Joint Committee on Statutory Instruments Sixth Report


Memorandum by the Department of Trade and Industry


  1. By letter dated 25 June 1997 from the Commons Clerk of the Committee, the Committee has requested a Memorandum on the undermentioned points:

    (1)   New Section 1B of the 1992 Act, inserted by regulation 4, creates a new offence in relation to the advertisement of timeshare rights. Section 1B(3)(b) makes it a defence for the advertiser to show that "he did not know and had no reasonable cause to suspect that he was advertising timeshare rights". Explain, with an example, the circumstances in which this defence could be asserted.

  2. The Department considered that it would be unreasonable to expect persons such as publishers or advertising agencies who are the advertisers of the product of a timeshare operator to take responsibility for compliance with the Timeshare Act 1992 as amended by the Timeshare Regulations 1997. For that reason the Department provided for a "publisher's" defence in cases of advertisements. This approach is consistent with the approach taken in other areas concerned with the protection of consumers such as pyramid selling schemes (section 121 of the Fair Trading Act 1973) or package travel (regulation 25(5) of the Package Travel, Package Holidays and Package Tours Regulations 1992). In both examples the infringements of advertising rules are criminal offences. The Department had in mind the case of a timeshare operator who would use an advertising agency or send advertising material to a publisher. Some of the timeshare rights are marketed as insurance policies, membership of clubs and in many other ways that make it not always obvious that the product advertised is a timeshare. It would be even more difficult to detect the true nature of certain mailshots which look like a prize draw in a competition. The advertiser or publisher would not necessarily notice that the prize draw was no more than an advertisement for timeshare.

    (2)   In the Section 5A inserted in the Act by regulation 9(6), explain what is meant in subsection (4) by the expression "binding preliminary agreement" and what the purpose and effect of the subsection is.

  3. Section 5A implements Article 5 of Directive 94/47/EC of the European Parliament and the Council of 26 October 1994. Article 5.1 refers to "both parties' signing the contract or of both parties' signing a binding preliminary contract." It has been the Department's intention to provide the timeshare purchaser with the full protection envisaged under the Directive. The Department took account of the fact that timeshare rights can be sold in many different forms, for example membership rights, property rights, tenancies, shareholdings, collective investments and no doubt many more. Under English law there are two examples of a preliminary binding contract the Department would mention:

    (i)   legally binding "Heads of Agreement" with the details to be found in the main contract and

    (ii)   a legally binding agreement to enter at some later date into an agreement for the purchase of a timeshare right. The Department, in copying out the words from Article 5 of the Directive, further took account of the possibility that the protection of the UK legislation might be invoked in respect of property situated in another Member State.

  The consumer might as a result find himself able to invoke UK legislation. He may have entered into a preliminary binding agreement rather than the final purchase contract. It is the Department's view that the cancellation rights provided under the Directive should also apply to such preliminary contracts (as indeed envisaged by the Directive) and that the consumer should not be deprived of his rights under the Directive because the Regulations only apply to the contract for the purchase of timeshare rights and not also to the preliminary binding agreement.

20th June 1997

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