Perpetuity in contracts is an erroneous term and in essence unfulfillable. Perpetuity in contracts in Spain, South Africa, Israel and some States in the USA are banned. The burning question is can the clause be defeated in the UK.

South African

Perpetuity contracts in a holiday club/association in terms of The New Consumer Protection Act in South Africa, is not permitted any more. The main thrust for the change is that the term [strictly speaking] and in the case of (Quality Vacation Club) is an untenable situation that flies in the face of present day legal practice.

Simply put The consumer cannot live forever and therefore can never fulfil the obligation. In contrast if you acquire the equitable interest in a home, you can own it forever, however Timeshare is a “right to occupy” and you will never be able to benefit from the long obligation, therefore it is a burden or will materialise into a burden at some stage.

Spain.

Spain took the principle a little further and with the introduction of Law 42/98. This law is particular to Timeshare and the “right to occupy” holiday accommodation. They ruled that if an existing contractual arrangement is in place and that contract contains a “perpetuity clause” in a Timeshare contract, the owners should be conversed with and a vote must to take place, to either accept the term or reject it, [in preference to another term less than 50 years]. Some clubs ignored this law and their contracts have fallen foul of the Courts.

When Law 42/98 was introduced it also banned forward contracts which contained “perpetuity clauses” and limited the terms to 50 years, any contract which contained the “perpetuity clause” is deemed unlawful and the contract can be voided and both parties are required to be put into a position they were in, before they signed the contract. TESS is handling many compensation claims in Spain and on behalf of many clients.

USA

Many U.S. States have considered the term and again found it erroneous. Some State has passed laws in that the terms is banned in principle and have in the form of laws granted rights to consumers via US Consumer Protection Regulations. These laws are in respect to delinquencies, foreclosure and forward routs consumers can pursue for an exit. Recoveries from consumer in some States are banned as when the value in the Timeshare amortised, the benefit passes to the resort. Clear their thinking is that if a Timeshare is sold, it will have an inherent value (if not it should never have been sold) and that value is therefore set off against any consumer liability and (in some States) all the associated resort loans have to be cancelled. This in short this moots the “perpetuity clause” resulting in little or no potential redress against the consumer.

Israel

1.37 of the UK Governmental report confirmed that Israel passed a law which granted to each and every consumer, the right to terminated the Timeshare contract on the 24th of September 2014, and as a stand-alone instrument. The UK supported this initiative and added that it was their belief that no forward claim made by a resort could ever be upheld on an estate and after death. This in legal terms is acquiring a burden which is a practise only reserved for a lunatic. (No one would buy an overdraft which attracted a singularity of a burned)

See 1.37 here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/467730/foi-2015-06458-cma-report-disposal-of-timeshares-and-other-long-term-holiday-products.pdf

The UK

The issue with the UK is that the courts have not ruled on the “in perpetuity clause” in Timeshare. This is because the Timeshare resorts have never been confident enough to argue the clause in any Court of Appeal case. If the clause exists and is lawful, you would expect that the Timeshare industry would have rely upon it and to establish a permeant and forward consumer liability, alas they have not, and therefore no particular and specific Timeshare ruling exists.

In reality it takes two to tango and the resorts have backed off from the fight.

The situation in reality is, if they did rely upon the clause and the determination of the UK courts mirrored other countries and other UK industries, Timeshare Contracts could be exposed and the perpetuity clauses which underpin the liability would come crashing down. If you apply a risk assessment, the Timeshare resorts could stand to lose many millions as all the pre scripted contracts would attract a decision that the terms in each and every contract was unlawful, voidable and many claims would flow. It appears therefore that Timeshare Resorts prefers confusions, in that they will not pursue consumers and merely confuse the situation.

In reality its quite simple.

Lengthy and perpetuity clause in consumer contracts have been ruled unfair in the case of (OFT v Ashbourne Management Services Ltd and others [2011] EWHC 1237). The Office of Fair Trading (OFT) were concerned about the issue and decided to look at whether or not perpetuity in consumer contracts broke rules on fairness.

The OFT opened an investigation under the Enterprise Act 2002 and into a number of Gym companies who operate gyms, or who provide management services.

The companies investigated were using or recommending terms that they considered breached the “The Unfair Terms in Consumer Contracts Regulations 1999”, or are engaging in any unfair business practices under “The Consumer Protection from Unfair Trading Regulations 2008”.

This article is directed at TESS consumers and those consumers before considering this article most understand that the UK is governed by Acts of Parliament and then the Court interprets those laws and apply authorities and on central issues. Parties to a dispute come to court as they have issues and the Court determines the issue and then apply it to the parties who appear before them.

This issue therefore is

“If a consumer contracts contains a long term /perpetuity (in this case) clause is it fair and can it bind a consumer to permanent subjection to the clause contained in a contract”.

The High Court has been asked to considered an OFT’s complaint that terms in standard form membership contracts relating to minimum membership periods and cancellation notices contravened The Unfair Terms in Consumer Contracts Regulations 1999. The judge is also asked to considered whether the defendants’ debt collection practice, of threatening to report members as defaulters to credit reference agencies in order to secure payment, contravened The Consumer Protection from Unfair Trading Regulations 2008.

(OFT v Ashbourne Management Services Ltd and others [2011] EWHC 1237)

The Unfair Terms in Consumer Contracts Regulations 1999

The Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (UTCCRs) apply to unfair terms in contracts concluded between a consumer and a seller of goods or a supplier of services. Under the UTCCRs:

  • An unfair term is one which has not been significantly negotiated and which, contrary to the requirements of good faith, causes a significant imbalance in the parties’ rights and obligations under the contract, in favour of the seller or supplier (regulations 3 and 5).
  • When a court is assessing whether a term is unfair, it has to take into account the type of goods or services being provided under the contract and consider all the circumstances around the conclusion of the contract (regulation 6(1)).
  • A court may not assess the fairness of a term that relates to the definition of the main subject matter of the contract, nor the adequacy of the price and remuneration for the services or goods in question, provided these terms are expressed in plain intelligible language (regulation 6(2)).

Consumer Protection from Unfair Trading Regulations 2008

The Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) (CPRs) also prohibit businesses from treating consumers unfairly. They impose a general duty on businesses dealing with consumers not to trade unfairly, and prohibit misleading consumers by action or omission (regulations 3, 5 and 6). Further, they ban aggressive practices (regulation 7).

Facts

The OFT brought an action against Ashbourne Management Services Ltd and its Directors (together, Ashbourne) for unfair trading practices which the OFT considered contraventions of the UTCCRs and the CPRs.

Ashbourne provided standard form membership agreements (like Timeshare contracts do)

The Ashbourne contract imposed a minimum membership period of between one and three years on members. If a member committed even a minor breach of the agreement, the company could terminate the agreement and claim all membership fees payable in respect of the entire minimum period.

Ashbourne contended that the terms complained of were fair, the main subject matter of the Ashbourne contract, which is prohibited under regulation 6(2)(a) of the UTCCRs.

Decision

The judge agreed with the majority of the OFT’s complaints. He considered that the Court could assess the fairness of the minimum membership period.

Whether the court was entitled to assess the fairness of a minimum membership period

The main subject matter of each agreement was membership of the club, and the right to use that club. The minimum membership period requirement was therefore an ancillary or subsidiary provision, and, as such, the Court could assess its fairness.

Kitchin J found that, in the circumstances, the assessment of the fairness of the minimum membership period did not relate to the definition of the main subject matter of the contract. The assessment did not relate to the meaning or description of the length of the minimum period, the facilities to which the member gains access, or the subscription which they have to pay.

The fairness of the minimum membership period

The judge considered the behaviour of the average consumer, and noted that such a consumer tended to overestimate how often they will use the product after they have joined.

The judge considered that the imbalance arose in a manner that was contrary to good faith.

The terms’ fairness therefore turned on whether the imbalance was sufficiently significant. The judge decided that all minimum membership periods in the contract created a significant imbalance between the party’s rights and obligations and were unfair.

Early termination fees

The judge considered the contract which required that, if members terminated their membership before the end of the minimum period, they must immediately pay all membership fees payable over the entirety of the entire minimum period.

He held that this requirement was unfair and amounted to a penalty.

Unfair commercial practices and the Ashbourne contract

The judge found that, in recommending the use of agreements which were unfair or contained unfair terms, and in seeking payment of subscriptions which members were not bound to pay, Ashbourne had:

  • Failed to act in accordance with the standard commensurate with honest market practice.
  • Caused consumers to take transactional decisions they would not otherwise have taken, namely to enter into such agreements and to make payments under them.

The judge concluded that Ashbourne had carried on unfair business practices contrary to the CPRs.

Credit reference agency reporting

The judge agreed with the OFT that the following of Ashbourne’s actions constituted unfair commercial practices under the CPRs:

  • Reporting and threatening to report information to credit reference agencies which was inaccurate, because the relevant sums were claimed under an unfair term.
  • Reporting and threatening to report individuals to credit reference agencies for default when in reality the debt is no more than a claim for unliquidated damages or is not owed.

In summary

In the UK there has been no specific legislation on perpetuity.

Some Timeshares companies have sought to make the Timeshare a part of a person’s estate and so argue that the beneficiaries of the will are liable for the maintenance fees. That has no basis in law.

There’s no specific legislation on the point. It’s just never made any legal sense. Whatever a consumer signs up to, cannot be passed (in the case of a debt) onto another unless, of course, you are insane enough to agree to take on debts which would make no sense. Nobody can be made liable for debts arising from a contract that they did not enter.


Last modified: 24th March 2016