How are usage rights divided between fractional owners?
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Deciding how a property will be used is the starting point for any fractional project and will be the most important issue for prospective buyers. If the property has a vague, complicated or impractical usage system, buyers are unlikely to proceed.
We always say to sellers or developers that their usage system must strike a fair balance between certainty and flexibility – in other words, owners must be able to plan use of their property reasonably well in advance, but there must also be the ability for them to exchange time with the other owners and also reserve time at the property on shorter notice during certain times of the year (this is considered more important for certain types of property such as those based in large cities – see our article on ‘Urban Fractionals’).
“In an ideal world, the system should offer an experience that is as close to whole ownership as possible.”
The most appropriate usage system will be driven by the location of the property and in particular, its seasonality. A property in a location with a relatively short peak period will have very different usage rights to one located in an all year round destination. An alpine based property will have a different system again, with a relatively short ski season of 4 months but a longer spring and summer season which may attract a different type of potential owner.
Other factors that will affect the usage system include the likely length of visits and the target market for buyers – there will be some owners who will not want to use their property in Italy or Spain during the peak summer months because they prefer the shoulder season which will be quieter and less hot.
Once these key issues have been considered, the usage system can be decided. A system which leaves the owners to work out usage each year between themselves or which is based on a "first come first served" system should always be avoided.
Each owner will normally be able to stay at their property for a minimum number of weeks each year. Where there are 5 owners, they will each have 10 weeks use, 8 owners will each have 6 weeks, and so on. There are several ways those weeks can be allocated:
Under this system, each owner will have exclusive use of the property for the same weeks each year. This gives owners certainty in terms of when they can use their property but does mean if it is the only system used, there will be some weeks which will be difficult to sell.
A rotating system is more common as it still gives owners certainty but also means they do not use their property for the same weeks each year. Usage is set out in a calendar with their weeks rotating each year. This ensures that each owner is able to use the property during certain peak weeks (such as Christmas/ New Year) every few years and can plan for that.
This is a more complicated system, particularly if used as the only system. It requires a high level of management time to administer. There will normally be a rotating system under which owner takes it in turns to have priority when booking their weeks. A reservation system can work well as a secondary system to one of the others – for example, to allow an owner to reserve the property during the low season when the property is available for use on an “if free” basis.
This system can incorporate a combination of some or all the other systems with the most common hybrid system using the rotational system during the peak and shoulder seasons of the year and some form of reservation system for the low season.
For some properties we work on, we find it beneficial to design the usage system at the outset so that potential owners can see what is on offer. However, often it can be better to keep the precise detail of the system quite flexible to start with and to discuss it in detail with potential owners.