BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 905 (Beth Gaines)
Version: February 26, 2015
Hearing Date: June 9, 2015
Fiscal: Yes
Urgency: No
TH
SUBJECT
Time-shares: Public Report: Real Property Inspection
DESCRIPTION
The Vacation Ownership and Time-share Act of 2004 requires a
person who creates a time-share plan or who is in the business
of selling time-share interests, to prepare, for issuance by the
Real Estate Commissioner, a public report that discloses certain
facts concerning the time-share. Existing law requires those
who create or sell time-shares to provide a copy of the public
report in writing to each purchaser of a time-share interest in
a time-share plan at the time of purchase. The Act also
requires those who offer a purchaser the opportunity to
subscribe to, or become a member of, an exchange program, which
is a method, arrangement, or procedure for the voluntary
exchange of time-share interests or other property interests, to
provide the purchaser with specified disclosures in writing.
This bill would modify the Act to provide that required copies
of public reports pertaining to time-share interests and
required copies of disclosures pertaining to exchange programs
may be provided in a digital format at the discretion of the
purchaser. This bill would also exempt licensed real estate
brokers or salespersons from the duty to conduct a reasonably
competent and diligent visual inspection of a time-share
property and to disclose all facts materially affecting the
value or desirability of the property to a prospective purchaser
when, as a condition of transfer, the prospective purchaser
would receive a copy of the public report, provided the property
has not been previously occupied.
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BACKGROUND
Time-shares, or vacation ownerships, are terms that generally
describe a system where owners occupy a property for short
periods of time each year while on vacation. This contrasts
with more traditional common interest developments, like
condominiums and residential subdivisions, which are usually
occupied year-round. The regulation of timeshares began in
earnest in 1981 when the industry was widely perceived as being
prone to high-pressure sales tactics and rampant consumer fraud
(an era now half-jokingly referred to as the "crime-share"
days). Stringent state regulations for time-shares were built
into the Subdivided Lands Law that regulated common interest
developments. Although time-share regulations and references
are now found throughout state law, they are now principally
found in the Vacation Ownership and Time-share Act of 2004.
(Bus. & Prof. Code Sec. 11210 et seq.)
Under current law, time-shares are regulated by the Bureau of
Real Estate (BRE), which has a broad responsibility to ensure
that purchasers of regulated time-shares, both in-state and
out-of-state, receive everything that they bargained for when
purchasing their interest in a time-share plan. Time-share
interests regulated by BRE fall into two basic categories, based
on whether participation in the time share results in the
conveyance of an interest in real property. The first category
of regulated time-share interests includes those where a right
of occupancy in a time-share property is coupled with a
conveyance of an estate in real property, which is typically
transferred to the purchaser by grant deed. The second involves
time-share interests based on purchase agreements between
sellers and buyers that do not involve the conveyance of an
interest in real property. These purchase agreements take many
different forms, such as granting membership in a corporation
along with a time-limited license for exclusive use of a
particular property.
BRE's oversight of time-share interests is provided primarily
through the creation of a "public report," which must be issued
to each purchaser before the sale of an interest in a time-share
plan. The purpose of a public report is "to prevent fraud and
misrepresentation in the marketing of parcels of land by
requiring disclosure of the financial risks and benefits of a
transaction to proposed purchasers and lessees." (California
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Coastal Com. v. Quanta Investment Corp. (1980) 113 Cal.App.3d
579, 589.) The Vacation Ownership and Time-share Act of 2004
requires the creation of this public report, which encompasses
most of the major elements of a time-share purchase (property
description, amenities, real estate disclosures, costs and
escrow, maintenance fees and assessments, management and local
governance, rescission, liability, and a host of other matters).
BRE oversees developer compliance with regulations governing
the creation of time-shares, as well those related to
advertising and sales of time-share interests, but the
California Attorney General bears the ultimate responsibility to
ensure the law is enforced.
The Vacation Ownership and Time-share Act of 2004 also governs
the creation and sale of interests in "exchange programs," which
are contractual arrangements that facilitate voluntary exchange
of time-share interests, such as allowing the owner of a
time-share interest to trade use of time owned in one time-share
plan for use of time at another property. The act requires
those who offer purchasers the opportunity to subscribe to or
become a member of an exchange program to provide specified
disclosures about the exchange program, including disclosures
about the program's membership and governance.
This bill, sponsored by the American Resort Development
Association, would authorize developers and sellers of
time-share interests to provide time-share public reports and
disclosures pertaining to exchange programs in a digital format
at the discretion of the purchaser. This bill would also
relieve licensed real estate brokers and salespersons of the
duty to conduct a reasonably competent and diligent visual
inspection of a previously unoccupied time-share interest
offered for sale, and to disclose to a prospective purchaser all
facts materially affecting the value or desirability of the
property that an investigation would reveal, when the transfer
of the time-share interest would require the seller to provide a
public report.
CHANGES TO EXISTING LAW
1.Existing law , the Vacation Ownership and Time-share Act of
2004, regulates the creation and sale of time-share interests
in a time-share plan, and the creation and operation of
exchange programs that facilitate the voluntary exchange of
time-share interests. (Bus. & Prof. Code Sec. 11210 et seq.)
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Existing law provides that any person who, to any individual
located in the state, sells, offers to sell, or attempts to
solicit prospective purchasers to purchase a time-share
interest, or any person who creates a time-share plan with an
accommodation in the state, shall register the time-share plan
with the Commissioner of Real Estate, unless the time-share
plan is otherwise exempt. (Bus. & Prof. Code Sec. 11226 (a).)
Existing law provides that, when registering a time-share
plan, the developer of a time-share plan shall provide the
Commissioner with, among other things, a public report that
complies with the requirements of the Vacation Ownership and
Time-share Act of 2004. (Bus. & Prof. Code Sec. 11226 (c).)
Existing law provides that a developer shall prepare, for
issuance by the Commissioner, a public report that shall fully
and accurately disclose those facts concerning the time-share
developer and time-share plan that are required by the
Vacation Ownership and Time-share Act of 2004 or by
regulation. (Bus. & Prof. Code Sec. 11234.)
Existing law provides that the developer shall provide the
public report to each purchaser of a time-share interest in a
time-share plan at the time of purchase. Existing law
specifies the public report shall be in writing and dated and
shall require the purchaser to certify in writing the receipt
thereof. Existing law also specifies the information required
to be contained within a public report. (Bus. & Prof. Code
Sec. 11234.)
Existing law provides that public reports for a single site
and those component sites of a specific time-share interest
multisite time-share plan that are offered in this state shall
include the following:
the name and address of the developer and the type of
time-share plan being offered and the name and address of
the time-share project;
a description of the existing or proposed
accommodations, including the type and number of time-share
interests in the accommodations, and if the accommodations
are proposed or not yet complete or fully functional, an
estimated date of completion;
the number of accommodations and time-share interests,
expressed in periods of seven-day use availability or other
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time increments applicable to the time-share plan,
committed to the multisite time-share plan, and available
for use by purchasers and a representation about the
percentage of useable time authorized for sale, and if that
percentage is 100 percent, then a statement describing how
adequate periods of time for maintenance and repair will be
provided;
a description of any existing or proposed amenities of
the time-share plan and, if the amenities are proposed or
not yet complete or fully functional, the estimated date of
completion;
the extent to which financial arrangements have been
made for the completion of any incomplete, promised
improvements;
a description of the duration, phases, and operation of
the time-share plan;
the name and principal address of the managing entity
and a description of the procedures, if any, for altering
the powers and responsibilities of the managing entity and
for removing or replacing it;
the current annual budget, along with the projected
assessments and a description of the method for calculating
and apportioning the assessments among purchasers, all of
which shall be attached as an exhibit to the public report;
any initial or special fee due from the purchaser at
closing together with a description of the purpose and the
method of calculating the fee;
a description of any financing offered by or available
through the developer;
a description of any liens, defects, or encumbrances on
or affecting the title to the time-share interests;
a description of any bankruptcies, pending civil or
criminal suits, adjudications, or disciplinary actions of
which the developer has knowledge, that would have a
material effect on the developer's ability to perform its
obligations;
any current or expected fees or charges to be paid by
time-share purchasers for the use of any amenities related
to the time-share plan;
a description and amount of insurance coverage provided
for the protection of the purchaser;
the extent to which a time-share interest may become
subject to a tax lien or other lien arising out of claims
against purchasers of different time-share interests;
a statement disclosing any right of first refusal or
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other restraint on the transfer of all or any portion of a
time-share interest;
a statement disclosing that a deposit made in connection
with the purchase of a time-share interest shall be held by
an escrow agent until expiration of any right to cancel the
contract and that a deposit shall be returned to the
purchaser if he or she elects to exercise his or her right
of cancellation, as specified;
a statement that the assessments collected from the
purchasers will be kept in a segregated account separate
from the assessments collected from the purchasers of other
time-share plans managed by the same managing entity, along
with a statement identifying the location of the account
and a disclosure of the rights of owners to inspect the
records pertaining to their accounts;
if the time-share plan provides purchasers with the
opportunity to participate in an exchange program, a
description of the name and address of the exchange company
and the method by which a purchaser accesses the exchange
program;
any other information that the developer, with the
approval of the commissioner, desires to include in the
public report; and
any other information reasonably requested by the
commissioner. (Bus. & Prof. Code Sec. 11234.)
Existing law establishes additional disclosures for public
reports for specific time-share interest multisite time-share
plans and for nonspecific time-share interest multisite
time-share plans. (Bus. & Prof. Code Sec. 11234.)
Existing law provides that if a developer offers a purchaser
the opportunity to subscribe to or to become a member of an
exchange program, or if an exchange company offers directly to
the purchaser the opportunity to subscribe to or become a
member of an exchange company, the developer or exchange
company shall provide to the purchaser in writing all of the
following information prior to or concurrently with the
execution of a contract or subscription for membership in the
exchange program:
the name and address of the exchange company;
the names of all officers, directors, and shareholders
of the exchange company;
whether the exchange company or any of its officers or
directors have any legal or beneficial interest in any
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developer or managing entity for any time-share plan
participating in the exchange program and, if so, the
identity of the time-share plan and the nature of the
interest;
a copy of the form of the contract between the purchaser
and the exchange company, along with a statement that the
purchaser's contract with the exchange company is a
contract separate and distinct from the purchaser's
contract with the seller of time-share interests;
whether the purchaser's participation in the exchange
program is dependent upon the continued affiliation of the
applicable time-share plan with the exchange program;
whether the purchaser's participation in the exchange
program is voluntary;
a fair and accurate description of the terms and
conditions of the purchaser's contractual relationship with
the exchange program and the procedure by which changes
thereto may be made;
a fair and accurate description of the procedures
necessary to qualify for and effectuate exchanges;
a fair and accurate description of all limitations,
restrictions, and priorities employed in the operation of
the exchange program, including, but not limited to,
limitations on exchanges based on seasonality,
accommodation size, or levels of occupancy, expressed in
conspicuous type. If those limitations, restrictions, or
priorities are not uniformly applied by the exchange
company, the information shall include a clear description
of the manner in which they are applied;
whether exchanges are arranged on a space available
basis and whether any guarantees of fulfillment of specific
requests for exchanges are made by the exchange company;
whether and under what circumstances an owner, in
dealing with the exchange program, may lose the right to
use and occupy an accommodation of the time-share plan
during a reserved use period with respect to any properly
applied for exchange without being provided with substitute
accommodations by the exchange program;
the fees or range of fees for participation by owners in
the exchange program, a statement of whether any such fees
may be altered by the exchange company and the
circumstances under which alterations may be made;
the name and address of the site of each accommodation
included within a time-share plan participating in the
exchange program;
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the number of accommodations in each time-share plan
that are available for occupancy and that qualify for
participation in the exchange program, expressed within the
following numerical groups: 1-5; 6-10; 11-20; 21-50; and 51
and over;
the number of currently enrolled owners for each
time-share plan participating in the exchange program,
expressed within the following numerical groups: 1-100;
101-249; 250-499; 500-999; and 1,000 and over; and a
statement of the criteria used to determine those owners
who are currently enrolled with the exchange program;
the disposition made by the exchange company of use
periods deposited with the exchange program by owners
enrolled in the exchange program and not used by the
exchange company in effecting exchanges; and
the following information for the preceding calendar
year, which shall be independently audited by a certified
public accountant in accordance with the standards of the
Accounting Standards Board of the American Institute of
Certified Public Accountants and reported annually no later
than August 1 of each year:
o the number of owners currently enrolled in the
exchange program;
o the number of time-share plans that have current
affiliation agreements with the exchange program;
o the percentage of confirmed exchanges, which is the
number of exchanges confirmed by the exchange program
divided by the number of exchanges properly applied for,
together with a complete and accurate statement of the
criteria used to determine whether an exchange request
was properly applied for;
o a statement in conspicuous type to the effect that
the percentage described above is a summary of the
exchange requests entered with the exchange program in
the period reported and that the percentage does not
indicate the probabilities of an owner's being confirmed
to any specific choice or range of choices;
o the number of use periods for which the exchange
program has an outstanding obligation to provide an
exchange to an owner who relinquished a use period during
a particular year in exchange for a use period in any
future year; and
o the number of exchanges confirmed by the exchange
program during the year. (Bus. & Prof. Code Sec. 11216.)
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This bill would authorize a developer to provide a public
report required by the Vacation Ownership and Time-share Act
of 2004, as well as any disclosures pertaining to an exchange
program, to a purchaser in writing or in a digital format at
the discretion of the purchaser.
1.Existing law provides that it is the duty of a real estate
broker or salesperson to a prospective purchaser of
residential real property, as defined, to conduct a reasonably
competent and diligent visual inspection of the property
offered for sale and to disclose to that prospective purchaser
all facts materially affecting the value or desirability of
the property that an investigation would reveal, and to make
other specified disclosures about the property and
transaction, if that broker has a written contract with the
seller to find or obtain a buyer or is a broker who acts in
cooperation with that broker to find and obtain a buyer.
(Civ. Code Sec. 2079 et seq.)
Existing law specifies that the duty of a real estate broker
or salesperson to conduct a reasonably competent and diligent
visual inspection of a property does not apply to transfers
which are required to be preceded by the furnishing, to a
prospective transferee, of a copy of a public report pursuant
to Section 11018.1 of the Business and Professions Code and
transfers which can be made without a public report pursuant
to Section 11010.4 of the Business and Professions Code,
unless the property has been previously occupied. (Civ. Code
Sec. 2079.6.)
This bill would additionally provide that the duty of a real
estate broker or salesperson to conduct a reasonably competent
and diligent visual inspection of a property and to provide
specified disclosures about the property and transaction does
not apply to transfers which are required to be preceded by
the furnishing, to a prospective transferee, of a copy of a
public report pursuant to Section 11234 of the Business and
Professions Code pertaining to time-share plans, unless the
property has been previously occupied.
COMMENT
1.Stated need for the bill
The author states:
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Under existing law, purchasers of timeshares must be provided
an extensive public report on the development. Existing law
also mandates that purchasers of timeshare exchange program[s]
be given detailed information regarding the program . . . In
this modern and increasingly paperless world, many consumers
would prefer not to get these sometimes bulky disclosures in
paper form. AB 905 allows the disclosures to be made
electronically - at the discretion of the purchaser. It also
replaces language that was inadvertently left out of previous
timeshare legislation. In 2004, a rewrite of the timeshare
law (AB 2252 - Montanez) deleted the mandated timeshare report
from [Business and Professions Code] Section 11018.1 and
placed an expanded report requirement in [a] new section --
[Business and Professions Code] Section 11234. However, Civil
Code Section 2079.6 was never amended to reflect that change.
2.Providing Disclosures Electronically
This bill would explicitly authorize developers and sellers of
time-share interests to provide copies of a time-share's public
report and required disclosures about time-share exchange
programs to prospective purchasers electronically at the
purchaser's discretion. The ability to receive public reports
and other statements disclosing the terms and conditions of a
time-share purchase electronically at the purchaser's option
would seem to give consumers greater control over how they
receive these rather lengthy disclosures. Some consumers may be
more likely to read the disclosures if they are presented in
electronic format, whereas others might find them easier to
ignore. However, since this bill would leave it to the consumer
to decide what format to receive these materials in, the bill is
unlikely to undermine existing disclosure requirements and may
arguably improve the disclosure process. Staff notes that the
Legislature has previously authorized consumers to receive
certain real estate disclosures and notices electronically,
including under the Davis-Stirling Common Interest Development
Act, which allows homeowners to receive documents from a
homeowners association by electronic delivery if the recipient
has consented, in writing, to that method of delivery. (Civ.
Code Sec. 4040.) This bill would expand to time-share interests
the existing practice of providing certain real estate
disclosures electronically.
3.Eliminating Duty to Inspect and Disclose
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This bill would also exempt licensed real estate brokers or
salespersons from the duty to conduct a reasonably competent and
diligent visual inspection of a time-share property and to
disclose all facts materially affecting the value or
desirability of the property to a prospective purchaser when, as
a condition of transfer, the prospective purchaser would receive
a copy of the public report, provided the property has not been
previously occupied. Normally, a licensed real estate
professional is duty-bound to properly inspect and advise their
client of the conditions of a property the client is considering
purchasing. This inspection is typically done alongside other
specialized inspections, such as of a roof or a plumbing system,
during the final phases of a real estate transaction. It is
intended to help ensure that the purchaser of real property
understands what he or she is purchasing.
However, relieving licensed real estate brokers or salespersons
from the duty to conduct visual inspections of time-share
properties that have not been previously occupied and are the
subject of public reports would remove an arguably unnecessary
obligation currently imposed on licensees. Having not been
previously occupied, these properties are less likely to have
characteristics affecting the value or desirability of the
property that would be revealed during a visual inspection. For
these types of properties, a public report is likely to be more
objective, more comprehensive, and a better source for
evaluating the value or desirability of a property than a visual
inspection conducted by a licensee.
Support : None Known
Opposition : None Known
HISTORY
Source : American Resort Development Association; Resort Owner's
Coalition
Related Pending Legislation : AB 634 (Calderon, 2015) would
amend the Vacation Ownership and Time-share Act of 2004 to
prohibit a time-share owner's association from publishing its
list of owners or providing a copy of the list to any time-share
interest owner or to any third party, or from using or selling
the list for commercial purposes, except to accomplish
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legitimate association business, as defined. This bill is
pending in the Senate Judiciary Committee.
Prior Legislation : AB 2252 (Montanez, Ch. 697, Stats. 2004)
consolidated and revised the body of time-share vacation
property law, streamlined the regulatory approval process of
time-share plans, and added new consumer protections and
disclosures to create the Vacation Ownership and Time-share Act
of 2004.
Prior Vote :
Assembly Floor (Ayes 77, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Business and Professions Committee (Ayes 14, Noes 0)
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