By George Leposky, editor, TimeSharing Today
Given the complexities of opening and operating legacy resorts during the COVID-19 pandemic, attorneys participating in a recent Timeshare Board Members Association webinar emphasized the importance of legal advice to avoid making mistakes.
Participating in the discussion were attorneys W. John Funk of Gallagher, Callahan & Gartrell, P.C., in Concord, NH, and Joel McTague of Frank, Weinberg & Black, P.L., in Plantation, FL.
“Start involving your attorneys to make sure that you are in full compliance with your governing documents and enacting best practices,” McTague emphasized. Failure to do this could raise a resort’s insurance premiums, prompt lawsuits, or cause a regulatory body to take disciplinary action, both attorneys said.
Legal issues involved
Funk listed some of the legal issues involved in coping with the pandemic. They include complying with state guidelines, developing and enforcing the resort’s own policies, employee issues, questions about the resort’s obligations to its owners, and issues relating to liability for actions that have been taken or not taken.
“In this environment,” he said, “communication with your owners, based on sound advice, is very important, because there’s a lot of confusion, and you want to make certain that your owners have a clear understanding of what your plans are for the resort.”
Complying with the governing documents may be difficult during the pandemic, Funk noted. For example, if a state restricts resorts to 50 percent occupancy, it may not be able to accommodate all of the owners.
He listed “critical issues” that the board must decide within a specified time, such as sunset clauses, board elections, and budgets; whether the resort’s documents need revision to increase their future flexibility; and long-range planning for a sustainable future or a reasonable alternative such as downsizing, merger, or repurposing.
McTague noted that Florida has a law allowing associations to invoke emergency powers in certain circumstances. “The statute was originally designed in response to a hurricane hitting the property,” he said. “The DBPR (Department of Business and Professional Regulation) has said that associations can use it for purposes of this pandemic that allow a little bit more flexibility in your governing documents.”
However, he questioned whether the DBPR’s order allowing use of the statute is really effective, especially since “everybody’s kind of making things up underneath the statute, rather than following the strict language of it.”
Many associations are mandating masks, but some owners with respiratory problems have a valid medical reason for not wearing a mask. How to deal with them depends on whether the resort falls under the Fair Housing Act, or the Americans with Disabilities Act.
McTague said associations should treat this issue as they would treat an emotional-support or service animal question, and get proper documentation from the owner. (The FHA applies only to owners at their home resort but allows emotional-support animals; the ADA applies to everyone, everywhere, but covers only service animals trained to perform a specific task.)
Another medical issue involves closure of gyms and pools, which affects disabled owners and guests, and those who need to exercise or follow a rehabilitation regime. The resort should consult with the local health officials who ordered these facilities to be shut down.
A resort’s improper use of intellectual property also is a concern. Signage that an association downloads from the internet, prints, and posts on its property could be violating someone’s copyright.
“Just because you find it on the Internet doesn’t mean it’s free,” McTague cautioned. Also, to reprint an article that originally appeared in a newspaper or on a website, the association needs permission from the person who owns the copyright.
“Otherwise,” he said, “you could be subject to a cease-and-desist letter that comes along demanding a six-figure settlement.”
Assessments and resort regulations vs owners’ rights
Some owners are questioning why they should pay their annual assessments if they can’t use their vacation accommodations, due to travel difficulties or the resort’s capacity issues.
“The resort is not a third party,” Funk explained. “All the owners are owners of the resort. This is their property, and it’s managed by their board of directors, and their management directives are carried out by the management team. For the resorts to continue to exist and thrive, they need to have the annual assessments paid by the owners.”
He advised boards to offer the owners alternatives, such as banking their time with an exchange company for future use, or offering owners vacant space at other times of year.
For owners who still balk at paying, McTague said, an association’s last resort is to remind them that “your obligation to pay the assessment is absolute and not contingent upon your ability to use the property.”
Funk noted that arguments based on an individual’s constitutional rights don’t apply to private ownership. The resort is privately owned and can establish its own rules, subject to state mandates, and safety and welfare override constitutional rights. Requiring masks in public areas is an example.
Both attorneys agreed that the rules should be enforced in a non-confrontational manner. Instead of calling the police and evicting the occupants, the association should fine people who refuse to cooperate—but first give them fair warning. When owners and guests arrive, a staff member should review the rules and then ask them to sign a waiver. It should say that they understand the rules, and if they contract an illness, they release the resort from any liability.
Legacy resorts with high delinquencies and reduced cash flow should plan ahead for an orderly exit strategy. The alternative, bankruptcy, is highly undesirable.
“The moment you file for bankruptcy, the owners are not going to pay any more funds to the resort,” Funk said. “A resort needs funding to pay for utilities and security to sustain the value of the property until there can be a resolution of it. A bankruptcy court could order the owners to pay their dues, but it gets to be a very expensive process and difficult to enforce.”
The alternative, he said, is a non-judicial resolution, getting the owners to approve terminating the resort with an exit strategy that will preserve value for the owners.
George Leposky is editor of TimeSharing Today.