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.