House of Lords - European Union

Select Committee on European Union Third Report

Chapter 13: Other Issues

Extension of scope to non-fixed properties

170. Evidence for the inquiry generally welcomed the inclusion of non-fixed properties such as canal boats, caravans and cruise ships within the proposed directive (Article 2.1(a)).

Extension of scope to shorter timeshares

171. The minimum period for a timeshare agreement under the 1994 Directive is 36 months and this has led to the marketing of timeshares of 35 months or under, sometimes marketed as "trial" packages, in order to avoid its provisions.

172. The inclusion of timeshares of 12 months or more within the proposed directive (Article 2.1(a)) was generally welcomed, although OTE said that it could make timeshare trial packages uneconomic (pp 13-16).

173. However, Professor Howells and Dr Twigg-Flesner queried whether there was any need for a minimum duration of the contract, because of the risk of evasion. They noted that some Member States had removed the three year minimum duration period when implementing the 1994 Directive (Q 155). Professor Howells suggested that timeshares of 11 months with an automatic renewal might be offered to avoid the scope of the directive. Dr Twigg-Flesner said that Belgian Law applied the timeshare rules to contracts of less than one year duration where there is an automatic renewal clause in the contract (Q 155).

174. Citizens Advice also said that "the one year rule will doubtless lead to 51 week agreements which, like the 35 month ones, will be described as 'trials'" (pp 72-76).

175. The Minister told us that the risks attached to products of under one year were substantially less, and that he was concerned that the lack of a minimum duration could catch package holidays (Q 99). However, Professor Howells considered that the provisions of the Package Travel Directive would not cover timeshare since the latter was simply the provision of accommodation and not a direct combination of services (Q 142).

Definitions

176. The OFT expressed concern about the definition of holiday clubs (Article 2.1(b)) as it could inadvertently catch legitimate bodies such as staff association clubs (Q 81). The OFT also suspected that in the longer term new products would be created to evade the new directive (pp 29-31).

177. The Minister said that he wanted changes to the use of the term "accommodation" in the definitions of timeshare and long-term holiday products (Article 2(1)(a) & (b)) to ensure that only arrangements incorporating overnight accommodation were included. There was a risk that other arrangements granting rights to periodic access to accommodation in a wider sense, such as seats in sports stadiums, could inappropriately be caught (pp 51-53).

Multi-annual hotel reservations

178. Professor Howells and Dr Twigg-Flesner queried the Commission's view[27] that multi-annual hotel reservations were outside the scope of the new directive because they were not contracts: booking a hotel room might well constitute a contract. They suggested that reserving a hotel room, whether it constituted a contract or not, should not be subject to the new directive (Q 150) and that this should be made clear in the Preamble of the new directive (pp 69-71).

Timeshare owners' rights

179. We heard some concerns about the lack of owners' rights at timeshare resorts and about the annual charges for occupying a timeshare. The Timeshare Consumers Association said that annual costs "are escalating at a rate some three times faster than inflation" (pp 1-3). Citizens Advice said that rising charges could be used to drive out owners who then had to sell for a low figure, and suggested that this was an issue that the Commission should address. Citizens Advice also said that it had complaints about aggressive collection of maintenance fees (pp 72-76). The Commission takes the view that the regulation of the management and maintenance of properties is an issue for the Member States and does not need to be regulated at Community level[28].

180. The Timeshare Consumers Association said that the new directive had not attempted to provide a legal structure for timeshare or to give owners rights, and that this needed to be addressed at least in relation to new resorts (pp 1-3, Q 17). Professor Howells and Dr Twigg-Flesner also suggested that problems associated with charges could be tackled by "democratising" managements of the resorts to the owners themselves (pp 54-59).

Termination and transfer of ownership

181. The lack of fair termination clauses for timeshare properties was highlighted in some submissions. Citizens Advice and TATOC referred to the need for clauses providing for termination and transfer of ownership and/or for relevant information (pp 72-76, pp 101-106). Citizens Advice also drew attention to the length of timeshare agreements and the lack of equitable clauses in contracts for termination (pp 72-76). Professor Howells and Dr Twigg-Flesner said that after a set period, of say five years, consumers should have the right to cancel the contract, and that penalty clauses for consumers seeking to sell should be prohibited (pp 54-59).

182. The Minister told us that the UK had some sympathy with views expressed about owners' rights, including information about the possibility for, and the consequences of, discontinuing the contract, and that these issues were under discussion in the Council working group (Q 121).

Review clause

183. The new directive requires the Commission to review and report on it no later than five years after it comes into force (Article 13).

Conclusions and Recommendations

184. We welcome the proposed inclusion of non-fixed properties such as canal boats, caravans and cruise ships within the directive (Article 2.1(a)). (para 170)

185. We support the proposed reduction of the definition of a timeshare from 36 to 12 months (Article 2.1(a)). However, we note that some Member States set no minimum period for a timeshare and, provided that the removal of the minimum period does not lead to the application of the new timeshare directive to holidays more properly covered by the Package Travel Directive, we see no reason for any minimum period. (paras 171-175)

186. We recommend that, if a timeshare is to be defined as one of 12 months or more, the new directive should include an anti-avoidance provision to deal with contracts purporting to be of a shorter duration. (para 173)

187. We recommend that the definition of holiday clubs (Article 2(1) (b)) be amended to exclude arrangements not involving accommodation and those which are provided as an incidental benefit to their members rather than as their primary commercial purpose. (para 176)

188. We recommend that multi-annual hotel reservations be explicitly excluded from the scope of the new directive. (para 178)

189. We agree that fair and balanced rights of termination and transfer of ownership must be central to the contract and recommend that the proposal be amended to provide them. (paras 181-182)