Comments on Proposed Time-share Regulations

The following comments on the proposed timeshare regulations are submitted on behalf of the American Resort Development Association (“ARDA”).

1) 18VAC48-45-130(C)(11) Exhibit K: A copy of any management agreements, employment contracts or other contracts or agreements affecting the use, maintenance, management, or access of all or any part of the time-share project.

Comment:  It is unclear what the CIC Board intends by “affecting the use, maintenance….of the time-share project.”  ARDA’s concern is that this provision is overbroad and will include such things as lawn mowing or snow removal contracts.    It appears the issue that is being addressed by this provision is to ensure that the purchaser is aware of the management agreement in place for the facility.  It would be much clearer to limit this provision to management agreements with individuals or companies.  Moreover, as currently written, this provision could be interpreted to require employment contracts of any individual employed at a facility.  It does not appear that is the intention but as currently drafted the provision could be read that way.

While this language tracks the Virginia Code § 55-391.1, the Board does have the ability to interpret “affecting the use, maintenance, management, or access” language in a way that limits the scope of what the Board requires in the application process.Consequently, ARDA requests the Board amend the provision to limit this provision solely to management agreements pertaining to the overall management of the project.This would also make it consistent with the proposed 18VAC48-45-160(F)(6) which requires as an exhibit to the public offering statement any management contract.

Alternatively, the Board should amend the regulation to include the word “substantially” between the words “agreements” and “affecting” so that it reads “contracts or agreements substantially affecting the use….”This would allow the contracts for things like examples above (mowing, etc) to not be included in the registration application.

2) 18VAC48-45-130(C)(12) Exhibit L: requires a developer to file “A list with the names of every officer of the developer or persons occupying a similar status within or performing similar functions for the developer. The list must include each individual's address valid for receipt of service, principal occupation for the past five years, and title.”

Comment 1: Neither “officer” nor “persons occupying a similar status” are defined terms in the regulations.  It is our understanding that the agency’s current interpretation of these terms means those officers whose names are on file at the Virginia State Corporation Commission as an officer of the developer.  ARDA’s concern is that many employees will have the title “vice-president” or a similar title, but who are not actual officers of the corporation will be swept up into this provision unintentionally.  ARDA suggests the Board consider adding a definition of these terms to the regulations or confirm through its response to these comments that the terms are interpreted by the CIC Board to mean those officers on file in a developer’s corporate registration with the Virginia State Corporation Commission.

Comment 2: The Board should amend the second sentence of this provision to delete the phrase “valid for receipt of service” so that the amended sentence reads:  “The list must include each individual's residential address valid for receipt of service, and principal occupation for the past five years, and title.” (Additions are shown in bold and deletions in strikethrough).

Virginia Code § 55-391.1 only requires an address, not an address sufficient for service of process.Inserting the phrase “valid for the receipt of service” could be interpreted as setting up a new method of servicing process on the developer.Legal process should be served on the developer’s registered agent.Some time-share registration applications may have several officers listed who are not equipped to accept service on behalf of the developer.Moreover, the Board should amend this section to be consistent with the Virginia Code and to be consistent with the current time-share registration form that only asks for a residential address to be listed (See Form A492-0515REG-v1).

3) 18VAC48-45-160 (D)(3) A brief description of all amenities located within or outside of the time-share project available to purchasers.

Comment:  ARDA requests the Board to amend this section to read:  “A brief description of all recreational facilities available to time-share owners.  If such facilities are not common elements of the time-share plan describe who owns the facilities and whether time-share owners are required to pay to access and use.”

As currently written, the proposed regulation does not make a distinction between amenities outside of the physical plant of time-share project that are owned by the project and those that are not owned by the project/developer but that may be available to the purchaser for use.  The ARDA proposed language makes it clear what type of amenities are at issue (i.e. recreational) and provides clarity as to what is disclosed to the purchaser.

4) 18VAC48-45-160 (D)(5): A statement regarding the payment of principal and interest due under any deferred purchase agreement for the purchase of the time-share, maintenance fees or assessments, special assessments, user fees, insurance premiums, and real estate taxes. A time-share owner cannot reduce the amount of any owner obligation for any reason, including the refraining from using the time-share, a developer amenity, or any common element.

Comment:  ARDA request the Board amend this section to read:  “A statement describing all types of expenses and fees the owners will be required to pay for maintenance fees or assessments, special assessments, user fees, insurance premiums, and real estate taxes and that a time-share owner cannot reduce the amount of any owner obligation for any reason, including the refraining from using the time-share, a developer amenity, or any common element.”

The proposed language deletes the requirement for a statement regarding “the payment of principal and interest due under any deferred purchase agreement for the purchase of the time-share”.  It is unclear what this phrase is intended to capture.  Every purchase contract will be different regarding principal and interest payments. Section 160(D) pertains to a summary of important considerations provided to the purchaser.  The principal and interest payments will be determined by the purchase price and set forth in any financing documents used in the transaction.

If the Board intends the proposed language to mean a general statement that the purchaser is responsible for the payment of principal and interest (without reference to specific amounts), then the regulation should amend to read: “A statement describing the purchaser’s responsibility to make principal and interest payments in connection with the purchase of the time-share, maintenance fees or assessments,” etc.

5) 18VAC48-45-160(F): Clear and legible copies of the following documents shall be attached as exhibits to the public offering statement:

Comment:  ARDA requests the Board to amend this section to read:  “Clear and legible copies of the following documents shall be attached as which may be a supplement or exhibit to the public offering statement.” (Amendment in bold and strike through).

Allowing the documents listed in the remainder of 18VAC48-45-160(F) to be contained in a supplement gives the developer another option in how these documents are presented to the purchaser. It also makes it easier for the purchaser to organize their documents related to the purchase.  Namely, the public offering statement, which is typically a document of substantial length would be one document and separately, as a supplement, the purchaser would have all of their governing documents together. Requiring the governing documents to be attached to the public offering statement makes it unwieldy and reduces the utility of it to the purchaser.

Alternative language could be: “Clear and legible copies of the following documents shall either be attached as exhibits to the public offering statement or provided in a separate booklet incorporated by reference to the public offering statement.”

Either of these alternative suggestions for the proposed regulation is consistent with Virginia Code §55-374((A)(16) which provides: “Copies of the project instrument and the association’s articles of incorporation and bylaws, each of which may be a supplement to the public offering statement.”

6) 18VAC48-45-250 (F): The section shall discuss any (i) time-share expenses; (ii) time-share estate occupancy expenses as defined in § 55-369 of the Code of Virginia; and (iii) all other costs that may be borne directly by individual time-share owners, actually planned to be specially assessed.

Comment:  What does the Board mean by the phrase “actually planned to be specially assessed?”  This section should be amended by deleting “actually planned to be specially assessed” as it is unnecessary given the clause that precedes it “all other costs that may be borne directly by individual time-share owners.”  Alternatively, the Board could amend the language to require a statement as to any rights the developer or association has to institute special assessments.

Submitted by Chris Nolen, McGuireWoods Consulting on behalf of the American Resort Development Association.,