Jim Shannon
Main Page: Jim Shannon (Democratic Unionist Party - Strangford)
Fiona O'Donnell (East Lothian) (Lab)
I am grateful for the opportunity to debate the regulation of the timeshare industry. I want to start with a list of thank yous. It is appropriate that we are speaking about timeshare: I thank Ministers from the Department of Energy and Climate Change for disposing of their business so quickly that they have managed to share the time this evening more evenly. I thank the Minister and her officials for the interest they have taken in this issue. I look forward to working with them in the hope that we can find a way to solve the problems faced by the people I will be speaking about. I thank the various consumer organisations that have been supportive: Citizens Advice Scotland, Which? and the trade body of the sector, the Resort Development Organisation. Most of all, however, I would like to thank The Sunday Post, which has run a really effective campaign on the issue. That newspaper is often the subject of urban myths—according to one that does the rounds in Scotland, when the Titanic sank, its headline was “Titanic sinks. Govan man feared drowned”—but this campaign shows that those urban myths are a thing of the past.
For most people, owning a holiday home is little more than a dream, but a solution was apparently found back in the 1960s, with the birth of timeshare. Holidaymakers keen for their own slice of paradise without the full cost of owning a place abroad—something they could not afford—turned to this option. Under a timeshare agreement, individuals and families own not a whole property but the right to occupy a property for a specific period each year. Timeshares are binding, contractual agreements between owners and the company that owns and manages the property, with the owner paying a one-off fee and ongoing maintenance costs. The legal rights and obligations binding the company and owner are detailed in a timeshare agreement.
Timeshares were meant to offer families certainty and security. By investing in a property held in trust for mutual benefit, families could enjoy regular holidays in accommodation of a higher quality than that which they could otherwise have afforded. The idea of timeshare became popular, and recent figures from a European timeshare industry report show that more than 500,000 Britons own timeshares. It is a huge sector in the UK, therefore, and although much progress has been made in terms of regulation and better practice, there is still room for improvement because for many that holiday dream has turned into a nightmare.
During the boom years of the ’80s and ’90s, timeshares were often sold aggressively to tourists who were on holiday and without access to legal advice. Many contracts were not in English and deals were agreed in currencies other than sterling, meaning that maintenance fees have risen as the pound has weakened. Many timeshare owners unwittingly signed contracts that locked them and—it now transpires—their children in for life, because timeshare agreements regularly included an “in perpetuity” clause, extending the right to a property beyond the owner’s death. The only way for these timeshare owners to escape their timeshare is to sell it on, but there is little demand for second-hand timeshares, and many owners have been forced to use unscrupulous middlemen to find a buyer. Often, these issues are not reported, but they affect many families across the UK. This debate follows on the heels of scams awareness month, and it seemed an appropriate time to raise it in this place.
The Timeshare Act 1992 and the Timeshare Regulations 1997 were repealed by the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010, which came into force in February 2011. The 2010 regulations were introduced to transpose EU directive 2008/122/EC—on the protection of consumers in respect of certain aspects of timeshare, long-term holiday products, and resale and exchange contracts—which had been adopted on 14 January 2009. The directive aimed to enhance consumer rights, especially through stronger rules on the information that companies had to provide to consumers, including on the consumer’s right of withdrawal. Under the new rules, a private individual considering the purchase of a timeshare must be made aware of key information in their own language and in the standardised form. Buyers are also given rights of withdrawal, so that they can cancel a contract during a cooling-off period.
In short, new timeshares with contracts of more than a year must be sold with a 14-day cooling-off period, giving buyers a right to cancel. The seller cannot ask for any money within the 14 days, and if they do not inform the buyer about the cooling-off period, it can be extended to one year and 14 days. This is a great improvement on the previous situation, when there was a cooling-off period only if the timeshare agreement was for at least three years. Afterwards, the buyer can cancel the timeshare if the timeshare allows for it, although they may have to use a timeshare or resale company, which usually charges commission, in order to secure this.
The 2010 regulations sought to address a number of problems by extending protection to holiday products similar to timeshares, including holiday clubs, and improving consumer confidence by ensuring that important information is provided to individuals before they commit to timeshare purchases or resales. The Office of Fair Trading and trading standards officers are responsible for enforcing the regulations, which were broadly welcomed. Consumer bodies such as Which? had lobbied for increased protections. However, the regulations address problems with only certain aspects of timeshare agreements—for example, consumer rights when entering the contract. Meanwhile, issues such as termination of contracts and inheritance of rights and obligations remain regulated by national laws of European Union member states.
The EU Commission will review the application of the directive and report to the European Parliament and the European Council in 2014. I will be interested to hear whether the Minister thinks there might be an opportunity in that review to extend the remit of the regulations. The 2010 regulations indicate that policy makers recognised a need to reform the timeshare market, but protections did not address in-perpetuity contracts, which continue to affect countless timeshare owners. If the timeshare company is a member of the trade body, the Resort Development Organisation, owners can escalate complaints through an internal reconciliation process, although this may prevent future court action. There are also several bodies offering advice to timeshare owners. In addition to the 2010 regulations, the Unfair Terms in Consumer Contracts Regulations 1999 may be relevant in determining the legality of a timeshare agreement. It would be for the OFT to decide whether to investigate.
As I have looked further into this issue, it has become clear that there is uncertainty in many areas of regulation. Other than the 2010 regulations, legal protection for timeshare owners is rather ad hoc. Indeed, Citizens Advice Scotland has said:
“The Citizens Advice Service in Scotland advised consumers on more than 300 queries about timeshares in 2012/13…Citizens Advice Scotland is concerned that many consumers are still…ripped off despite recent policy improvements around timeshares.”
Although there has been a fall in complaints about timeshare companies, Citizens Advice, consumer champions Which? and BBC’s “Watchdog” have all raised concerns about timeshare agreements in recent years. As the 2010 regulations were not backdated, many timeshare owners have been left to traverse the tangled web of contract law and property rights, sometimes in the UK and sometimes overseas. Some companies allow owners to terminate timeshare agreements on request, while others provide this option only to the sick or elderly. Owners should check, with the assistance of a legal adviser or Citizens Advice, whether provision exists in their agreement.
Margaret Kaney from Bridge of Allan contacted The Sunday Post about her timeshare. She is 70 years old and bought a timeshare in Scotland with her husband in 1994. They paid £6,600 for their timeshare, and maintenance fees have risen to £1,100 annually. Mrs Kaney’s husband died over seven years ago and then she suffered a stroke, which made travel difficult. Mrs Kaney has had her timeshare up for sale for two years. Following an intervention by The Sunday Post, she was released from her timeshare and the RDO promised that most of its members allowed owners who were over 70 to leave. The Sunday Post has informed me that, despite that assurance, other owners who have asked to end their contract have been met with refusal.
The Trading Standards Institute represents trading standards officials in the UK. An official from the Trading Standards Institute commented in general terms that if a person can prove that they can no longer afford their timeshare or if the conditions under which the contract was signed have changed, they may be able to dissolve it. In practice, timeshare holders can sometimes relinquish their timeshare in exchange—for example—for one year’s maintenance fees.
Myra Murray, aged 63 and from Wishaw, inherited a two-week timeshare with her husband, Alan, from his mother, who had had it for 30 years. They continued to pay maintenance costs for 20 years, and spent £3,500 on a further week’s worth of timeshare. The annual maintenance fee is now more than £1,000. Mr and Mrs Murray used the timeshare annually, but Mr Murray died in 2011. Mrs Murray now fears years of never-ending maintenance fees. She is trapped by an in-perpetuity clause, but the company has said that the contract could be brought to an end in three years’ time if she paid £5,400 up front. Mrs Murray feels that that offer is extremely unreasonable. She is also concerned about passing the debts on to her children. Her situation is simply intolerable. However, the TSI official has said that if a timeshare owner cannot come to an arrangement and is not in financial difficulties, it is their responsibility to sell the timeshare. Until a buyer is found, they are legally bound to pay maintenance fees.
Catherine and Peter Ross from Carluke spent £5,500 on a timeshare at Moness Country Club, but were not told that they would need to save two years worth of points to get one weekend in Florida. They ended up paying over £2,500 more to get a one-week timeshare, and they currently pay £500 annually in maintenance fees. They are trapped by an in-perpetuity clause and are allowed to advertise the timeshare for sale only on the company’s website.
In addition, bogus resale companies have proliferated. A recent EU directive tightened the rules on reselling and the charges that can be levied, but The Observer newspaper revealed last year that some people who had previously used bogus resale agents were now being targeted by bogus compensation companies claiming to be able to recoup money that had been lost. That was clearly a case of double scamming. Some companies offer buy-out schemes to enable owners to terminate their agreements, but the Minister’s own Department has warned against using those schemes.
The Department for Business, Innovation and Skills has stated that consumers experiencing problems with their timeshare should be cautious before committing to sell to, or seek the help of, any company without first seeking legal advice. The Department has said that it receives reports and complaints about the trading activities of some resale companies that offer a marketing service for an up-front fee. Sales seldom take place, and additional fees are charged. I hope that the Minister will be able to tell the House this evening what action she is planning to take in response to the information that her Department has gathered.
A Member of the House of Commons, my hon. Friend the Member for Ogmore (Huw Irranca-Davies) has played a part in exposing some of these scams. In October 2010, he took part in a BBC “Watchdog” exercise to highlight the dubious business practices and aggressive selling techniques of those resale companies. He was subjected to pressure selling, and three lawyers confirmed that the company involved had broken several laws.
In-perpetuity contracts lock timeshare owners in for life. After an owner’s death, the contractual obligations may pass to their children or to another beneficiary in their will. There has been conflicting advice over the enforceability of in-perpetuity clauses, and timeshare owners would like clarity. We are hoping for some clarity from the Minister tonight, or at least for an indication of the direction of travel that she is taking on this matter.
I should like to thank the House of Commons Library for providing me with further information on the timeshare sector in the UK and overseas. It informs me that if a timeshare is jointly owned with the right of survivorship, the surviving owner should automatically become the full owner. However, if the deed reflects sole ownership, the property may be handed down to another party according to the terms of the deceased’s will, trust or other legal document that specifies who will inherit his or her estate. In effect, a person could inherit a timeshare that they do not want and cannot afford. The beneficiary can formally disclaim the timeshare if they do not want it. That allows the executor to take charge of the property instead. They may then be able to sell or donate the timeshare. The owner of an unwanted timeshare might be better off disposing of it now, rather than leaving it as a problem for his or her executors.
The Sunday Post heard from a Lothians couple who bought a timeshare in 1997—a great year—for £3,800. They have a disabled son in his 20s and they worry about his future. They would like to start saving for his care, but are faced with annual maintenance fees of £530. They say the timeshare was sold to them as an investment for their children, but it is fast becoming a frightening burden as they are again trapped by an in-perpetuity clause. Meanwhile, the newspaper heard from a lady aged 79 from South Lanarkshire who bought a timeshare from Macdonald hotels in 1990 for £7,800. She insists that the timeshare was mis-sold to her. She is struggling to pay maintenance fees of £554 on her state and small occupational pensions. In addition, she has a grown-up disabled son who lives with her. They are unable to use the timeshare; they last used it seven years ago. She asked Macdonald if she could sell it back in 2010, but it suggested letting it out. This raised only £143.
An official from the UK European Consumer Centre, which provides impartial advice for UK consumers, agreed that in-perpetuity clauses are unfair as they pass responsibilities on to people who may not want them. The ECC gets complaints from time to time from people who have inherited a timeshare and have been told that they must continue to pay the maintenance fees or legal action will be taken against them. This is despite the timeshare itself being in someone else’s name. As far as the ECC is aware, no timeshare company has actually taken legal action against a consumer and been successful, although it can rely only on the information provided to them by consumers, and it may be the case that consumers have simply not informed it. The difficulty for UK consumers is that they can argue that the contracts are unfair, but in order to get a confirmed ruling, they have to go via a court and get a judgment, which can be both time-consuming and costly.
I have been informed by an official at the UK ECC that in Spain contracts for longer than 50 years, including contracts in perpetuity, are unenforceable as they are deemed unfair. Although this ruling is beneficial to UK consumers who have agreements with Spanish companies, could the UK Government not look at adopting such a rule in the UK? I look forward to hearing the Minister’s response on that.
With the launch of their draft consumer rights Bill, the Government claim to be acting in the best interests of consumers, but owners of unwanted and costly timeshares do not see any resolution of their worries in the near future. While recent regulations have improved the standing of people purchasing timeshares, those who already own timeshares have been left to fight for their contractual rights in the courts or through industry-run reconciliation processes.
Jim Shannon (Strangford) (DUP)
Does the hon. Lady feel that a way forward for those who have timeshares that they cannot get out of would be for the travel companies to purchase them or adopt a system for renting them out? The hon. Lady mentioned a rental system. We all know the pitfalls of such a system, but if a company was able to do it, it might be a way of enabling some people at least to get some benefit from the timeshares they cannot get out of?
Jo Swinson
In the Spanish example, they also have the 50-year contract unfair term, where the contracts become unenforceable. We are dealing with different legal systems, of course, and different economic circumstances, but it is definitely worth looking to see whether any lessons can be learned from how fellow European countries have dealt with some of these issues. Also, as the directive will be up for review three years after it came into force, that presents an ideal opportunity to consider how it has been implemented both here in the UK and in other countries, and whether there is some best practice that can be shared.
Jim Shannon
On the Timeshare Association, the Minister mentioned that alternatives and other options had been found for people who have timeshares. Will she elaborate on that? What is the success rate? What are those options? If they were on hand, perhaps that would help people to identify some way forward.
Jo Swinson
I would not want to paraphrase the entire guide to timeshare disposal, which the TA produced and which could probably say it better than I could. I can recommend that publication to the hon. Gentleman, as it would be useful for him to have a look at it. In general terms, buyers can be found for the contracts in some cases, whereas in others resort owners have a points system in a second-hand market. For example, where the owner of a timeshare contract is no longer able to access the benefits of the contract, perhaps because the location is a long distance away and they can no longer travel far because of age or infirmity, they might be able to swap the contract, through that points market, changing to a different property or a different resort much closer to home. Sometimes people are just seeking variety, because they do not want to go to the same place they have been going to for 15 years, and that can provide a helpful option to individuals in this situation. A wide range of avenues can be explored. Of course I am also looking at the issues arising from some cases where, because of age or a particular medical reason, there clearly will not be any benefit to the individual. In some of those cases resort owners have also been able to show flexibility in taking back those contracts. So a range of different routes can be explored but I certainly encourage anyone who finds themselves in that situation to make contact, because each individual case will be different and getting specific tailored advice would be helpful.
Another issue that has been raised is that of bogus resellers and, indeed, bogus compensators—we end up rolling our eyes, thinking that there will always be people who want to rip other people off. It is a sad state of affairs that we get the bogus compensators as well as the bogus resellers. It is positive to be able to report that the Office of Fair Trading has taken proceedings in the High Court in relation to some of the sales and marketing practices of Incentive Leisure Group Ltd, Personal Travel Group Ltd and others, and that legislation is already in place to tackle bogus resellers. The enforcers, who include not only the OFT, but trading standards, can obtain enforcement orders against companies under the Enterprise Act 2002. Let me give an example of how that can be used. Final enforcement orders were obtained in March 2012 against seven individuals and the companies concerned. Among other things, those orders prohibit the companies and individuals from engaging in misleading sales practices when dealing with people who want to dispose of their timeshares, and the orders require customers to be given cancellation rights in certain circumstances. So legislation and protection is in place, and it can be, will be and is enforced. That can provide reassurance, in any event.
Long-standing timeshare owners can pursue solutions through a range of avenues, even though before 2011 they did not have the revised cover of the new European directive on timeshare products. I agree with the hon. Lady that these issues can be very distressing and difficult for the people in the situation she describes. On a positive note, however, these issues should increasingly become a thing of the past, because of the new rules that are in place, to which I referred.
The agreement of the new timeshare directive in 2009 brought with it a raft of new protections to provide consumers with the tools they need properly to assess the value and detail of not only timeshare contracts, but timeshare exchange contracts and, most importantly, contracts for other long-term holiday products. Although “other long-term holiday products” is a clumsy phrase, it had to be designed because when the first directive tightened the conditions under which timeshare contracts could be sold, effectively outlawing the worst of the timeshare sales practices that were so prevalent in the ‘70s and ‘80s, these other products suddenly emerged to circumvent that directive.
The new directive was implemented in the UK by the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010, and I will give the House a few examples of how we saw the rules tightened significantly. For example, much more information needs to be provided to consumers about how the contract can be terminated, the methods by which future costs, such as maintenance charges, will be calculated, the degree to which timeshare owners have a role in decisions about future costs and detailed information about precisely what rights are provided under the contract. All that information is considered to be part of the contract. Importantly, the directive also provides the consumer with 14 days in which to consider the decision and withdraw from the contract if they decide it is not for them after all. No money can be taken from the consumer until that 14 days has elapsed.
The regime is generally recognised as a success. As the hon. Member for East Lothian said, complaints about timeshare sales have decreased markedly and the industry reports provisions such as the perpetuity clauses she mentions as such a problem are increasingly rare. I am sure she welcomes that fact. She asked about the review in 2014 and, as with any directives that are implemented, we are looking at how the provisions are working.
It is important that when there is evidence of problems in the industry, it is properly gathered together. Of course, the UK Government are in a position to communicate with the Commission on any problems that have been found. Obviously, whether any changes are needed will ultimately be for European agreement, so I encourage those campaigning on the issue not only to pull together the evidence and the case but to consider what is happening in some of the other countries in the EU in order to see whether any links can be forged with those campaigns.
For those products that do not fall under the timeshare directive, other EU legislation provides for contractual rights on the sale of services and withdrawal rights in the case of off-premises sales. Those rights still apply. Irrespective of the extra coverage provided by the timeshare regime, the EU legislation outlawing unfair contract terms and misleading and aggressive commercial practices also applies, as it does to all consumer sales.
I acknowledge that there might be no easy answers for those who have timeshare contracts—agreed, in some cases, a long time ago—in which they have discovered that provisions that did not seem to have significant consequences at the time are now a significant burden and a worry. Aside from encouraging those affected to continue to engage with the contracting parties and associations that might be able to help, I hope that I have been able to reassure the House and the hon. Lady in particular that there are now far more robust protections for consumers in the sector. The signs are positive that the new protections are working. Unfortunately, there will always be some in the market who attempt to operate outside the law, as there are in other markets, but the new regime seems in the main to be robust enough to ensure that the issues that the hon. Lady has so understandably raised tonight should not arise in the future.