Timeshare Contracts
Debate between Jo Swinson and Fiona O'Donnell
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)
I congratulate the hon. Member for East Lothian (Fiona O'Donnell) on securing the debate and on raising this issue. It is clear that many consumers such as those to whom she has referred are experiencing real problems. As she said, that esteemed publication The Sunday Post has been conducting a campaign. She made a small jest about the way in which some people have characterised The Sunday Post, but I would describe is as a fine publication that does a lot of great campaigning. I know that it is read by many of my constituents, and I am sure that it is read by many of hers as well.
The hon. Lady rightly pointed out that the issue involves real people, and that a number of them are clearly in an incredibly difficult position. I do not think that anyone could be unmoved by the case of Mrs Kaney, the elderly lady who was still being forced to pay £1,100 a year long after ceasing to benefit from a product that she had bought a long time ago when her husband was still alive, or by the plight of people who feel pressured into paying hundreds of pounds a year or else face a one-off cost of more than £5,000 to buy themselves out. Such costs can impose a huge burden and a huge worry on many families, particularly in these difficult times and, indeed, at any time.
I think it fair to say that the timeshare industry and service providers associated with timeshares and other long-term holiday products have had a pretty poor reputation for a long time. When I was preparing for the debate I spoke about it to some of my colleagues, and a common refrain was “Are timeshares still around?” Of course, given perpetuity contracts, they certainly are still around. Historically, companies in the sector have behaved abominably, pressurising people while they are supposed to be on holiday and trying to persuade them to buy products that they do not really want or even understand at the time. That has left a legacy of difficult issues for some timeshare owners.
Not only do timeshare contracts generally impose an annual obligation to pay maintenance fees in respect of the properties, but they can be very long-lasting. Although nowadays it is possibly more usual for timeshare agreements to specify a set period such as 10 years, and although people may indeed expect to be happy to visit a certain destination throughout the following decade, it is more difficult to predict whether in a few decades’ time a longer-term contract will still be desirable, and whether people will still be willing to accept the obligation that it involves.
No doubt when the timeshares were originally sold to people, they were assured that they would have an opportunity to sell on the contracts and that they would be worth a significant amount, but I suspect that those promises have not come to much when people have tried to sell. Some timeshare owners now find themselves with liabilities which, for one reason or another—age, altered preferences or a change of circumstances—no longer provide them with any actual benefit.
It is important to see the position in a balanced way. It is true that many thousands of timeshare owners in the United Kingdom, elsewhere in Europe, and indeed worldwide are very happy with the product and the opportunities that it provides, and it is true that, when properly sold and constructed, the product in itself need not be problematic and can be enjoyed by many people. At its best, the timeshare industry can deliver an attractive, high-end product that matches its customers’ requirements extremely well. However, it is not a product that is suitable for everyone. That is why the Department for Business, Innovation and Skills continues to recommend, despite the improved protections that have existed since 2011, that any prospective customer should always seek legal advice before accepting any kind of long-term contract that involves an ongoing financial commitment, including timeshare contracts.
I welcome the hon. Lady’s recognition that significant improvements have been made, and I shall say more about those improvements later. I think it important to note that, although the regulations came into force in 2011 under the present Government, they were formalised in 2010, and were the result of a great deal of work by the last Government and by European partners. This is not a party political issue. We all want better rights for consumers and I am always delighted to work with people across parties who are keen to achieve that, so I welcome the spirit in which the hon. Lady made her remarks. I would be happy to work with her on this.
I sympathise with the concerns that the hon. Lady raised about contracts in perpetuity or contracts that last for an incredibly long time which people no longer wish to have. Perhaps when the contracts were entered into, for many people, the idea of passing on the timeshare to family members was quite attractive but, with the elapsing of time, some consumers no longer wish to be involved in those contracts. The only way they can come out of the situation with any certainty is by pursuing the matter through the courts, which as we all understand is not necessarily an easy option or one that many people have the resources to pursue; or by negotiating with the resort operators, which can lead to wildly varying responses, as has been outlined.
The hon. Lady mentioned the UK ECC. When people inherit a timeshare and are told that they must pay the maintenance fees or legal action will be taken—despite the fact that the contract is in someone else’s name; it seems a bizarre obligation under general contract law— it is important to reiterate the point she made, which is that, as far as that organisation is aware, no timeshare company has successfully taken legal action against a consumer and won the case. That is something that many consumers who find themselves in this situation may be interested to know.
The hon. Lady mentioned the law in Spain, where many UK customers have timeshare contracts and where any contract longer than 50 years is unenforceable on the basis that it is unfair. The UK could look at such issues. In normal circumstances, we try not to intervene in individual contractual matters between two parties who can come to an arrangement that suits them. Instead we try to create a framework where the conditions under which fair and honest trading takes place are set out clearly and any imbalance in knowledge between trader and consumer can be addressed. The aim is to create a situation where consumers can make properly informed choices when they buy products and services.
The sale of timeshares, timeshare-related services and other long-term holiday contracts is an area where European-level legislation is considered necessary. We now have a wider range of protections in place. If significant evidence arises that there is general unfairness on an ongoing basis, that is something that the Government can keep under review. The evidence and the cases that the hon. Lady has presented help with that. I encourage consumer groups that have been campaigning on the issue to be prepared to put those cases together and to collect the evidence, particularly when it comes to the review in 2014, which I will come to as she asked for my views on that.
To return to what can be done to help the people who are having problems now— current timeshare owners—the trade body representing the sector across Europe, the Resort Development Organisation, makes it clear that its members recognise the damage that these legacy issues continue to inflict on an industry that is focused on moving on, developing and improving its customer service offer. They clearly have an interest in trying to improve the reputation of timeshare contracts, particularly because, often, the newer types of contract, as a result of the protections that are in place, bear little resemblance to those that were offered in the past. As a result, that organisation and its members are willing to engage with timeshare owners to try to resolve matters when ownership is impractical or unwanted, although, as the hon. Lady pointed out, that is not universally the case.
One element has not been touched on in the debate but is important. What might be the perfect solution for an individual timeshare owner who is stuck with a contract that they do not want, might have knock-on effects for people who own the other weeks of the year of the timeshare, or other properties in the resort. That is where the nub of some of the problems lies. Because the way the contracts are structured is such that there is a collective obligation to fund the maintenance and upkeep of the resort, if individual owners rescind the contracts or hand them back without them being sold to somebody else, the members who remain generally have to bear the increased costs and the burden of the lost revenues unless a new owner can be found. That might not be difficult for popular weeks, such as in the school holidays, but it can present difficulties for less attractive contracts. Many timeshare contract owners have already found that reselling is not straightforward. This is where some of the issues of individuals’ rights can rub up against one another. A huge extra burden can be placed on others without their having had the opportunity to do anything about it.
There is a body representing the interests of timeshare owners and owners’ committees which also says it is ready to assist and advise timeshare owners in difficulty who want to get rid of their timeshare contract: the Timeshare Association, also known as TATOC. It publishes a broad range of consumer guides, including a guide on timeshare disposal. It says that it is happy to engage with individuals to discuss their particular problems, and it has a track record of working with resort owners and managers to try to resolve some of the difficult issues.
I want to touch on one group that the hon. Member for East Lothian named: Macdonald resorts. At least one of the cases she mentioned was to do with Macdonald. The Scottish highlands is one of the places in the UK with a lot of timeshare resorts, and those of us who have been to conferences up in Aviemore will be very familiar with Macdonald hotels. Macdonald resorts is aware that significant concerns have been raised. The Timeshare Association has also been trying to engage the company in the issue, and I understand that a way forward has been identified for those who do not want to continue with their timeshares.
It is worth pointing out that Macdonald manages its resorts on behalf of the owners’ committees, and in these cases the owners’ committees had instructed Macdonald to take action against those who no longer wanted to pay the maintenance fees, because the remaining owners would be picking up the tab. It is important that sensitive negotiations to try to resolve such issues take place through organisations including TATOC, as competing interests are involved.
Fiona O'Donnell
Has the Minister considered a model along the lines of what we have in the travel sector, where a levy is made on companies, which is then a pooled resource that can be used when these situations arise?
Jo Swinson
The hon. Lady makes one suggestion about how these issues could be addressed. Clearly in addressing possible ways forward, a proper assessment would have to be made of the benefits against the cost to businesses, including businesses where these models were not being used, where there were not particular problems, or where they had been managing to resolve any issues in a much more consensual way. Without making any firm commitments, I agree that that suggestion might well need to be looked at as part of a broad range of potential solutions. It may well end up being a disproportionate response to the particular problem that needs to be addressed, but I certainly think it is worth considering.
Fiona O'Donnell
Has the Minister looked at the Spanish example and how they have managed to come to terms with that conflict of interests?
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.
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.
Fiona O'Donnell
I sense that the Minister is drawing her remarks to a conclusion, and I wonder whether she thinks it is good enough that there should be such a diversity of response from the different companies when people seek to end the contracts in perpetuity. Is that really good enough? Should there not be one standard throughout the sector?
Jo Swinson
The hon. Lady makes her point very strongly. By raising the issue in the House this evening, she has done a great service in raising its profile. I am sure that the resort owners and companies involved in timeshare contracts will be following proceedings in the House with great interest. As she pointed out, in some cases resort owners were moved to, let us say, more speedy and helpful action for customers when The Sunday Post got involved and drew attention to the issues. There can be great power in highlighting to the public eye cases in which companies are not acting how people would wish them to. The reputational impact of that can be a powerful motivator.
I know that the hon. Lady is an assiduous campaigner and I am quite sure that the debate is not the end of the matter for her. I wish her well with continuing to raise the issue and am happy to engage with her and with others campaigning on the issue in the future.
Question put and agreed to.