Time-Sharing: how to avoid being cheated when investing in holiday homes in Portugal

The Portuguese tourism sector is a section of the economy with a large impact on the national GDP, and several businesses and long-term holiday products have grown up around it over the years, which have also contributed to the dynamism of the property market. And while many who decide to buy a second home for their holidays do so in the more conventional way, others choose instead to invest in a holiday home based on the idea of 'time-sharing'. But there are precautions to be taken, since entities that operate illegally have appeared on the market. Today we explain everything about the concept of time-sharing, from a legal standpoint.

In Portugal, there exists a legal diploma that instituted the Real Right of Periodic Occupation, applied to accommodation units integrated in hotel-apartments, tourist villages and tourist flats. Essentially, this refers to a right to use tourist accomodation periodically, which can be purchased. But there is a lot more to know when it comes to time-sharing.

The heads and tails of time-sharing; a booming business

Portugal is a country with recognised tourist attributes: the good food, the mild climate, the beaches, the people... and, of course, the countless tourist resorts, repeatedly awarded international prizes. All of this combined has kept the country at the top of world tourist destinations and in turn has led to the creation and development of various products marketed to tourists by the various economic players in this sector.

Portugal's thriving tourist sector has led to tourist-specific products Pexels

"And this development of business models, creation of new ones and their massification, has as a consequence the need for regulation", explained CRS Lawyers in reference to time-sharing, in this article prepared for idealista/news, noting that in Portugal this regulation began almost 40 years ago, through a legal diploma that instituted the Real Right of Periodic Occupation. Since then, there have been countless alterations, which have represented the evolution of experience with reality.

Precautions to take with time-sharing products

The development of this activity has brought benefits to consumers by increasing the diversity of products and stimulating competition between the various agents, but it has also meant the introduction into the market of entities that operate illegally, misleading consumers.

Most readers will be familiar with the expression 'Time-Sharing', obviously not a Portuguese term, but one that is used here to speak generically about long-term holiday products.

The most common form of time-sharing is the Real Periodic Occupation Right Unsplash

The most commonly used form of time-sharing in legal commerce and, by virtue of this, the most regulated, is the aforementioned Real Periodic Occupation Right. It is a right that may be constituted over accommodation units integrated in apartment-hotels, tourist villages and tourist flats. This right has a minimum duration limit of 1 year, however, it may even be perpetual and its exercise is limited to a determined or determinable period of time each year. Put simply, rather than buying a property, you buy the right to use that property for a certain period of time, while others will use it at other times, hence 'time-sharing'.

Consumer security is immediately guaranteed by the obligation imposed on the owner of the accommodation units to submit a request to Turismo de Portugal in order to be able to establish periodic occupation rights, and its constitution in favour of the consumers implies a formal act, since it is performed through a public deed or certified private document.

The obligations of the seller in a time-sharing transaction

When concluding the contract of sale of the right, or the promissory contract (the law also expressly regulates this possibility), the seller is obliged to provide the consumer with a form, duly approved by the competent authorities, with a panoply of information, written in a clear manner, describing the tourist resort and the rights and obligations of the parties in detail.

The seller must provide certain information to the buyer Pexels

Considering the amount of information that must be included in the aforementioned form, which is not reproduced here precisely because it is a significant quantity of information, it can be said by way of example that this form must:

1. identify in detail the development and the unit(s) of accommodation to which the right relates
2. indicate the duration and period of exercise of the right;
3. indicate the price to be paid for the acquisition of the right;
4. contain the description of additional compulsory costs, periodic charges;
5. include the description of included and non-included services and the price of the latter
6. refer the manner and deadlines for exercising the right of withdrawal, etc.

In addition, it presupposes land registration, which means that the certificate of land registration will contain an express reference to the existence of that right and its beneficiaries, guaranteeing the enforceability of the rights acquired against third parties, as well as the obligation to issue a land certificate to the purchaser of the right(s), which is issued by the Land Registry Office and in which a vast amount of information is also included.

How transfer rights work in these long-term holiday products 

It should be noted that the legislator expressly provides for the possibility that the right(s) can be transferred, for a fee or free of charge, without the need for the agreement of the owner or operator of the resort. However, the assignment must be transmitted to the owner/operator, under penalty of the owner/operator being able to oppose it.

The rights to a time-share can be transferred to another party Pexels

Another point of particular importance for the consumer is the express regulation of the possibility of terminating the contract within 14 days, without needing to state a reason, which also applies to promissory contracts for the transfer of real periodic occupation rights. During this period the seller will be prohibited from receiving any amount as a down payment or advance payment and, without prejudice to this, all amounts that have been paid by the purchaser, in the event of termination, will have to be returned to the purchaser.

In relation to the conditions and obligations of a financial nature, it is also determined that the owner must provide a deposit which guarantees the purchaser's investment if for any reason he cannot exercise his right, for example, in the event the development does not even open.

The obligations of the purchaser of a long-term holiday product

As for the purchaser, in addition to the price due for the acquisition of the right, he/she is also obliged to pay a periodic instalment, which is paid annually and which is intended exclusively to compensate the owner for the costs of use and operation services, contributions, taxes or any other expenses foreseen and related with the management of the resort. This instalment may not exceed 20% of the total value.

Once the owner has fulfilled all the above-mentioned requirements, the consumer has the right to inhabit the unit for the period defined, to use the facilities and equipment for common use, to benefit from the additional services contracted, to demand an alternative accommodation with identical or superior characteristics in a nearby location from the owner, even in cases of force majeure or unforeseeable circumstances, and to transfer their rights, as mentioned above, for a fee or free of charge.

The purchaser has the full right to inhabit the accomodation for the defined period Pexels

The purchaser is also entitled to participate in the General Meetings of holders of periodic occupation rights, on an annual basis. As generic obligations, the consumer has to act with the care that is presupposed in normal use of the property, respecting the limitations of his right and the rules that regulate the operation of the development and pay the periodic payment, given that in the event of breach of these obligations, namely the payment of the periodic payment up to two months prior to the start of the period of exercise of the right, they will be subject to the possibility of the owner opposing this exercise.

Right of use of units for tourism purposes

Finally, and as referred at the beginning of the article, the evolution of the tourism sector has led to the appearance of other long term holiday products, which are also regulated by the legislator in practice, subjecting them to the main rules imposed on this right.

In practice, the legislator covers all products that, although not classified as a real right of periodic occupation, presuppose contracts whereby the right to use units for tourism purposes is granted, with a duration of more than one year, including:

• accommodation rights of tourist developments that do not fall under that classification, but which imply the exercise of the right for determined periods;
• contracts whereby tourist accommodation rights are directly or indirectly promised or transferred, including those in which the consumer benefits from discounts or other advantages in terms of accommodation and which may also be combined with other travel services, namely those referring to holiday cards and clubs, tourist cards or others of a similar nature.

The general condition is that they are acquired for a fee, involve limited use over time, and have a minimum duration of one year.

New products similar to time-shares are also covered by regulations Pexels

The following are therefore excluded:

• ordinary lease contracts;
• loyalty schemes that provide discounts
• multiple bookings of accommodation.

In conclusion, the evolution of long-term holiday products, or 'time-sharing', has been rampant, and the legislator has not always managed to keep up with reality. If we consider it to be important that the economic players in this sector continue to invest and develop the products they offer in a way that is attractive to consumers, then it is necessary to create reasonable mechanisms to regulate the activity, considering the increase of illegal entities that promote these products. This is why the process of acquisition and transmission of these products, which in most cases are very complex, should be advised by a lawyer, so as to avoid any possible fraud.