(The following article should not be considered as providing legal advice.  Readers should act only upon the advice of their own legal counsel)

In this legal overview, we will summarize the legal challenges that legacy timeshare resorts often encounter and why it is crucial to seek guidance from legal counsel.

Drawing upon the insights of industry experts Robert Bone, attorney, and Jeff Ingram, Senior VP Real Estate Development, Lemonjuice Solutions, we will explore several key considerations for board members and resort stakeholders.

Legacy resorts require oversight

Legacy timeshare resorts face unique legal challenges that necessitate careful management and oversight. Bone, an experienced attorney with extensive involvement in the timeshare industry, and Ingram, a knowledgeable professional in timeshare operations, shed light on the critical legal aspects that boards of directors and resort management should be aware of.

The role of corporate directors

Bone emphasizes the fundamental role of corporate directors within timeshare resorts. Directors are responsible for upholding fiduciary duties and acting in the best interests of the corporation and its shareholders (interval owners). This duty requires directors to prioritize the preservation of assets and the enhancement of the resort. Directors must understand that they are volunteer employees of mutual benefit, not-for-profit corporations.

The need for outside legal counsel

The cornerstone of effective resort management is hiring legal counsel. Ingram underscores the importance of having a competent attorney who can provide guidance, review contracts, and offer legal advice. Bone noted that relying on the attorney retained by management companies is a breach of fiduciary duty, as their interests may not align with those of the resort. It is crucial to establish a direct relationship with an attorney who can assist with various legal matters.

Understanding governing documents

Legacy resorts often operate based on governing documents which consist of:

• Articles of Incorporation
• Declaration of Covenants, Conditions & Restrictions
• Bylaws of the Association [or Corporation]
• Rules of the Association [or Rules and Regulations of the Assn.].

These documents serve as the “owner’s manual” for the resort. Ingram emphasizes the necessity of reviewing these documents regularly, as they may contain clauses that have a significant impact on the resort’s operations. Resorts must also ensure that they comply with the appropriate state laws and statutes.

Dealing with delinquent owners

Delinquent owners can pose challenges to resorts. Bone recounts a scenario where a large interval owner refused to pay dues but continued to use the resort. The resort had to follow a specific legal process to suspend the owner’s voting and usage rights. It is essential to adhere to legal procedures when dealing with delinquent owners.

Creating and amending rules

Resorts may need to create or amend rules and regulations to address evolving challenges. Ingram cautions against creating discriminatory practices inadvertently while trying to address specific issues. Resorts should consult with an attorney to ensure that their rules are legally sound and fair.

Engaging owners

Bone highlights the importance of engaging resort owners in decision-making. Owners may not initially be interested in governance but need to be informed and involved. Transparency and open communication with owners can foster a sense of community and trust.

Mitigating personal liability

Both experts stress that personal liability for board members is unlikely as long as they act within the bounds of their fiduciary duties and seek legal counsel when needed. Insurance coverage, including Directors and Officers Liability Insurance and Employment Practices Liability Insurance, can provide protection in case of legal disputes.

In summary, legacy timeshare resorts face a range of legal challenges that require careful consideration and legal expertise. Directors should understand their fiduciary duties, engage legal counsel, regularly review governing documents, and communicate effectively with owners. By following these principles, resorts can navigate legal issues successfully and ensure the long-term viability of their properties.

To share your insights about the legal issues facing your resort, email: staff@tbmassoc.org.