DVC plans to target commercial renters

[xdan0920]

And my guess is that what they will do is go after the LLCs and owners who have reached that 8000 limit and call it a day.

I hope you’re wrong.

 

[Sandisw]

I hope you’re wrong.

You are not alone!!! Lol

 

[DonMacGregor]

I hope you’re wrong.

If they do, we’ll find out soon enough I suspect, as many have posited that most if not all of the major resale sites are engaged in some manner of a buy/strip/flip rental scheme. Particularly those that offer “buy it now” or other instant sale programs.

 

[lowlight]

Particularly those that offer “buy it now” or other instant sale programs.

Say it ain’t so! I know one of those sites, it’s listed above the webpage header.

 

[DonMacGregor]

Say it ain’t so! I know one of those sites, it’s listed above the webpage header.

What would make it super easy, barely an inconvenience, would be if you had (purely hypothetically) a resale broker AND a third party rental site under the same corporate umbrella. Just imagine…

 

[drusba]

Providing some further comments, resulting partly from comments made or questions asked in relation to my earlier post.

A. Commercial Enterprise

The actual rental restriction in the declarations of the pre-Riviera POS’s requires a finding of a pattern of rental activity from which the association can reasonably conclude shows the member is acting as a commercia enterprise. As I noted previously, “commercial enterprise” is generally understood in the law to be referring to entities or persons in the “business” of doing something. There has been an assertion that my stated view as to the legal meaning of commercial enterprise is incorrect. However, there are numerous laws and cases which define or refer to a commercial enterprise as a person or entity that is actually in the business of doing something, see, e.g, 8 U.S.C. §1186b(f)(3)(commercial enterprise is an entity formed for the purpose of doing a for-profit business); 8 C.F.R. 204.6(e) (commercial enterprise defined as entities or persons in the business of doing something); 72 Pa. Stat §7301. (referring to a commercial enterprise as a business ordinarily conducted for profit); 10 CCR §8200 (Cal)(a commercial enterprise is an actual business engaging in for-profit activity); New Mex. Stats 13-1-21)(commercial enterprise is a business designed for the purpose of selling good and services);Tex. Bus. and Comm. Code § 52.002 (noting that a traditional commercial enterprise is an entity that is a business)); Devaney v. Rumsch, 228 So.2d 904 (S.Ct. Fl 1969)(referring to a commercial enterprise as an entity engaging in a commercial business); Yogman v. Parrot, 921 P.2d 1352 (Or 1996)(restriction in controlling document for vacation homes that prohibited any use as a commercial enterprise did not prohibit owner from doing numerous short-term rentals)

B. Use for a Commercial Purpose

Many assert that the rental restriction applies if there is any use of the property for a “commercial purpose,” and a commercial purpose is any rentals from which one can make a profit, Thus, anyone who makes a profit from doing even a few rentals can be found in violation of the “commercial” restriction.

That might possibly be an understood meaning of “commercial” relating to the sales of goods and services in the marketplace, but its legal meaning in relation to an owner of residential-type property doing rentals, including short-term rentals, of that property is, according to a number of cases, otherwise. Courts consider an owner’s being able to rent residential-type property to be a material right of any owner. Restrictions created to such rentals need to be clear as to what is actually prohibited. As a result, many courts have held that a “commercial” purpose restriction in the controlling documents is inapplicable to such rentals because such rentals are not a commercial use, but instead just an allowed residential use, with the exception being that if the owner is shown to actually be doing rentals as a regular and ongoing business, the activity can be deemed commercial. E.g., Mason Family Trust v. DeVaney, 207 P.2d 1176 (NM 2009) (owner renting a vacation home annually for far more days in a year than the owner was using the property was engaging in allowed residential use, not commercial use); Forshee v. Neuschwander, 914 N.W.2d 643 Wyo 2018) (owner’s short and long term rentals of vacation property was not a “commercial” use); Houston v. Wilson Mesa Ranch Homeowners Association. Inc.., 360 P.3d 255 (Colo. 2015)(owner’s many short term, profit-making, rentals of house in a scenic area, obtained via listings with VRBO, was not a prohibited commercial or business use of the property, and the association could not create any new provisions reducing the rental rights of the owner absent an actual vote of the owners); Wilson v. Chiwawa Communities Association, 327 P.3d 614 (Wash. 2014)(owners short term rentals of vacation home was not a prohibited commercial use but an allowed residential use); Santa Monica Beach Property Association v. Acord, 219 So.3d 111 (Fla. 2017) (owners of beach property who did many short-term rentals were not engaging in prohibited commercial or business activities but just residential activities); Robins v. Walter, 670 So.2d (Fla. 1995) (finding a violation of the clause prohibiting commercial or business use of lodging but did so because the owner was running the lodging as a bed and breakfast inn for multiple renters that was set up like a motel, and he worked at It continuously and also had paid employees).

Even the IRS does not treat income from an owner’s rental of residential-type real estate as commercial or business income. Instead, it is designated as passive “investment” income absent information that actually shows the taxpayer is in the business of doing rentals. Moreover, if an owner rents an owned residential-type property for 14 days or less during a year, and stays in it for 15 days or more, the rental payments are not even considered reportable income. See IRS Topic no. 15, Renting Residential and Vacation Property.

C. Changing the Existing Commercial Enterprise Restriction

A continuous call of many is that DVD needs to create significantly more restrictive rental rules. Some such changes have been made in the post-CCV DVC Resort POSs, with the most such changes made to CFW, but those changes cannot be applied to the pre-Riviera resorts. As to any pre-Riviera resort, DVD cannot unilaterally add or apply more restrictive rules to renting than those contained in the declarations of any such resort because the declarations prohibit DVD from making any unilateral change that would prejudice or impair to any material extent the rights of the members, which include the right to rent. E.g., BWV Declarations §16.2. Instead, such proposed changes must be submitted to a vote of the members. Moreover, the Florida condominium statute, §718.110(13), prohibits changes reducing the ability of owners to do rentals in relation to any condominium resort absent an actual vote of the owners, and, even if passed, any owners who vote against the changes will not be bound to follow them.

Moreover, DVD has a further problem in that it has already provided admissions that could be used as evidence against it if it actually tried to claim it could unilaterally make new restrictions that reduced a member’s ability to rent in the pre-Riviera resorts. As previously noted, in 2008, DVD/DVC issued an interpretative rule declaring that a presumption would arise of violation of the commercial restriction rule if the member did more than 20 reservations in a year. The member could overcome that presumption by proving the member was not violating the commercial restriction. In the same time period, DVD also issued two other changes to rules: (a) it did away with the rule at the time that a member could do an unlimited amount of transfers, either in or out but not both, and reverted back to the original one transfer rule that existed in the 1990s; and (b) it set a limit of four to the number of other member files on which a member could become an associate member (and thus have the power to use another member’s points to make reservations). All three of those rules were created because of reservation problems that had arisen for hard to get rooms at hard to get times. None of those changes were made to the POS, and DVD could do away or change them now. But the problem DVD faces is that those rules which it created can be used as evidence in any future case challenging the validity of any more onerous restrictions to rentals created now by DVD without a vote of the members, to prove that DVD itself understood and believed that the right to rent that was provided in the declarations was very broad and allowed a member to do many rentals per year, and thus cannot claim the declarations can now be more narrowly interpreted..

My personal view is that the restrictions that exist do prohibit members with access to a lot of points, including via purchase and via partnerships with others, from mainly doing just rentals. However, I do not believe the existing rules prohibit a member from doing multiple rentals to recover dues, to make some profit, to rent when the member knows the member cannot use the points in the applicable year, and even in one year do nothing but multiple rentals if circumstances -- e.g., job change, family illness -- dictate that the member cannot go to Disney that year.

 

[Sandisw]

@drusba …I just want to thank you for such a detailed analysis and legal citations.

 

[xdan0920]

Providing some further comments, resulting partly from comments made or questions asked in relation to my earlier post.

A. Commercial Enterprise

The actual rental restriction in the declarations of the pre-Riviera POS’s requires a finding of a pattern of rental activity from which the association can reasonably conclude shows the member is acting as a commercia enterprise. As I noted previously, “commercial enterprise” is generally understood in the law to be referring to entities or persons in the “business” of doing something. There has been an assertion that my stated view as to the legal meaning of commercial enterprise is incorrect. However, there are numerous laws and cases which define or refer to a commercial enterprise as a person or entity that is actually in the business of doing something, see, e.g, 8 U.S.C. §1186b(f)(3)(commercial enterprise is an entity formed for the purpose of doing a for-profit business); 8 C.F.R. 204.6(e) (commercial enterprise defined as entities or persons in the business of doing something); 72 Pa. Stat §7301. (referring to a commercial enterprise as a business ordinarily conducted for profit); 10 CCR §8200 (Cal)(a commercial enterprise is an actual business engaging in for-profit activity); New Mex. Stats 13-1-21)(commercial enterprise is a business designed for the purpose of selling good and services);Tex. Bus. and Comm. Code § 52.002 (noting that a traditional commercial enterprise is an entity that is a business)); Devaney v. Rumsch, 228 So.2d 904 (S.Ct. Fl 1969)(referring to a commercial enterprise as an entity engaging in a commercial business); Yogman v. Parrot, 921 P.2d 1352 (Or 1996)(restriction in controlling document for vacation homes that prohibited any use as a commercial enterprise did not prohibit owner from doing numerous short-term rentals)

B. Use for a Commercial Purpose

Many assert that the rental restriction applies if there is any use of the property for a “commercial purpose,” and a commercial purpose is any rentals from which one can make a profit, Thus, anyone who makes a profit from doing even a few rentals can be found in violation of the “commercial” restriction.

That might possibly be an understood meaning of “commercial” relating to the sales of goods and services in the marketplace, but its legal meaning in relation to an owner of residential-type property doing rentals, including short-term rentals, of that property is, according to a number of cases, otherwise. Courts consider an owner’s being able to rent residential-type property to be a material right of any owner. Restrictions created to such rentals need to be clear as to what is actually prohibited. As a result, many courts have held that a “commercial” purpose restriction in the controlling documents is inapplicable to such rentals because such rentals are not a commercial use, but instead just an allowed residential use, with the exception being that if the owner is shown to actually be doing rentals as a regular and ongoing business, the activity can be deemed commercial. E.g., Mason Family Trust v. DeVaney, 207 P.2d 1176 (NM 2009) (owner renting a vacation home annually for far more days in a year than the owner was using the property was engaging in allowed residential use, not commercial use); Forshee v. Neuschwander, 914 N.W.2d 643 Wyo 2018) (owner’s short and long term rentals of vacation property was not a “commercial” use); Houston v. Wilson Mesa Ranch Homeowners Association. Inc.., 360 P.3d 255 (Colo. 2015)(owner’s many short term, profit-making, rentals of house in a scenic area, obtained via listings with VRBO, was not a prohibited commercial or business use of the property, and the association could not create any new provisions reducing the rental rights of the owner absent an actual vote of the owners); Wilson v. Chiwawa Communities Association, 327 P.3d 614 (Wash. 2014)(owners short term rentals of vacation home was not a prohibited commercial use but an allowed residential use); Santa Monica Beach Property Association v. Acord, 219 So.3d 111 (Fla. 2017) (owners of beach property who did many short-term rentals were not engaging in prohibited commercial or business activities but just residential activities); Robins v. Walter, 670 So.2d (Fla. 1995) (finding a violation of the clause prohibiting commercial or business use of lodging but did so because the owner was running the lodging as a bed and breakfast inn for multiple renters that was set up like a motel, and he worked at It continuously and also had paid employees).

Even the IRS does not treat income from an owner’s rental of residential-type real estate as commercial or business income. Instead, it is designated as passive “investment” income absent information that actually shows the taxpayer is in the business of doing rentals. Moreover, if an owner rents an owned residential-type property for 14 days or less during a year, and stays in it for 15 days or more, the rental payments are not even considered reportable income. See IRS Topic no. 15, Renting Residential and Vacation Property.

C. Changing the Existing Commercial Enterprise Restriction

A continuous call of many is that DVD needs to create significantly more restrictive rental rules. Some such changes have been made in the post-CCV DVC Resort POSs, with the most such changes made to CFW, but those changes cannot be applied to the pre-Riviera resorts. As to any pre-Riviera resort, DVD cannot unilaterally add or apply more restrictive rules to renting than those contained in the declarations of any such resort because the declarations prohibit DVD from making any unilateral change that would prejudice or impair to any material extent the rights of the members, which include the right to rent. E.g., BWV Declarations §16.2. Instead, such proposed changes must be submitted to a vote of the members. Moreover, the Florida condominium statute, §718.110(13), prohibits changes reducing the ability of owners to do rentals in relation to any condominium resort absent an actual vote of the owners, and, even if passed, any owners who vote against the changes will not be bound to follow them.

Moreover, DVD has a further problem in that it has already provided admissions that could be used as evidence against it if it actually tried to claim it could unilaterally make new restrictions that reduced a member’s ability to rent in the pre-Riviera resorts. As previously noted, in 2008, DVD/DVC issued an interpretative rule declaring that a presumption would arise of violation of the commercial restriction rule if the member did more than 20 reservations in a year. The member could overcome that presumption by proving the member was not violating the commercial restriction. In the same time period, DVD also issued two other changes to rules: (a) it did away with the rule at the time that a member could do an unlimited amount of transfers, either in or out but not both, and reverted back to the original one transfer rule that existed in the 1990s; and (b) it set a limit of four to the number of other member files on which a member could become an associate member (and thus have the power to use another member’s points to make reservations). All three of those rules were created because of reservation problems that had arisen for hard to get rooms at hard to get times. None of those changes were made to the POS, and DVD could do away or change them now. But the problem DVD faces is that those rules which it created can be used as evidence in any future case challenging the validity of any more onerous restrictions to rentals created now by DVD without a vote of the members, to prove that DVD itself understood and believed that the right to rent that was provided in the declarations was very broad and allowed a member to do many rentals per year, and thus cannot claim the declarations can now be more narrowly interpreted..

My personal view is that the restrictions that exist do prohibit members with access to a lot of points, including via purchase and via partnerships with others, from mainly doing just rentals. However, I do not believe the existing rules prohibit a member from doing multiple rentals to recover dues, to make some profit, to rent when the member knows the member cannot use the points in the applicable year, and even in one year do nothing but multiple rentals if circumstances -- e.g., job change, family illness -- dictate that the member cannot go to Disney that year.

Are any of those citations “vacation clubs”?

 

[Judique]

What would make it super easy, barely an inconvenience, would be if you had (purely hypothetically) a resale broker AND a third party rental site under the same corporate umbrella. Just imagine…

Being deliberately a tiny bit obtuse are we? (This is a haha moment) I thought about posting it with some stars but probably best to leave it alone...

I did see one way beyond reality this morning.

 

[Sandisw]

Are any of those citations “vacation clubs”?

I am sure she will weigh in, but this has been posted before that because the resorts are leasehold condominiums and are residential units, the rules that govern condos apply to DVC and is evident by the different areas of the POS documents that reference those statutes which are FL Chapter 718 and Ch 719.

FL statue Ch 721 further details out specific rules when those condos are sold as part of a timeshare project. That is also the section that gives jnsight into the term vacation club in reference to timeshare project.

CFW doesn’t need to follow the condo rules because it is not being sold that way and why I personally believe all future resorts will be sold that way.

If you go to the thread I linked earlier, there may be more there that already answers this for you, while you wait for a future post.

 

[ShaneDJ]

So there is some bias there.

They are reading the contract in a way they want it to be interpreted, so that’s the bias I was referring to.

Don't be a hypocrite. You are doing the same.

 

[xdan0920]

Don't be a hypocrite. You are doing the same.

I’m extremely biased. Not sure when or if I ever implied otherwise. If you are renting every year, I want Disney to put a stop to it.

 

[Genie+]

But, DVC and DVC lawyers made the choice to change the declaration and make it much more specific for those buying.

And that begs the question for me as why? Why do that if you are confident you have the authority to do it anyway? Why did they not just update that language to the rules for other DVc resorts? If they already have the right to use that instead of what is written, why not simply make them all match?

In consideration of the timeline, trying to keep with simplicity and stages of impact, it makes sense. They can’t easily change the other contracts, but they can be more precise with new ones. The spirit of all the contracts from day 1 have prohibited commercial use though.

When it comes to legalities, it often comes down to protecting from unreasonable expectations. Look at all the fine print Disney uses on park tickets.

Thomas’ English muffins may have felt confident people knew how to use them in a toaster, especially when every package from day one mentions to ‘fork split’ them. But companies have to deal with unreasonable people. For a while Thomas’ started putting new wording on the package: Warning - Do not put whole muffin in toaster without splitting. It is since gone, but they were probably going through some type of litigation at the time. If I jam unsplit english muffins into a toaster where it’s hitting the heating elements and leave it unattended eta- and start a fire, I might find a lawyer to take that case because a big company didn’t explicitly instruct me not to.

 

[Brian Noble]

There are two ways to interpret the language added post-RIV.

One: that language does not apply, at all, to prior resorts. If you own at an earlier resort, have fun storming the castle!

Two: that language is not doing anything new, but instead only clarifying the definition that DVC has been free to set more or less at will all along. In this interpretation, DVC plans to employ any measures that might be reflected in this language equally to all owners, not just those at post-RIV resorts.

My money says that Disney's lawyers will argue Interpretation Two. Are they right? Got me. But if they do take this path, bet that they will make it expensive for anyone to prove them wrong.

There are a lot of people in this thread who are certain they know how various points in the contract will ultimately be litigated. Some of them (a) are lawyers who (b) have different opinions. Be careful about listening to only the ones with opinions you agree with, because Disney's lawyers will also have both opinions and very deep pockets. The only question is whether or not they have the will to go to the mattresses on any particular point. Other timeshare developers have done so in similar situations, and Disney has done so in many other settings. It is not hard to see the intersection between those two.

 

[AstroBlasters]

Btw, I am going to WDW the first week of November. I looked on just 1 DVC rental website and found 35 spec rentals already made. And that’s just 1 website. I am sure those people are just changing their travel plans and had no choice but to rent.

I think you will get a lot more support with the idea on cracking down on spec rentals made at the 11m mark…..

 

[AstroBlasters]

You have been pretty straightforward that you don’t want any major changes. So there is some bias there. However, I was referring to the OP. They are reading the contract in a way they want it to be interpreted, so that’s the bias I was referring to.

I think the word you were looking for is EDUCATED OPINION.

 

[xdan0920]

I think you will get a lot more support with the idea on cracking down on spec rentals made at the 11m mark…..

I’m not looking for support. I used to be able to use my membership much easier. The last 5 years has become a huge pain in the rear. And it coincides with the explosion of the rental market. Ergo….

 

[Genie+]

A big commercial renter might feel they have a case against cease and desist because:

They stay under the resort/total point limits for owners

They do not see their activity as running a business because it’s just paying for their large family’s high roller WDW trips

They are not making more than 20 reservations per year on any single membership
——

Their family bought 20,000 points and personally uses 2k-5k points per year. The rest of the points are sold on Facebook as a combo of confirmed rentals, high $pp home priority reservations, and distressed points from when things go sideways. They have a bunch of memberships between different UY and different owners.

——

If DVC decides they care, and this owner has lawyers in the family and plenty to lose if they couldn’t continue their rental activity? Not easy. Whether or not DVC cared to address it prior, does seem like they always wanted to keep the ability to step in.

Now that can be argued as well. Why did they not more strictly enforce sooner, giving the impression it was allowable and letting people spend big money. DVC can try to say they weighed impact and it’s only in recent years it’s become worth enforcing. They get a flat rate management fee and are not the police.

 

[xdan0920]

I think the word you were looking for is EDUCATED OPINION.

Alrighty, starting to see where @lowlight was coming from.

 

[lowlight]

There are a lot of people in this thread who are certain they know how various points in the contract will ultimately be litigated. Some of them (a) are lawyers who (b) have different opinions. Be careful about listening to only the ones with opinions you agree with, because Disney's lawyers will also have both opinions and very deep pockets. The only question is whether or not they have the will to go to the mattresses on any particular point. Other timeshare developers have done so in similar situations, and Disney has done so in many other settings. It is not hard to see the intersection between those two.

This pretty much sums it up. I am no fan of the way DVC has wielded it's lopsided power against members in the past. I feel on a few occasions they've overstepped the contract and only backed down when confronted by a mass of members complaining loudly. The new trust system raises alarm bells for me for the future of DVC. It's exactly those reasons that I feel they will view it as interpretation 2 as well. It just so happens that that interpretation is the one that is advantageous to my desires at this moment in time, but I still think DVC HAS TO step to the plate on this issue- again, not just for the good of the membership, which they care nothing about, but for their own pockets. It's very hard to make a case for buying direct, it's easier to make a case to buy resale, but renting is really the sweet spot of going to DVC year after year right now if you don't have the money for multiple contracts at multiple resorts. Corporations are very, very good at protecting their investments and have likely run the Pinto numbers- "will the wrongful death lawsuits outweigh the cost of the recall" becomes "will the threat of lawsuits from owners who weren't obscenely violating the contract (non LLC, mediumish owners) outweigh the increase in sales and room bookings?" They have the money to litigate it and it may prove worthwhile to preserve the value of their product, whether they are 100% solid legal ground or not. It's never stopped them before.