-free loan to the developer, which would be returned in full, provided that membership continued and was in good standing. For this loan, the claimants received membership in the club, which was almost completely regulated by Sueño Del Mar Limited. The members had exclusive use of a specified unit for an assigned period of time commensurate with membership type, but Sueño Del Mar Limited chose which unit was assigned to them, the members were prevented from assigning their interest to other parties and Sueño Del Mar Limited could revoke the resulting licence at will. Essentially, there were no expressed or implied rights of exclusive possession.It is trite law that a contractual licence does not create an interest in land. Accordingly, by the nature of the agreement, any party contracting with Sueño Del Mar Limited was highly susceptible to its whims or those of third parties. The act provides protection against such situations, but the claimants could not have recourse to those protections.DecisionIt was held that timeshare rights available under the act cannot be acquired by membership agreements alone. Failure to register such timeshare interests would deprive the claimants of any protection afforded to them under the act. The only way to achieve such rights was through the registration of Sueño del Mar Limited as timeshare accommodations.The act came into force in 2009, in order to:"regulate the provision of timeshare accommodation in Belize; to provide for the registration of timeshare accommodation developers, to provide for the payment of licensing fees for timeshare accommodation; to provide for the payment of occupancy tax by the holders of timeshare rights; and to provide for matters connected or incidental thereto."The act not only regulates registration and payment of taxes, among other things, but also provides a guarantee to potential investors that the premises meets required legal standards. It allows third parties (eg, lending agencies and insurers) to determine the extent of the responsibilities that they undertake when engaging in business with a timeshare property.Specifically, Section 5(1) of the act states:"5. (1) No premises shall be leased, sold or used for the purposes of a timeshare accommodation unless such premises and the developer are registered under this Act and a licence is obtained by the developer from the Registrar in that behalf.(2) An application for registration in respect of any premises used for the purposes of timeshare accommodation on a day this Act comes into operation shall be made within thirty days of that date."These sections mandate that any premises desirous of becoming a timeshare accommodation must be registered before they can attain such a status. Section 5(2) makes this a strict requirement, since a deadline was given for application for registration of premises which acted as timeshare accommodations before the enactment of the act.The court stated:"if subsection (2) is complied with and the application is approved, then those premises which formerly were only being used as timeshare accommodation would then achieve the status of a timeshare accommodation for the purposes of The Act."The act was passed to regulate and eliminate the dangers of agreements such as the membership agreements used at Sueno Del Mar Limited, but in order to acquire that protection, it was compulsory that membership agreements be registered. Failure to comply with the act meant that the status of timeshare accommodation was never achieved, and consequently the claimants were unable to assert any rights in priority to the bank's mortgage interest.The culpability lies not only with the claimants in signing suspect membership agreements, but also with Sueño Del Mar Limited:"However, the onus to perform the contracts entered into with the Claimants remains with The Company. It is The Company which ought to have done all that was required, to ensure that it fulfilled its contractual obligations including, if necessary, full compliance with The Act once it was passed. It was always open to the Claimants to seek the court's help in enforcing the proper performance of those agreements. They did nothing."Apart from failing to register the agreements for timeshare purposes, stamp duty was not paid on the membership agreements. The court held that the Stamp Duties Act required ad volarem stamp duty to be paid on the membership agreement, and not doing so "allowed the Company to keep private that which the law demanded to be public, to defraud the revenue and consequently to deny themselves even the rights they contracted for".CommentThis decision underscores the importance of obtaining legal advice before entering into agreements or transactions, whether local or international. Failure to do so may have drastic consequences. The claimants have been held to be bereft of rights – notwithstanding their substantial investment of more than US$17 million – because, along with Sueño Del Mar Limited, they set out to evade legal requirements and have been made to pay the price.For further information on this topic please contact Eamon Courtenay at Courtenay Coye LLP by telephone (+1 345 814 2013) or email ([email protected]). The Courtenay Coye LLP website can be accessed at www.courtenaycoye.com.