Fractional Property ownership to share a property with family or friends.

Fractional Ownership: A Beginner’s Guide

Lot of people do not know that it is actually possible to have more owners on a title of deed.
To share a property.

‘Fractional Ownership’ describes shared ownership, which allocates usage rights based on time. Only one owner will be allowed to use the unit at a time. Co-owners may have ownership rights to all, some, or only one unit. Usage rights and cost obligations may or may not correspond to ownership rights.

Most definitions of the term ‘timeshare’ include arrangements by which people share use of a property, based on time, regardless of whether they own the property or whether a management company/ developer manages the property.

“Timeshare’ and “Fractional Ownership” differ greatly. It is not a question of devolving title. Many ‘timeshare’ properties involve direct, titled ownership and many ‘Fractionals’ don’t.

The main differences are:

The extent to which participants’ rights and responsibilities are limited to a particular unit or units.
Each owner’s degree of ownership/control. (Ownership evidenced by deed, doesn’t give a person any particular level of control over how the unit will be managed).
The document governing the shared unit, not the name of the ‘arrangement’ is decisive.
Ask yourself:

Is the agreement flexible?
Can it be changed and is each person protected from changes that will reduce the usefulness of the property?
Is the usage system fair and can someone ‘manipulate’ it?
Can each owner control which unit they will use on a particular visit?
Can they always return to the same unit? If not, what changes will there be in size and amenities?
Are costs and responsibilities limited to the unit(s) they will use, or do they extend to other units that others will use?
Will each person’s costs/responsibilities be proportional to usage rights?
Can they control management fees and management/maintenance?
Can owners rent out the property and control the rent?
Can an owner holiday elsewhere, and can they get the desired location and dates?
Do restrictions apply on disposal?
Is finance available?
Free up capital

Many people dream of owning a holiday home, but either can’t afford the type they want or couldn’t justify the small annual usage period. Fractional ownership provides a solution by reducing the costs/annual expenses, sharing maintenance problems and depreciation. By dividing costs/risks, owners surrender usage rights associated with full ownership; often an acceptable sacrifice and a huge cost saving.

‘Fractionals’ free up capital to invest elsewhere. They provide an alternative to a full sale in a depression. ‘Fractionals’ are cheaper on a new development, providing an extra choice and developers have an alternative in a recession. A cheaper option also increases the visibility of the site and sales of ‘whole ownership’.

Local legal restrictions may impact on fractional arrangements, even where friends purchase. National law determines the structure, how and where the interest will be marketed and who can buy. Regulatory approval means costs and delay and in some cases approval may be denied based on the location of the property.

Restrictions are imposed because, shares are sold as a promise that one owner can use the unit at a particular time. They may apply where rental income is pooled, management responsibilities are delegated or the purpose is primarily for investment.

Number of scheduled visits

The usage calendar depends on location, size, seasonality, number of scheduled visits and travel time. A complicated system will fail and increase costs. In most schemes, owners are assigned exclusive use for a specified period each year. The period can be fixed, variable or both.

Price depends on time bought, type of unit and use. Occupancy is calculated on a yearly calendar. Not all calendars work fairly!

The management tasks of fractional ownership properties are divided into time allocation, accounting, cleaning and repairs. Co owners or contractors can perform these. Operating expenses are usually divided in proportion to ownership. To avoid ‘financial’ disputes, collect contributions based on the future budgets, not ‘ad hoc’.