Everything you wanted to know about Timeshares (but were afraid to ask).

The Spanish holidaying boom that started around 30 years ago brought many positive things: continuous presence of foreign tourists, better hotels and infrastructures and a new hope for the then stagnated economy. During the first years of the boom, a new type of property ownership appeared and proved quite successful. It was known as timeshare and consisted in the right to use a specific holiday property for a specific period of time every year.

Many tourists, especially from countries like the UK, Germany and Sweden, purchased timeshares in Spain with the idea of being able to use them for the same week every year. However, the timeshares were not properly regulated and in many occasions those tourists signed very dubious contracts that did not have any legal grounds. The opportunistic found a golden mine in this type of ownership and suddenly dozens of companies started to sell timeshare. Interestingly, most of those companies were domiciled in an off-shore jurisdiction and the contracts that the purchasers signed did not make any legal sense as in most of the cases were subject to foreign jurisdictions. This lack of regulation led to the first scams and frauds.  

Then, in 1994, the EU enacted a new European Council Regulation with the aim of protecting those purchasers against this type of scams. When it comes to Spain, the said Regulation was not implemented until 1998 when a new law was created to regulate timeshares. The aforementioned law contained measures for the transparency in the purchase of this type of structures, granting the purchasers enough rights to avoid being defrauded such as, for instance, the seller’s obligation to register the development with the Land Registry, the prohibition of registering the company in an off-shore jurisdiction and the obligation to provide accurate and transparent information to the potential purchaser. At the same time, the purchaser was granted a 10 day cooling off period and, after that, a 3 month right to resolve the agreement in the event of a breach of contract.

In spite of the good intentions of the EU Regulation and the Spanish law, those dealing with timeshares continued to create illegal structures which did not comply with the aforementioned laws. Things such as Holiday Clubs, Holiday Certificates and many other similar names were created with the purpose of avoiding the strong Timeshare regulations. Once again, those new contracts were subject to dodgy clauses and foreign jurisdictions with no connection to Spain. Then, sometime in the past decade, things started to get really wild and fraudsters managed to obtain full lists of foreign nationals, many of them British, who presumably owned a timeshare in Spain. They contacted them under false pretences and indicated that they had found a purchaser, requesting amounts of money in advance for taxes that did not exist.

In the end, a structure that started more than 3 decades ago ended up being associated with fraud and waste of money. Nowadays, there are thousands of British who think they own a timeshare in Spain and are religiously paying the annual fees even if they do not use the place at all, being afraid of the potential consequences of not paying the fees. A little of research on the internet and any reader will see that some people are so desperate to get rid of their timeshare that they are willing to give it for free. Unfortunately, no one is interested in those timeshares anymore.

I have been dealing with British clients since 2003. I have seen more than 30 clients coming for advice in respect of their timeshares. However, only one of them had a proper timeshare title deed. The others did not own anything. They only had a certificate that it was not worth the word it was written and did not comply with the existing timeshare laws.

So what is next for those who own a timeshare in Spain? First of all, check if you have a proper title deed. This means a Spanish notary deed and not some sort of certificate issued in English by a company domiciled in an off-shore jurisdiction. If you have a proper title deed, then try to sell it. Some investors are interested in buying the apartments back from those who have proper registered timeshares. If you do not have a proper deed, which is quite likely to happen, then your next step depends on whether you are really using the timeshare or not. If you are and you like the place, then keep it. Keep paying the maintenance fee and using the place on the allocated weeks. If you are not using it and you feel it is more a burden than an asset, seek legal advice as you might be able to terminate your agreement and get rid of the timeshare. In our firm we have dealt with many cases and, fortunately, most of them have a way out.

If, on the other hand you are one of the thousands who have been defrauded by the so called timeshare estate agents that took money for selling timeshares and run away, there is a big case in Malaga against an organisation who defrauded foreign purchasers from France, Germany and UK. It has been estimated that the organisation managed to generate 8.6 million euros through this strategy. If you are one of them and have not appeared in the procedure bear in mind that the trial has been listed for the 9th May 2011. 

To conclude, a timeshare does not necessarily have to be associated with bad press. Some people own timeshare through a proper title deed which is compliant with the current laws. On the other hand, there is a large majority who think they own a timeshare when in fact the only thing they have is an empty paper with no rights and numerous obligations. In those cases, specialised legal advice may prove advisable.

To let or not to let? A brief summary on the 1st year of the Spanish Express Eviction law

In December 2009, a new law, commonly known as “Express Eviction law” was put into place in Spain. The purpose of this law was to speed the tediously slow eviction procedure in Spain. The law was welcomed with many “hoorays” by residential landlords who were suffering the consequences of a slow eviction procedure. The truth is that the law was launched with the idea of protecting landlords against tenants well versed in the intricacies of the Spanish judicial system and more importantly to promote the rental of thousands of unoccupied properties that their owners, including developers, were afraid to let in case dodgy tenants settle their nest for more than a year, which is incidentally the average time that used to take to get rid of them.

A year has passed since the law was enacted and I must say that the balance is not very positive. The main reason is the current collapse of the Spanish Courts which are still inundated with a high volume of claims and lawsuits. It is true that the timescales for the initial hearings have been noticeably shortened and it now takes less than before to have your cause heard by the local Judge. However, the eviction procedure is still taking an average of 3 months to take place and this counter-balances any gains experienced with the speed of the first stage of the procedure. The conclusion is that Spanish landlords are still experiencing an average timescale of 7 months to evict the tenants. This has created the need to look for alternative solutions to minimise the impact that a defaulting tenant can create in someone’s finance. One of these measures is to submit the tenancy agreement to an Arbitrator. This clearly speeds the initial stages but there is still the need to go to the Court to enforce the decision if the tenant does not agree to leave once informed of the decision. Likewise, another solution is to protect the landlord from the losses suffered during the eviction procedure. The best way to do this is by signing an insurance policy that will cover up to more than 1 year rent as well as cover the legal fees.  This can prove a very advisable option for those who have mortgages to pay as the damages of an unoccupied property that is generating no income can be tremendous for the landlord.

If you are thinking about letting your Spanish property is always worth instructing a lawyer to draft a proper tenancy agreement and advice on the best ways to protect your situation. Do not let the estate agent draft the tenancy agreement as they are not qualified to advise on this type of matters and the damages can be much higher than if proper advice was obtained.

The future of the Spanish property market

A year ago I was asked to write an article for The Manchester Law Society Messenger on the situation of the Spanish property market. In that article, I explained that the situation was pretty grim with property prices due to fall and more building companies and developers to bite the dust. 

On 17th November, RR de Acuña & Asociados, a prestigious firm of property analysts, released its annual report which, as expected, continued to paint a worrying picture of the Spanish property market. According to the said firm of analysts, there is still a big difference in the property market between offer and demand. The current stock of properties in the market continues to be in the region of 1.5 million. This is extremely high compared to what the current demand requires.  If we consider that the annual demand in Spain is just for 240,000 to 280,000 properties, then is obvious that the current stock will need a minimum of 5 years to be absorbed.

The report confirms what most people already know: the Spanish property market will not show signs of recovery until at least 2015 and although some signs of recovery will be detected in certain areas by 2013, the general picture is that Spain’s property market as a whole will suffer a gradual fall with property prices falling a further 20% between now and 2015, reaching the values of 2003 and 2004.

With an unemployment rate of 20% and a credit crunch in line with most of continental Europe, Spain and, therefore, its property market will not recover until Europe recovers first, especially considering that Spain’s main economic engines are tourism, construction and the car industry, which largely depend on purchases from Europe.

Interestingly, the report also states that any person who wants to sell a property fairly quickly in Spain should reduce the price in 30%. Otherwise, that person will struggle to sell the property in a market saturated of properties as the Spanish one.

As forecasted in my previous article of a year ago, banks have become the new kings of the real estate market as they have been repossessing properties for the last 2 years and are now feeling the pressure to put those properties on the market and recover part of the losses crystallised with the repossession. Spanish developers will be unable to compete with the banks as the latter will offer their repossessed properties with a 100% finance in order to get rid of those properties and get better figures in their balances.

Bearing in mind the above, what should a British purchaser do? If someone is cash privileged, then there are plenty of opportunities out there. It would be better to avoid saturated coast resorts and look for properties in places with a strong demand from both locals and foreigners. Places like Barcelona, San Sebastian or Madrid can prove a wise investment if the price is right as they usually have a rental demand from locals and foreigners. However, many property owners in those areas have resisted making considerable reductions in prices and the British buyer will rarely see the same discounts that he or she could see in other areas of Spain. Those interested in buying a property in Spain need to bear in mind that Spain is a big country and the property market is not the same in every region. Although the majority of property prices will fall, expensive properties in privileged areas will hold their value better than the rest of the market so do not try to pull a 30% discount on every single property you fancy because you may end up upsetting the seller.

The only positive thing about this property crisis (if we can call it positive) is the selection process that is affecting most of the construction field. It is estimated that more than 40% of Spanish developers are in red numbers and should have filed for liquidation. Some of these developers are innocent victims of the times, but there are still a large number of developers that have not done their homework properly and its disappearance, although sad from an employment perspective for those employees working in those companies, will allow the sector to do its own natural selection process. Hopefully, those in the construction sector that resist the decline will avoid the excesses of the past and Spain will walk towards a more sustainable property market where the offer is not 5 times higher than the demand. But as we say in Spain ” el tiempo lo dirá” (time will tell).

This article has been published in The Manchester Law Society Messenger in February 2011