New Timeshare Legislation

[rseeb]

Any one up to speed on this issue about the timeshare legislation? I get lost in the weeds reading the the proposed changes.

"Two bills are making their way through Florida state legislature which could have negative long-term effects on many timeshare owners including Disney Vacation Club members.

The Florida House and Senate are both backing Bills which would apply a number of changes to the state's timeshare laws. Supporters of HB 453 and SB 932 claim the changes to Florida's Vacation Plan and Timeshare Act are designed to streamline and modernize the legislation. Opponents claim the potential damage to consumers far outweighs the benefits as the modifications are currently written."

• House Bill 453 text
• Senate Bill 932 text
• National Timeshare Ownership Group position

 

[ziravan]

It allows timeshares over 20 yrs old to change the length of terms of their contracts, to either terminate them (for example, to eliminate an in perpetuity timeshare that is lapidated) or to extend (for example, if you're adding new timeshare units and want to unilaterally extend current owners to a new 50 yr contract so that you have MF payers for the whole length of the new term).

And, if your contract allows for special assessments (and if you have a DVC contract, yours does), then those newly minted years will come at a mandatory price. Pay, sell or foreclose.

 

[ziravan]

This bill seems to be Disney's answer to expanding at VWL et. al. It will allow Disney to force current owners to extend, by fiat.

If you don't like it, sell. With new resort points avail, there'll be new resale buyers.

And. Disney has a whole new avenue for money. New Points for sale, new extensions for existing owners, and even the cost of extensions as a portion of resales.

For example, if Disney charges $175 for direct VWL points, and a $50/point special assessment for a 25 year extension of current points (Disney will be happy to finance that for current owners), then resale will jump from $80 to $130/point with Disney capturing $50/point at closing.

This law enables the expansions that are rumored. Doubts? The bill was sponsored by the state rep that includes WDW.

 

[sgrap]

How would this affect VGC? Or Aulani for that matter?

 

[ziravan]

How would this affect VGC? Or Aulani for that matter?

Florida law should have no bearing on timeshares in other states.

 

[nkosiek]

It wouldn't, those aren't in Florida.

 

[rseeb]

I own at HH and AKL, so I guess the only way I would be affected would be if they tried to expand AKL. I do not see that happening in the near future but if the legislation passes there would be an opportunity for me to have to make a tough decision.

 

[davper]

I was wondering how the owners that extended OKW where going to be assessed MF after 2042. Were they going to have to foot the much higher bill themselves? I guess this law would resolve that issue by making everyone extend.

I also don't see how this can be applied to existing contracts. You have a legally binding contract on both parties that says that one party will pay this and the other will provide this until such date. Unless there is legalese in the contract that explicitly gives Disney the right to alter the terms and considerations of the contract, I don't see how that would hold up in court.

 

[com_op_2000]

I was wondering how the owners that extended OKW where going to be assessed MF after 2042. Were they going to have to foot the much higher bill themselves? I guess this law would resolve that issue by making everyone extend.

I signed and noterized the paperwork stating that I will not extend my OKW contracts (3). If this is an attempt by DVC/WDW to force me to extend my contract, I will end up as part of the lawsuit against this bill. I will be 83 when 2042 rolls around, if I live another 15 years past that as the offer was previously, good luck to me.

 

[ziravan]

I was wondering how the owners that extended OKW where going to be assessed MF after 2042. Were they going to have to foot the much higher bill themselves? I guess this law would resolve that issue by making everyone extend.

I also don't see how this can be applied to existing contracts. You have a legally binding contract on both parties that says that one party will pay this and the other will provide this until such date. Unless there is legalese in the contract that explicitly gives Disney the right to alter the terms and considerations of the contract, I don't see how that would hold up in court.

In 2042, points that didn't extend will revert back to Disney and they will be responsible for MFs on those points. Even if they CRO those points, having to pay MFs leaves cash on the table. That's just not like Disney. The OKW extension was a mess.

This law will fix that going forward.

Your contract spells out that it's subject to changes in the law. This new law would specifically allow the DVC owners assoc to vote on contract extensions. And conveniently, Disney is the only vote on the assoc board. Also specifically, the law spells out exactly which existing contracts to which it applies: resorts over 20 yrs old. Conveniently, that applies specifically to the resorts where Disney is rumored to want to expand DVC in the next decade.

This law very conveniently and specifically addresses the problem with different contract lengths at resorts where Disney is rumored to be expanding. It's almost as if they wrote this part of the law. The fact that the state rep that represents WDW DID write this law must just be a coincidence.

 

[ziravan]

I'm not necessarily opposed to this. I bought at BCV knowing they were rumored to be expanding there. I assumed something would have to happen regarding contract lengths to make that work.

I factored it into my decision making. It's why I wasn't concerned about long term value at BCV vs newer resorts with longer contract lengths.

There is value here for owners. A VWL contract extended for 26 more years to 2068 gives owners in 2042 a valuable contract to sell. In my case, if newly minted BCV points go on sell in 2020 and all BCV points are extended to 2070, I'll be 102 when they expire. That's beside the point. The real point is that I can enjoy those points for so long as I want and have some confidence that there'll be a market for them when I'm ready to sell.

As it stands now, the market for 2042 points will start to shrink over the next decade. Sure, there are 26 years worth of points left, now. In 10 years, with only 16 years of points left, who's going to pay $95/point to buy BCV points? This law looks to fix that problem for me.

The only question left is how many dollars/point is going to be assessed for that extension? It probably won't be $15. My guess is closer to $50. Let's do some math:

In today's dollars, without extension, BCV points will start to degrade in value over the next decade. How much would you pay for a 16 yr contract in 2025? $75? $60?

With a $50/point extension, I'm out $12,600 on my 252 points. But, in 2025, those points are probably worth current resale value (~$95/pt) plus the assessment, so $145/pt with direct prices probably north of $200/pt. (Given the promotion of those points as Disney sales the expansion in the intervening time, the resale value could very well be higher.)

So, let's say I sell in 2025. If I sell unextended points for $75/point, then I make $18,900. $60/point equals $15,120. But. If I sell extended points with 45 years of contract left at $145/point: $36,540 - the 12,600 cost of extension is ~$24,000.

Not bad. Value for Disney. Value for me. All the board has to do in order to mandate extensions under this bill if it becomes law is live up to its obligation to act in owner's best interest. I think they can make that case. I think they'll try to make that case directly to owners.

And if owners sell because of it? Disney captures the assessment at the closing table AND acquires another happy customer...

 

[ziravan]

In fact, if this becomes law and Disney mandates extension on resorts where it's expanding, I imagine one of the biggest complaints will be a demand from other 2042 owners to be allowed to extend, as well.

This is where Disney blew it on the OKW expansion. Who cares about value 35 years down the road??!?

But convince a Disneyphile that they're being left out of a deal?

Let me in! Let me in!

 

[Friendlyadvice2]

I have done similar calculations based on these assumptions and agree that there could be value here for owners if they have the ability pay for the extension; much less value if they have to finance at high rates. I realize you were keeping it general with your math, but you will have time of value of money costs on your $12,600 that will reduce your $24,000 estimation. I do agree with your theory though!!

 

[supersnoop]

Just to be clear, the law allows for the extension or termination of any property that is at least 20 (house bill) or 25 (senate bill) at the time of extension or termination. So, it may only apply to a few properties now, but it will eventually apply to all.

Also, I don't see any provision, at least not in the law, for a special assessment related to the extension. From my cursory review, it looks like the extension would have to be free.

The bills also seem to allow for members to petition for a vote of the members to deny any extension or termination.

I am not a lawyer, but in my opinion, Disney cannot vote to charge everyone for an extension or they risk losing they hold on the board of directors for violating their fiduciary duty to the members they represent. And, I don't think they'd risk giving up control. I think this is a way for Disney to extend the contracts without charging members, other than the continued maintenance fees.

Remember, OKW inventory reverts to DVD at the end of 2042, not to WDC. And DVD is probably more worried about being on the hook for maintenance fees than they are about recouping their cost of extending the ground lease.

 

[ziravan]

Just to be clear, the law allows for the extension or termination of any property that is at least 20 (house bill) or 25 (senate bill) at the time of extension or termination. So, it may only apply to a few properties now, but it will eventually apply to all.

Also, I don't see any provision, at least not in the law, for a special assessment related to the extension. From my cursory review, it looks like the extension would have to be free.

The bills also seem to allow for members to petition for a vote of the members to deny any extension or termination.

I am not a lawyer, but in my opinion, Disney cannot vote to charge everyone for an extension or they risk losing they hold on the board of directors for violating their fiduciary duty to the members they represent. And, I don't think they'd risk giving up control. I think this is a way for Disney to extend the contracts without charging members, other than the continued maintenance fees.

Remember, OKW inventory reverts to DVD at the end of 2042, not to WDC. And DVD is probably more worried about being on the hook for maintenance fees than they are about recouping their cost of extending the ground lease.

Your contract allows for special assessments. I don't think they could have done this with the OKW extension because all they offered was an extension. But, if DVC expands a resort, then the extension is directly tied to improvements that could trigger an assessment.

In the case of DVC, you've assigned your vote as a member to an association that is wholly controlled by Disney. Yes, Disney will have to vote on if this is right for Disney.

All Disney would have to do is make a credible argument that they are acting in owners best interest, as a whole. I think they can make that argument.

I do agree this is all about the MFs. But DVC isn't about to give away decades worth of points. Ain't. Gonna. Happen.

 

[supersnoop]

Your contract allows for special assessments. I don't think they could have done this with the OKW extension because all they offered was an extension. But, if DVC expands a resort, then the extension is directly tied to improvements that could trigger an assessment.

In the case of DVC, you've assigned your vote as a member to an association that is wholly controlled by Disney. Yes, Disney will have to vote on if this is right for Disney.

All Disney would have to do is make a credible argument that they are acting in owners best interest, as a whole. I think they can make that argument.

I do agree this is all about the MFs. But DVC isn't about to give away decades worth of points. Ain't. Gonna. Happen.

Expansion would be funded by sales of the new units. You can't levy a special assessment for that. You start sending $5,000 invoices to people, and you're going to create lawsuits alleging director misconduct, and the courts are going to remove the board. If the board votes to enrich WDC or DVD at the expense of DVC, then they will be removed. That's not going to happen.

 

[ziravan]

Expansion would be funded by sales of the new units. You can't levy a special assessment for that. You start sending $5,000 invoices to people, and you're going to create lawsuits alleging director misconduct, and the courts are going to remove the board. If the board votes to enrich WDC or DVD at the expense of DVC, then they will be removed. That's not going to happen.

I disagree. The expansion (and the associated effort to sell it) combined with an extension would be a tangible value to owners. I think a lawsuit that Disney isn't acting in the best interest of owners would fail on its merits. It doesn't have to be so cut and dried. All Disney would have to prove is that it believes extensions are in the interest of owners. They can point to the OKW extension as proof that this is their long held belief.

There is very little risk of a court removing the board on these grounds.

I suspect Disney will use a light hand on assessments. Instead of immediate foreclosures, they'll simply suspend use of points. At that point, owners will pay up, or sell. This will be happening at the same time as new sales. DVC certainly doesn't want $80 VWL points on the market when they're trying to sell new points for $185/pt. An assessment solves that, DVC will capture assessments on the resale market, and I think this will be one of the rare times when DVC will work to ensure a vibrant resale market, with aggressive ROFR.

In fact, this would be a completely new ROFR environment, where DVC would be capturing existing resort resale contracts and selling them as the new and featured resort. If the new rooms add 2 million points and DVC aggressively ROFRs another million, then DVC can sell 3 million points. It's another way to keep DVC in the mix without building somewhere new and from ground up. On the reminted points, DVC makes money on both the difference between resale and direct prices, and on the the built-in "value" of an assessment it won't have to pay to itself.

I understand your points. But. For me, it all comes back to this: why have your rep write this law? It would be more profitable for DVC to recapture the points, pay the MFs, and sell CRO than to give the points away. If that were the point, why bother? But. It would be even more profitable to sell those points AND capture the MFs.

Disney doesn't have to lose money to make a credible claim that it's acting in owner's interests. It just has to make sure that most owners gain as well. I think they will.

 

[supersnoop]

I disagree. The expansion (and the associated effort to sell it) combined with an extension would be a tangible value to owners. I think a lawsuit that Disney isn't acting in the best interest of owners would fail on its merits. It doesn't have to be so cut and dried. All Disney would have to prove is that it believes extensions are in the interest of owners. They can point to the OKW extension as proof that this is their long held belief.

So, we're going to agree and disagree on this. Yes, I agree that the extension would be tangible value. But, I disagree that they could levy a special assessment for adding value. That value is immaterial for many owners. So, you end up with DVC getting charged to profit DVD. And that would be a valid claim.

 

[CMNJ]

So, we're going to agree and disagree on this. Yes, I agree that the extension would be tangible value. But, I disagree that they could levy a special assessment for adding value. That value is immaterial for many owners. So, you end up with DVC getting charged to profit DVD. And that would be a valid claim.

I could however see the validity of them making significant improvements/renovations to the common areas as part of such an expansion (like the updates they have done at PVB) and passing along part of that cost to current members as a special assessment since we would benefit from the renovated features (even though the primary motivation would be to sell new contracts)

 

[YourEveryDayAdam]

I could however see the validity of them making significant improvements/renovations to the common areas as part of such an expansion (like the updates they have done at PVB) and passing along part of that cost to current members as a special assessment since we would benefit from the renovated features (even though the primary motivation would be to sell new contracts)

They would only be able to justify assessing the actual cost of building the new features to the owners. Disney can't go "well, we built a new pool and renovated the lobby, at a cost of $5 million. So we are going to assess each of the existing approx 2 million points $50 per point. They would only be able to do an assessment of $2.50 per point. Also a judge would have a hard time buying that it was in the owners best interest to do a special assessment to build a new pool or two when your reserve fund, which is supposed to cover property improvements like that, is already designated to do that exact thing.

Basically, the condo association can't do an assessment where the money goes directly to DVD, WDW, or Disney in general. Any money that is assessed through dues or special assessments MUST go in to the funding accounts for the owners association and that money can only for the actual cost of maintenance and upkeep of the resort...by florida law.

The only thing I can see happening is if Disney charges the condo association a cost for expanding the land lease...since technically the right to use the land expires at the end of the original contract date. The cost of the extended land lease for the longer length of time could be done as a special assessment against the existing owners, but it would have to be assessed against all points, old and new.

My bet is that existing owners will get a free extension at 2042 resorts they expand at:

• DVD's primary goal is to sell new points.
  • They can build a resort for $25 per point (Bay Lake Tower cost $24.4177 per point to build).
  • If they are selling new points at $175 per point, then they are making massive profits.
  • It is definitely in DVD's best interest to just acquire the land lease, extend the contract for all, and sell new points at $175 each.
  • They could charge existing owners for the cost of expanding the land lease, but...
    • it would have to be in line with the cost of building the new components. i.e. they have to attach a dollar value to the land lease and that dollar value has to be in line with the construction costs. I could see them saying that the land has a value of $5 per point, and not much more.
    • It would generate bad will towards existing members which could hurt sales of new points, which is their primary goal.
• DVD does NOT want to pay to acquire existing points by ROFR:
  • VWL contracts currently go for approx $80 per point. Charging a special assessment means that a lot of people sell.
  • That pushes down the price of contracts and makes resale much more attractive, unless DVD ROFR's everything. That's a LOT of money for DVD to come up with, especially when they have a whole bucket of new points to sell
  • DVD would rather sell new points that cost them $25 to build than old points that cost them $80 to ROFR.
  • It's largely a cash-flow issue for them. Not only do they have to acquire the points at a higher cost than to build them, but then they also have to pay MFs on the points they ROFR....both of which tie up cash that they could use for other purposes, like building more new resorts/rooms.
• Having done a special assessment right at the same time you're trying to sell new points at the same resort is bad publicity.
  • I don't believe that DVC has EVER done a special assessment. Even doing out-of-cycle major renovations to existing resorts, DVD has paid to foot the bill (fixing the bathroom/kitchenette at BLT, the second feature pool at SSR, etc.).
  • I believe that DVD would rather save the special assessment for when it's truly needed...i.e. natural disaster and other unforeseen and unplanned major expenses that the reserve fund can't cover.
• If DVD/DVC tried to do a special assessment to pay for a contract extension, you can bet that there would be a class action lawsuit.
  • These are very expensive to litigate, costing several million dollars to defend against or settle...this would negate any potential profit motivations for charging for a contract extension.
• DVD doesn't even want an optional extension either
  • They don't want to be on the hook for maintenance fees for potentially millions of points that would revert back to them.
• Walt Disney Parks and Resorts goal is to get people in to the parks.
  • It doesn't make sense to drive away a captive audience of people (force them to sell, foreclose on them if they don't pay the assessment, or not let them use their membership until the assessment is paid) who come to the parks/resorts and spend money on food, tickets, merchandise.
  • Walt Disney Parks and Resorts still make money on DVC members. It provides a base level of continuous people and money throughout the year that makes it easier to keep the lights on.
  • Because of the above points, Parks & Resorts will want to extend the land lease for little, if any, money. The people who come and spend money on park tickets, food, merchandise, etc. each year is worth more money than the $5000-$10000 per member they would get one time on expanding the land lease.

I think because of all of that, owners at existing resorts that get newly constructed points, will see their contracts extended to the new points expiration date for no charge. They will only be responsible for maintenance fees for the extended length. They could then sell the contract via resale when they no longer wish to have it.