With the Ragatz Fractional Interest Conference beginning in just a few days, we thought it worthwhile to republish this post from January. It addresses structuring issues, a topic Dave Waller will be speaking on at the conference.
In 2007, the Division of Florida Condominiums, Timeshares and Mobile Homes issued a ruling to the Lifestyle Development Company stating that the timeshare/fractional registration requirements under Fla. Stat. §721 did not apply to a vacation club that allowed members to terminate their memberships within 3 years, so long as the members were given advance notice of their rights to execute the termination option. Generally, the ruling was not surprising as it followed the explicit statutory exemption to timeshare/fractional registration provided at Fla. Stat. §721.52(4). Lifestyle likely sought the ruling as it had made an ill-advised 2006 application for registration exemption based solely upon its expectation that its members would be "sophisticated, wealthy people who do not need regulatory protection." (Tell that to Mr. Madoff's investors).
Recently, staySKY Vacation Membership Club Development, LLC, also sought to avoid timeshare/fractional registration under the "less than 3 years" exemption. In its request, staySKY described its vacation club memberships as having a 35-month initial term, with members having the right to renew their memberships for an additional 35-month term in exchange for a $100 fee. Some memberships could be renewed up to 15 times, meaning that the potential total membership duration would be close to 44 years. The exemption request also detailed how traditional consumer protections would be observed.
In approving starSKY's exemption request, the Florida regulator stated: "[w]hile staySKY does incorporate much of the Timeshare Act in its policies and provisions, compliance with the Act is not mandatory on staySKY." More importantly, the regulator stated:
"Considering that the legislature has carved out exemptions for vacation plans with a period of less than three years, it is axiomatic that a thirty-five month plan fits into this statutory exemption."
In granting staySKY the exemption, the Florida regulator reaffirmed its reading of the "less than 3 years" exemption in Lifestyle. So long as a developer demonstrates an intent to comply with the requirements of §721.52(4), the regulator will not be concerned with the consumer protections made part of the vacation plan. Moreover, the regulator will not subject the vacation plan to any sort of economic substance test.