Knesset Bill Gives Time Off From Timeshares

A bill aimed at helping consumers stuck in long-term contracts gets watered down after the owner of the Club Hotel chain met personally with MKs and hired a lobbying firm to advocate on his behalf.

The basic idea behind timeshare vacations is that multiple parties hold ownership rights to a single property – usually a resort or condo – and are allocated a certain amount of time (a week or two per year, typically) to use it.  It’s like having a summer home that you don’t have to maintain on your own but that’s always waiting for you on, say, the third week of August, right next to the beach (or lake or whatever).  The problem with timeshares is that their contracts are notoriously long and sticky. Walking away is no easy task.

The purpose of the new consumer-protection bill known as the “Club Hotel bill,” which the Knesset’s Economic Affairs Committee approved at the beginning of this week, is to release timeshare owners from restrictive contracts and long-term connections with the companies that run them. The bill was named in honor of the Club Hotel chain, owned by Moshe Bublil, which operates a number of hotels throughout Israel.

In the final version of the bill, those exiting their timeshare contract will have to pay a cancellation fee so, in the end, the bill actually benefits the companies that run the timeshares.

It turns out that Bublil did a lot of legwork ahead of the vote, meeting with committee members Carmel Shama Hacohen (Likud), Yoel Hasson (Kadima) and Yulia Shamalov Berkovich (Kadima), which the MKs confirmed yesterday.

Bublil not only met face-to-face with the MKs, he also sent some of them text messages and hired a lobbying firm to explain Club Hotel’s position. During the committee discussions, MK Hasson even quoted a document produced by Club Hotel. In the end, Bublil got what he wanted: income from customer cancellations.

This week, Ruti Havkin, chairwoman of The Israeli Organization of Time Share Units, wrote a letter to the committee expressing concerns of a conflict of interest by committee member MK Amir Peretz because Bublil’s brother, attorney Rami Bublil, represented Peretz before the Winograd Commission and also during the election campaign.

“To the best of our knowledge, Peretz never disclosed his relationship, nor did he notify the Ethics Committee and the committee chairman as the Knesset bylaws require,” the letter stated.

Peretz, for his part, says Rami Bublil was part of a legal team that assisted him six years ago and claims he never represented him in an election campaign.

“There can be no doubt that these false assertions are motivated by ulterior political motives,” he said, “which happens from time to time during elections campaigns.”

Although the committee approved the bill in second and third readings, it’s not clear when it will be brought to the plenum for a vote. Committee chairman, MK Hacohen, and Industry, Trade and Labor Minister Shalom Simhon expressed reservations over the high cancellation fee included in the bill.

The committee decided that unit owners can cancel anytime between January 1 and June 1, 2013, the cancellation to go into effect on December 31.  Meanwhile, consumers would have access to the vacation units throughout the year for a maintenance fee. If they choose not to pay that fee, they’ll get slapped with a NIS 5,000 cancellation cost. Starting in 2014, consumers can shorten their contract and eventually be released after a certain period.  For example, a consumer in 2014 requesting release will be able to walk away from the timeshare in 2017.

Not even the dead will be released from the contract

“These contracts, which date from the 1980s and the 1990s, were signed for 99 years,” says Tamar Pinkus, director of the Israel Consumer Protection and Fair Trade Authority at the Industry, Trade and Labor Ministry, who attended the committee meetings and called its decision “scandalous.”

“Some of the people who signed these contracts are now elderly and ill,” she says. “The consumer is stuck because they don’t have the money for the fees and can’t get out of the contract. People have been begging for years to be released. Even the dead can’t get free of them, and the units are passed down by inheritance.”

Assuming there are 35,000 vacation-unit owners paying NIS 2,500 each for two years of maintenance, then Club Hotel is receiving about NIS 88 million from the owners, this in addition to income from guests who don’t own vacation units.

“The units were sold at varying prices. We didn’t see all the contracts, but from what we know, the average price was $10,000 per unit,” says Bitia Guttel, chief economist at the Israel Consumer Protection and Fair Trade Authority, who points out that Bublil funded the construction of the Club Hotel in Eilat by selling vacation units and made a profit from them.

“When the unit is released, Club Hotel can rent it to somebody else,” Guttel says. “If there’s a cancellation, the owners profit three times over – from the first purchase of the unit, from the cancellation fee, which is two years’ worth of maintenance fees, and from renting the unit to someone new.”

Club Hotel officials claim this calculation is based on erroneous and partial data, since the average cost of a vacation unit is less than $10,000 and it doesn’t take into account the cost to Club Hotel to revive the timesharing brand, which went bankrupt when the Kalrin housing-unit firm was liquidated. Nor, they say, does the calculation include the NIS 24 million Club Hotel spent to construct 100 suites in Eilat and pay Kalrin’s liquidator.

“The business must not collapse”

As for contracts signed after the new law goes into effect, the committee decided these could be cancelled at any time with two years notice. But if the consumer cancels, he loses any profit from the sale to which he may be entitled.

Several MKs expressed reservations about the final bill. MK Hacohen thought the cancellation fee should be NIS 2500 rather than NIS 5000 and MK Simhon thought the contract should be able to be cancelled at any time, rather than once every few years, and doesn’t think there should be a cancellation fee at all: any money the consumer has paid thus far would be forfeited and would serve in lieu of a fee. He also proposed a six-month notice instead of two years or, if a consumer stopped paying a maintenance fee more than a year before the law went into effect, this would be seen as giving notice, and the contract would be void from that moment on. He even went so far as to propose that when the consumer cancelled the contract, the company should return a portion of the money for time he had not yet used.

As for the questionable contacts with MKs, both parties maintain there was no wrongdoing.

“Bublil contacted me when this started, and I met with him,” MK Hasson said yesterday, rejecting criticism of the final bill. “The attorneys gave me their position papers. I always meet with people who want to meet with me. The decision that was made was a balanced one.

 “I could have been a populist and stated that the contract could be cancelled immediately,” Hasson continued. “This would have led to the collapse of Club Hotel. We wanted to address the matter, but realized that you can’t legislate this because debts incurred by private individuals can’t just be wiped out.”

Hasson referred to the bill as a “revolution” and the committee’s decision as “unprecedented,” pointing out that, for decades, it was impossible be released from these vacation units.  Still, he says, “We have a responsibility to make sure that the business doesn’t collapse.”

“A structure for exploiting consumers”

The Justice Ministry weighed in as well, submitting an opinion by attorney Ronny Neubauer that calls the transactions between the owners and consumers “exploitative” because the essential obligations imposed upon the timeshare buyers are set unilaterally and controlled exclusively by the hotel owner.

“The contract restricts the time-share buyers for an unreasonable amount of time, which in some cases is longer than a human being’s life span,” the opinion states, calling the conditions of the contract “unreasonable.” 

Representatives of the Justice Ministry and the Israel Consumer Council said they would never accept the position that a customer who wished to be released from a contract had to pay an exit fee.  Since consumers bought rights for 99 years, these reps argued that consumers ought to receive a refund on rights for unused years.

“But we were willing to have them give up the refund in exchange for being allowed to walk away from the contract,” a high-ranking Justice Ministry official said.

“I’ve seen a lot of things in the Knesset, but this really shocked me,” said an official present at the committee meetings. “It’s rare for the Justice Ministry to be more militant than the Knesset on consumer issues.”

The committee also granted Club Hotel’s request that if extraordinary circumstances, such as failing health, financial difficulty or the death of the consumer or his spouse prevented the consumer from using his time-share rights, a cancellation fee would still be required to cancel the contract.

That battle prompted Club Hotel attorney Alex Hartman, to threaten that if the cancellation fee is waived for humanitarian reasons, “we’ll go the High Court of Justice." 

Despite concessions, Club Hotel officials called the bill “a groundless, unjustified populist bill that has no parallel on earth” in its scope, claiming retroactive cancellations will be a “terrible blow to the long-term business model” of timeshares, potentially leading to massive layoffs of hotel workers and, worst case, destroying the entire industry.

Hotel officials also claimed the legislative procedure was “unprecedented and that the committee were “unduly influenced by the extreme opinions of a vocal minority of timeshare owners at Club Hotel Tiberias.”

Bublil’s close associates refused to comment on the meetings with Knesset members.

“The Knesset is interfering in the court’s work”

Further complicating matters, the timeshare legislation is taking place at the same time a class-action lawsuit, now in the summation stage, brought by timeshare owners against Club Hotel is being heard in the courts, prompting hotel officials to lament the blow to judicial authority.

In 2009, Dr. Shahar Weller of the Academic Center of Law and Business in Ramat Gan brought a class-action lawsuit over renunciation of rights in timeshare units, asking the court to allow anyone to end their contract at any time and stop paying maintenance fees.  He says there’s a “good chance” that it will be possible to walk away from a contract with Club Hotel soon and thus calls the committee’s decision “invalid.”

“I would never agree to such a compromise,” he says.

Club Hotel officials say they have cancelled a significant number of contracts over the years and claim that when they asked public organizations for complaints from consumers so the hotel could deal with them, they were turned down.

MK Amir Peretz believes the members of the Knesset committee have made an important compromise to protect timeshare owners and have “brought about a solution to the problem.”

Photo courtesy of the Club Hotel