One of the disadvantages of fractional ownership is having to manage use by many different people. The existence of a comprehensive contract will make this job easier. This article discusses the clauses that should be in any fractional ownership contract
The contract will be made available in draft form once the fractional ownership scheme has achieved enough potential members to make the it viable. At this stage it should be reviewed by a solicitor to ensure that it is a valid legal document. The contract needs to cover 3 phases in the life of the fractional ownership scheme:
Fractional Scheme Initiation
This will start at the point where enough people have expressed an interest in the fractional scheme. No one at this stage will have made any legal commitment to the scheme. This section will require clauses covering the following:
1. Who will be managing the process? This could either be the fractional scheme members themselves (or a nominated fractional scheme member) or a 3rd party.
2. How will potential members of the fractional scheme confirm their interest? Before going ahead the potential members will have to prove that they are serious. This would normally be achieved by paying a returnable deposit in proportion to the fraction that they are interested in purchasing. If people are purchasing small fractions then it may be necessary for them to pay the whole amount of their fraction at this stage. Who will hold this money?
3. How will suggested changes to the fractional ownership contract be discussed and approved? We would suggest that this could be done via a private forum on the website and a poll.
If there is any variability in what is to be purchased (i.e. not a new item), how will the final decision on what to buy be taken? The less ?standard? the item is the harder this is to sort out.
5. How will be time allocated if (as is likely) the purchase date does not coincide with the normal time allocation cycle?
6. Who has the legal ownership of the asset, and how will this be documented?
7. How long will the fractional ownership scheme run for before being dissolved.
Fractional Scheme Management
Once the fractional scheme is up and running the contract will need to cope with a new set of scenarios:
1. Who is managing the fractional scheme time allocation, maintenance, and dispute resolution? We feel that this is best done by a 3rd party, as these duties (especially resolving any disputes) could really interfere with your enjoyment.
2. What are the rates/arrangements for paying maintenance costs, and what are the consequences of not paying on time. We would suggest that fraction owners who own a very small fraction pay their maintenance fees up-front, to avoid the need to collect very small amounts of money on an annual basis.
3. What is the maximum and minimum size of fraction. Minimum fraction sizes are important to prevent the fractional scheme becoming too large, and consequently hard to manage. Maximum fraction sizes are important to stop 1 person taking over the fractional scheme.
4. The time allocation rules. When is the time allocation meeting held, and where?
5. Restrictions on use. These might be age-related (especially for prestige/classic cars) or based on competency (for sailing yachts).
6. Changeover times and arrangements (and consequences of not complying). What time does the changeover take place? Will there be any cleaning needed or will it be the responsibility of the fraction owner?
7. Procedure for agreeing any variation to the fractional ownership scheme during its lifetime.
8. Procedure to follow if the asset is not available for use for any period, e.g. if it is damaged. How would the fraction owners who have missed their time allocation be compensated?
9. How are unused weeks to be handled? Do they have to be sold/swapped with other fraction owners?
10. Procedure for coping with exceptional maintenance (both lost time and additional money required).
Fractional Ownership Scheme End/Extension
1. Who will manage this process?
2. What rules should be followed to allow an extension to the fractional scheme lifetime?
3. How should money be returned to the individual fractional scheme members?
Tags: fractional ownership, fractional ownership information
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