Timeshare Contracts

From Max-EuP 2012

by Ansgar Staudinger

1. Substance and purpose

Timeshare contract is the term given to legal transactions (juridical act) whereby one party grants the other the right, over a lengthy period, to use a property on a regularly recurring basis. The entitlement relates to a specified or specifiable period during which the right-holder’s option to make use of the property is shared with other timeshare purchasers according to a regular pattern. The term timeshare contract is generic, and covers a variety of legal constructs for the sharing of rights. The fundamental economic principle of such arrangements is the optimization and distribution of costs according to the proportion of use. Timeshare rights can be applied to a variety of assets. However, in practice, most timeshare contracts concern holiday homes. The timeshare concept in tourism originated in the 1970s, in the US market. The concept subsequently moved to Europe, where today its heartland is Britain. Laws governing timeshare contracts aim in particular to combat commercial abuse and promote consumer protection (consumers and consumer protection law) by virtue of a minimum standard of rules which focus on duties to provide information on the part of the vendor (consumer contracts (PIL)) and rights of withdrawal on the part of the consumer. Directive 94/47 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis, which derives from a resolution by the European Parliament on 13 October 1988 ([1988] OJ C 290/148), was adopted on 26 October 1994. Until this point, only four Member States (Portugal, France, Greece and the United Kingdom) had enacted specific legislation to protect consumers of timeshare rights. In other Member States, such as Austria, Belgium, Cyprus, Denmark, Italy and the Netherlands, general domestic contract law applied, while in Portugal and Germany, recourse could be had to the institutional principles of ‘good faith’ and ‘intent to deceive’. The directive is designed to promote the proper functioning of the European internal market in the field of timeshare arrangements. The main focus of this secondary instrument is consumer protection, which is strengthened by creating minimum standards applicable throughout the European Union. These standards concern matters such as duties regarding the provision of information prior to concluding a contract, terms of the right to withdraw from the contract and provisions on connected contracts. Following the transposition and embodiment of protective instruments in the legal systems of the Member States, timeshare products seemed to lose some of their appeal from the perspective of more dubious traders. More recently, as the timeshare market has picked up again, the directive has been shown to contain substantial weaknesses in its ability to deal with new sales structures and products on offer. This has been the catalyst for a reform process at the supranational level, outlined at 3. below.

2. Provisions of the Timeshare Directive

Following the legal definition in Art 2 (1st indent) and recital 3, the directive from 1994 covers any contractual architecture for timesharing, whether under the rules of contractual obligation, beneficial ownership or company law. The contract must relate to the purchase of a right to use immovable property within the meaning of Art 2 (2nd indent) on a timeshare basis for at least three years, where the annual period of use is no less than a week. The personal scope is established if the contract is concluded between a ‘vendor’ and a ‘purchaser’ (see legal definitions in Art 2 (3rd and 4th indents)); strictly private transactions between consumers do not fall within the directive.

In particular, the Community legislature imposes numerous duties to provide information on the vendor. These are set out in Art 4 (1st indent) and listed as minimum requirements in the Annex to this harmonization instrument. Article 3 further obliges the vendor to provide a prospectus with specific content. There is a lack of clarity at this point about the need for a certain period to elapse between the provision of this document and the signing of the contract, and it is not entirely clear whether the right to the provision of a prospectus under Art 3(1) is actionable. According to Art 3(2)1, the information in the prospectus is an integral part of the contract; according to Art 3(2)2 and 3, changes may only be made without express agreement if they result from circumstances beyond the vendor’s control and are communicated to the client before the contract is concluded. Although no provision is made which entails specific legal consequences for faulty information, Art 10 asks Member States to enact their own effective sanctions. Article 4 formulates rules about the language to be used for the contract and prospectus, although not for communication purposes during the life of the contract. This same article requires the contract to be in writing.

Article 5 (1) grants the purchaser a ‘right of withdrawal’, that is, a cancellation right. In the language of the provision, this right to withdraw shall exist in addition to the possibilities available to the purchaser under national laws on the nullity of contracts. The purchaser can withdraw from the timeshare contract without giving any reason within 10 days of signing the (preliminary) contract. This period is extended if the contract does not contain the mandatory information described in Art 5 (2nd indent 1st s). Article 5 (2nd indent 2nd s) stipulates that the 10-day cooling-off period shall begin from the time when the vendor retrospectively provides the information in question. (According to Art 5(1) (3rd indent), the period shall be three months plus a further 10 days if the purchaser does not exercise the right to cancel within the three-month period and the contract does not include the information in question.) As the purchaser can only recognize the commercial significance of the transaction and meaningfully exercise the right to withdraw once he has acquired all the relevant information, the model seems on the whole to be convincing. Article 5(2) describes how the right of cancellation is put into practice. The Union legislation does not provide for any particular notification format in this instance. Member States’ rules do, however, require proof to be available that it took place. According to Art 5(2) (2nd ss), the deadline is deemed to have been observed if the notification—if it is in writing—was despatched before the deadline expired. This permits the conclusion that the vendor need not necessarily, for the sake of Union law, confirm the cancellation in writing. Article 5(3) sets out the terms for finalizing the reversal of the transaction (contract reversal).

Article 5(4) provides that the purchaser will not be required to defray any costs if the vendor did not include the mandatory information described in Art 5(1) (2nd indent) in the contract. Article 6 establishes a prohibition on advance payments which is linked to the period defined in Art 5(1) (1st indent) and designed to prevent the client from refraining from withdrawal for fear that he may lose a payment that has already been made. Article 7 concerns the cancellation of connected contracts and is based on Art 11 of the old Consumer Credit Directive (Dir 87/102) (Community Law on Consumer Credit). It follows from the combination of Arts 8 and 11 of the Timeshare Directive that the provisions of this instrument constitute a minimum level of protection which may not be eroded, meaning that any departure from the minimum standards is only permissible if it favours the purchaser. Member States may, if they wish, adopt more stringent rules, as long as the reinforcement of protection complies with the EC Treaty. As timeshare contracts entail a variety of cross-border implications, international law on private and civil procedure plays an extremely important role. To ensure minimum standards of protection in cross-border proceedings as well, Art 9 imposes a duty on Member States to institute conflict-of-law rules in which the deprivation of protection is a defining criterion.

There are a number of gaps and vagaries that commend reform of the Timeshare Directive. So much was conceded by the European Commission during its first review in 1999. In 2005 the Commission expressed a more substantial view on the need to improve the directive in its First Annual Progress Report on European Contract Law and the Acquis Review. This was followed by a workshop report from the viewpoint of the European legislator.

3. Current harmonization project: Dir 2008/122

On 8 February 2007 the Commission presented its green paper on the review of the consumer acquis (COM(2006) 744 final), which contains various options for revising this section of the acquis communautaire. In the wake of the green paper, reform of the Timeshare Directive has been proposed with the aim of strengthening consumer protection. The Commission’s green paper pursues a mixed approach on this front. The proposed reform would entail a horizontal instrument containing general provisions or addressing common issues, flanked by directives, which would still be needed to deal with different types of contract and transactional situations, as vertical instruments. The vertical instruments concerned would include the Timeshare Directive following its consolidation: on 7 June 2007 the Commission presented a proposal for a directive on the protection of consumers in respect of certain aspects of timeshare, long-term holiday products, resale and exchange (COM(2007) 303 final), which would replace the previous directive. This proposal is part of a Commission programme for updating and simplifying Union law and its own Legislative and Work Programme (Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions of 24 October 2006, COM (2006) 629 final). Apart from modifying definitions, the proposal also envisages extending the scope of the directive in response to recent developments in the timeshare market and in order to generate greater transparency in relation to the existing rules. Ultimately, Dir 2008/122 was adopted on 14 January 2009 and entered into force on 23 February 2009 as provided in Art 19, repealing the old Timeshare Directive by virtue of its Art 18. Article 16(1) requires Member States to transpose the new directive by 23 February 2011.

As far as the personal scope is concerned—and as envisaged in the Commission’s proposal—the terms ‘vendor’ and ‘purchaser’ give way to ‘trader’ and ‘consumer’. Resale is thereby integrated. As a consequence, further alignment is achieved with the legal definitions in Dir 2005/29 on unfair commercial practices. Above all, however, this secondary law embraces a broader substance and time frame. In the future, it will also cover contracts for accommodation in caravans, canal boats and cruise liners. Articles 1(1) and 2(1)(b) of Dir 2008/122 set out how provisions will apply to ‘long-term’ holiday products, such as ‘travel discount clubs’, which offer consumers the right to a discount or other benefit in relation to accommodation. In functional terms, timeshare products and long-term holiday products are the same in this respect. As in the Commission’s proposal, Art 2(1)(c) now makes it clear that the new directive applies not only to the first-hand acquisition of timeshare rights but also, under the guise of ‘resale’, to contracts with a timeshare broker if the latter acts as an agent or adviser to the consumer in the sale or purchase of timeshare products. Moreover, Art 2(1)(d) of the secondary instrument provides that legal transactions performed for consideration by means of membership in an exchange system fall within the scope of the directive.

Under Art 2(1)(a) and (b) of the new directive, the minimum period of the contract’s validity is reduced to one year, which means that the directive covers ‘trial holiday packages’ of up to 35 months. As the Commission proposal envisaged, the minimum period of one week’s use per year has been deleted in order to combat attempts to circumvent the law. The reforms retain the right to withdraw and the prohibition on advance payments. The Member States currently apply very different cooling-off periods, and so the Community legislature has harmonized this aspect in Art 6(1) of the new directive, extending it to 14 days. This period echoes the provision in Art 12(1) of the proposal for a new horizontal instrument. A period of 28 days or, indeed, up to three months would have been conceivable, given that the contract is often signed while on holiday and the consumer often does not grasp its full ramifications until returning home. The authors of this secondary law are more specific about the prohibition on advance payments during the cooling-off period, stating unambiguously in Art 9 of Dir 2008/122 that these include payments to third parties. The new directive further provides in its Arts 11(1) and (2) that a credit agreement concluded for the purpose of financing a timeshare transaction shall be terminated at no cost to the consumer if the latter exercises his or her right of withdrawal. This new rule likewise applies to ancillary contracts, such as membership in an exchange system. According to Art 8(2) of Dir 2008/122, the consumer will no longer be expected to defray the cost of certification by a notary in the case of withdrawal. The duties of information have been updated and simplified to reflect different types of timeshare product. In particular, the new text now contains separate annexes stipulating specific transaction-related obligations. Certain key data clusters are prescribed to avoid bewildering the consumer with an information overload.

There is an amendment to the language rule in that, under Arts 4(3) and 5(1) of the new directive, the information pack and the contract must be drawn up in the official Community language chosen by the consumer based on the consumer’s own residence or nationality; this means that Member States may no longer demand an additional language version. On the other hand, Member States are now entitled to express additional requirements about the language of the contract itself pursuant to Art 5(1) of Dir 2008/ 122. Nevertheless, as with the original Timeshare Directive, nothing is said about the language in which communication is to be carried out during the life of the contract, or the language in which the contract is to be performed.

There is no equivalent provision in the new instrument to Art 11 of the Timeshare Directive. Rather, like the Commission’s proposal and the general argument in the green paper, the new instrument sets its sights on full harmonization. Accordingly, the legislature and judiciary of each Member State may not exceed the standard of consumer protection defined in the forthcoming directive. Article 1(2) of the Commission’s proposal had allowed some leeway with regard to the starting point for the right of withdrawal and the modalities and legal effects of its exercise. Recital 13 of Dir 2008/122 refers in this regard to a standard calculation based on Council Regulation 1182/71 of 3 June 1971 determining the rules applicable to periods, dates and time limits. Some Member States have in the past used this leeway to expand the scope of their implementing laws beyond that of the Timeshare Directive. This meant, for example, dispensing with minimum periods of contract (as in Cyprus, Finland and Hungary) or privileging certain legal entities as consumers. Often the Member States exceeded the minimum requirements set out in the directive by creating additional duties of information or requirements relating to informing purchasers about their rights to withdraw or a longer cooling-off period or more exacting language requirements. Commentary correctly points out that in some national legal systems full harmonization could result in a lower standard of protection or a ‘race to the bottom’. Some critics further object that the timing of the reform is isolated from the revision of the overall acquis communautaire in matters of consumer protection. The Commission’s proposal counters by signalling the individual urgency of legislative measures on timeshare products.

Finally, in Art 12(2) of Dir 2008/122, the Community legislature enshrines a broader conflict-of-law imperative than does the earlier directive: in cases where the law applicable to a transaction is that of a third country, it is immaterial as to whether the connecting factor is subjective or objective. In the light of the full harmonization approach, unlike in Art 3(4) Rome I Regulation (Reg 593/2008), the question is not whether more stringent standards of protection in the national law of the Member State of the forum must be imposed in the international context. For contracts which do not relate directly to immovable property, the Community instrument provides in Art 12(2) 2nd indent of Dir 2008/122 for a different conflict-of-law imperative which betrays similarities to Art 6(1) Rome I.


Norbert Reich and Hans-Werner Micklitz, Europäisches Verbraucherrecht (4th edn, 2003); Martin Gebauer and Thomas Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2005); Hans Schulte-Nölke and Christoph Busch, ‘Briefing Note for the European Parliament’s Committee on Internal Market and Consumer Protection on the Review of the Timeshare Directive, IP/A/IMCO/NT/2007-10’ (2007) <www. europarl.europa.eu/comparl/imco/studies/0711_note_timeshare_en.pdf>; Hans Schulte-Nölke and Christoph Busch, ‘Background Note on the Review of the Timeshare Directive, Studie für den Binnenmarktausschuss des Europäischen Parlaments’ (2007); Geraint Howells and Christian Twigg-Flesner, ‘Inquiry into the Replacement of the EU’s Timeshare Directive, Memorandum’ in House of Lords, European Union Committee, ‘Protecting the consumers of timeshare products—Report with evidence’ (2007) 54 <www.publications.parliament.uk/pa/ld 200708/ldselect/ldeucom/18/18.pdf>; Noemi Downes, ‘Conflicting Interests in Timeshare Contracts Revisited on the Occasion of the ECJ (First Chamber) Case C-73/04 Judgment 13 October 2005, Brigitte and Marcus Klein v Rhodos Management Ltd.’ [2007] ERPL 157; Christoph Busch, ‘Der Vorschlag der EU-Kommission für eine Reform der Time-Share-Richtlinie—ein richtiger Schritt auf dem Weg zur Überarbeitung des Verbraucheracquis?’ [2008] Zeitschrift für Gemeinschaftsprivatrecht 13; Enrico Gaedtke, ‘Die Reform der Timesharing-Richtlinie—Lösung aller Probleme?’ [2008] Verbraucher und Recht 130; Marco BM Loos, Review of the European Consumer Acquis (2008) 60 ff; Hans Schulte-Nölke, Christian Twigg-Flesner and Martin Ebers (eds), EC Consumer Law Compendium, Comparative Analysis (2008); Noemi Downes, ‘More about Timeshare: A Revised Directive or a Regulation? Incidence of Other Instruments of Consumer Protection’ [2008] ERPL 607; Hans Schulte-Nölke, Europäisches Verbrauchervertragsrecht und deutsches Bürgerliches Gesetzbuch (2010).

Retrieved from Timeshare Contracts – Max-EuP 2012 on 18 May 2024.

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