Trading DVC deeds?

[drusba]

An exchange of properties is what is called a "like-kind" real estate transaction. As to whether you need to put a dollar value on the transaction, the answer is yes but it has nothing to do with Disney's ROFR. You need to do it at some point because the transaction is a taxable capital gain (or loss) event. Each side needs to know a dollar value of what is received so they can determine whether they have a capital gain or loss. Also, as a practical matter you need to agree that what is being exchanged is of equal value and usually in doing that you figure out a dollar value. You rarely see like-kind transactions for property held for personal use such as a timeshare; businesses sometimes use them because they get a tax deferral by transfering one property and immediately investing in (and receiving) a like property but that tax deferral is not available for property held for personal use.

As to Disney's ROFR, such clauses are construed against the party with the right of first refusal. Disney cannot add any conditions to the exercise of the right without your approval which are not stated in the original contracts and disclosure documents. For a like-kind transaction, it would be required to supply the compensation agreed to, meaning actual property interest from a resort, unless the original agreement for ROFR provides for allowing payment of a dollar value in a like-kind transaction. The agreements and disclosure documents with Disney are silent on any special provisions for like-kind transactions and thus Disney would have to pay what is offered, actual property, to exercise the right.

 

[lark]

An exchange of properties is what is called a "like-kind" real estate transaction. As to whether you need to put a dollar value on the transaction, the answer is yes but it has nothing to do with Disney's ROFR. You need to do it at some point because the transaction is a taxable capital gain (or loss) event. Each side needs to know a dollar value of what is received so they can determine whether they have a capital gain or loss. Also, as a practical matter you need to agree that what is being exchanged is of equal value and usually in doing that you figure out a dollar value. You rarely see like-kind transactions for property held for personal use such as a timeshare; businesses sometimes use them because they get a tax deferral by transfering one property and immediately investing in (and receiving) a like property but that tax deferral is not available for property held for personal use.

As to Disney's ROFR, such clauses are construed against the party with the right of first refusal. Disney cannot add any conditions to the exercise of the right without your approval which are not stated in the original contracts and disclosure documents. For a like-kind transaction, it would be required to supply the compensation agreed to, meaning actual property interest from a resort, unless the original agreement for ROFR provides for allowing payment of a dollar value in a like-kind transaction. The agreements and disclosure documents with Disney are silent on any special provisions for like-kind transactions and thus Disney would have to pay what is offered, actual property, to exercise the right.

I can definitely see having to value the consideration you receive for purposes of filing your taxes, but I think that's different from being required to declare a value at the time of sale for purpose of making disney's ROFR easier. I would think that the value of the consideration I get in return for my points, and how it compares to my basis, is for me to defend to the IRS and that's that.

Also, I agree with you that it's unlikely that Florida law would impose additional requirements into contractual ROFR provisions, even though Florida is pretty favorable to inn keepers and timeshare sellers. My read of the ROFR provision is exactly as others have said -- that it requires the same consideration to be provided by Disney. (Of course, I'm just someone speculating on the internet, not a legal expert on Florida law.)

In my example, I tried to give something other than a like-kind exchange or easy to value item. So, I sell my points (as an example) for $50/point. The buyer and I think this is a bit low, but we want to do the deal and are worried about ROFR. Why not put a provision in that says buyer will also deliever to seller a personally hand-drawn and signed picture of mickey mouse. If I were writing an ROFR, it would give DVC the right to ascribe a dollar value to such items and perhaps even contain a streamlined valuation or arbitration provision to set the value. But theirs doesn't. I think a layman's reading of the ROFR provision says that disney needs to replicate that provision. In reality, I think it doesn't matter all that much, because there's no real need for a seller ever to care that much whether the buyer gets the points or not -- so long as they get their money.

But all this is convincing me that if I were to find a trading partner and wrote a simple contract that said: I will give you my 160 points; you give me your 160 points; each side to split closing costs, etc., disney would have to give one or the other of us the same points in order to exercise ROFR. The actually is not without risk -- suppose the trade is VBR and HHR (just as an example). Disney exercises ROFR and gives me 160 points for HHR, but doesn't exercise it on the other end. Now, I can't complete the contract, so I think dollar values have to be in there anyway to make sure the deal can get done.

So, the easiest thing would be to simply each sell the other the points for a number that will be higher than likely ROFR.

 

[drusba]

I can definitely see having to value the consideration you receive for purposes of filing your taxes, but I think that's different from being required to declare a value at the time of sale for purpose of making disney's ROFR easier. I would think that the value of the consideration I get in return for my points, and how it compares to my basis, is for me to defend to the IRS and that's that.

Also, I agree with you that it's unlikely that Florida law would impose additional requirements into contractual ROFR provisions, even though Florida is pretty favorable to inn keepers and timeshare sellers. My read of the ROFR provision is exactly as others have said -- that it requires the same consideration to be provided by Disney. (Of course, I'm just someone speculating on the internet, not a legal expert on Florida law.)

In my example, I tried to give something other than a like-kind exchange or easy to value item. So, I sell my points (as an example) for $50/point. The buyer and I think this is a bit low, but we want to do the deal and are worried about ROFR. Why not put a provision in that says buyer will also deliever to seller a personally hand-drawn and signed picture of mickey mouse. If I were writing an ROFR, it would give DVC the right to ascribe a dollar value to such items and perhaps even contain a streamlined valuation or arbitration provision to set the value. But theirs doesn't. I think a layman's reading of the ROFR provision says that disney needs to replicate that provision. In reality, I think it doesn't matter all that much, because there's no real need for a seller ever to care that much whether the buyer gets the points or not -- so long as they get their money.

But all this is convincing me that if I were to find a trading partner and wrote a simple contract that said: I will give you my 160 points; you give me your 160 points; each side to split closing costs, etc., disney would have to give one or the other of us the same points in order to exercise ROFR. The actually is not without risk -- suppose the trade is VBR and HHR (just as an example). Disney exercises ROFR and gives me 160 points for HHR, but doesn't exercise it on the other end. Now, I can't complete the contract, so I think dollar values have to be in there anyway to make sure the deal can get done.

So, the easiest thing would be to simply each sell the other the points for a number that will be higher than likely ROFR.

No, it may not be necessary to agree to a value at time of sale unless needed for local and state real estate transfer and document tax purposes (which it would be in Florida since the taxes are based on property value). However, it may be very beneficial to do so. If the two sides negotiate and put a dollar value on the properties and it is somewhat near fair market resale value but still a little less than that, it will be accepted as the proper value by the IRS. If you don't agree on value you better make the value not a dime less than fair market resale value at time of sale or otherwise face a potential challenge from the IRS. In other words, you are generally better off agreeing to a value.

Adding something to a sale, like the picture of Mickey, in an attempt to avoid the exercise of ROFR does give Disney a right to challenge because it is a designed attempt to avoid ROFR. In fact, it could give Disney a claim for fraud or intentional interference with its right of first refusal which could include punitive damages.

Otherwise with a true negotiated property for property exchange, Disney would have to excercise ROFR by providing the agreed to property interest. The result is that it is highly unlikely Disney would exercise ROFR in that situation; however, it is may also be highly unlikely to find anyone to do such a transcation.

 

[Dean]

It's interesting that lark posted the message that they did, as I was getting curious about the very same issue last week when reading about the OKW resale values on another thread. I'm somewhat interested in contemplating a similar, but opposite exchange that lark is thinking ... in general, as for disclosure purposes, I have not (yet) made any direct contact via PM with lark to see if just by coincidence our two properties matched.

Anyway, one question that came into my mind in reading through this thread, though, is couldn't the points of one contract (i.e. the deed) be the 'consideration' exchanged for the other? Both are assets, and the requirement for the sale, or exchange of an asset, is consideration. Consideration is generally cash, but in this case, couldn't the condiseration be the other point contract?

Even if they don't have the legal right, why hold up the sale if they ask for it as they did come back and require in the situation I had, unless you simply want to test the issue.

 

[dvcbrad]

Even if they don't have the legal right, why hold up the sale if they ask for it as they did come back and require in the situation I had, unless you simply want to test the issue.

Not sure what you're asking, perhaps you misinterpreted my post. I was only curious as to whether the points could be considered as the consideration rather than the cash, i.e. whether that would be possible from a legal, transactional standpoint ... not trying to test or challenge anything.

 

[lark]

Adding something to a sale, like the picture of Mickey, in an attempt to avoid the exercise of ROFR does give Disney a right to challenge because it is a designed attempt to avoid ROFR. In fact, it could give Disney a claim for fraud or intentional interference with its right of first refusal which could include punitive damages.

I like and respect your posts, but this isn't accurate.

Not sure if anyone is even still interested in this thread, but FWIW, you own your RTU and can dispose of it however you want. You can trade it to a chiropracter for a massage. You can sell it for money. Or, if a mickey mouse portrait is important to you, you can trade it for that. Disney has a contractual ROFR, but the ROFR provisions in the contracts are surprisingly short. They merely say disney has a 30 day right to complete the buyer's deal on the same terms. The question in this thread, I think, is whether there is a Florida overlay that requires some ascription of FMV, or whether disney can compell you to put a FMV on the consideration you are receiving. Dean has indicated he has some personal experience that disney will try to take at least one run are demanding a declaration of a FMV. And, as he also notes, there's really no reason ever for a seller to test this, unless they truly prefer some services or personal item over cash. For example, if you wanted to trade your deed to a street artist for an original grafitti work and disney said, "give us a $$ value," could you say, "I don't want money, I want this original work of art." I think, if pushed, you could, and disney's only option would be to try to purchase the art for you to exercise its ROFR.

With respect to the legalese, there is nothing tortious about trying to circumvent ROFR. So long as you engage in an arms' length transaction and do not make misrepresentations you're fine. Fraud is only actionable if it involves a material misrepresentation or an omission of material fact. Unless the mickey mouse picture is a ruse, it's not fraud -- in other words, so long as the buyer actually delivers it, there's nothing fraudulent about including it as part of the sale. With respect to intentional interference, there has to be a wrongful act, and there isn't here. And even if there were, the tort of interference with a contract or business relationship requires you to intefere with another's contract. Not your own.

(Usual disclaimers -- don't rely on the internet for legal advice. I could be a 4 year old using my parent's computer for all you know, and making up words out of black's law dictionary. )

 

[drusba]

^You misunderstood my post. I was specifically responding to the suggestion that one could agree to add something to the sale which Disney could not easily match in the sale (such as some picture or other object) for the purpose of avoiding Disney's right of first refusal. If you do it for the purpose of avoiding the ROFR, Disney would have a claim. Your violating an obligation to act in good faith (implied in any contract including the one you have with Disney) and it could also result in a claim for intentional interference with Disney's ROFR (each party to the transaction could be accused of interfering with Disney'a ROFR in relation to the other party's property interest). It could also be fraud because in submitting the deal for waiver of ROFR you would be representing that the deal was negotiated in good faith and not set up as it is to avoid Disney's ROFR.

 

[Dean]

Not sure what you're asking, perhaps you misinterpreted my post. I was only curious as to whether the points could be considered as the consideration rather than the cash, i.e. whether that would be possible from a legal, transactional standpoint ... not trying to test or challenge anything.

As I noted above, DVC will put a requirement for a cash value on any items listed. Whether they have the right to do so is a question but my guess is that there are components of the RE laws in FL, and most states, that would give them this right. Even if not and they "require it", anything else will hold up the deal either temp or permanently.

My guess, as seems to be drusba's, is that throwing language in with the specific purpose of forcing ROFR because of the unique nature of an item is not legal in the strictest sense. And it really doesn't serve a purpose unless one is trying to bypass ROFR "illegally" anyway. It's an interesting discussion but at the end of the day it serves no purpose.