Purchasing a share includes a stake in the olive oil produced from the olive groves around the property and a share of the wine from the Estate’s vineyard

You’ve decided on Italy for your holiday home in the sun. Now you have to choose the perfect location. Rome, Venice, Milan, Florence and Naples are all exquisite Italian cities much loved by tourists from around the world and filled with culture. However, if you love Italy, but long to escape from crowds of tourists and want to experience what it is like living in the real Italy, Le Marche could easily be for you.

This eastern region gets the best of both sides of Italy. With 180 kilometres of coastline, Le Marche has the sun and the sea as well as the wonderful pistes of the Apennine Mountains. Whether you long for the masterpieces of Renaissance art and architecture, awe inspiring mountains or the pleasures of a Mediterranean fishing port, Le Marche has enough to keep you busy for years.

Many visitors who come to Le Marche are looking to own that special taste of the ‘real’ Italy, unaffected by mass tourism yet welcoming to foreigners. Buying a property overseas outright can mean navigating through a lengthy foreign buying process, dealing with builders who probably have limited English, the substantial cost of renovation and the maintenance of a property that is only used for a fraction of the year. All of this can be expensive, stressful and time-consuming.

Michael Hobbs, and his wife, interior designer Dawn Cavanagh-Hobbs visited the region in 2004 and immediately fell in love with the beauty of the area, the people and the Italian lifestyle. The Hobbs decided to set up their luxury and boutique fractional ownership business, Appassionata, in Le Marche three years later.

A share of the Deed

Fractional ownership is a fairly new concept in the UK, but has been popular in the US for over 30 years. With fractional ownership you select and purchase the number of weeks you want to use per year and share the running costs with your co-owners. Proprietors get an actual stake in the company that owns the property and therefore, a share of the Deed.

This purchase is forever, and allows owners to sell their share, rent out the property for the duration of their weeks or pass it on to their family, whenever they choose.

Proprietors get an actual stake in the company that owns the property and therefore, a share of the Deed

Appassionata offers owners the chance to be part of a high end, professionally managed fractional ownership venture in a special location. This includes other concepts which are included in buying a share in Estate Giacomo Leopardi properties. Purchasing a share includes a stake in the olive oil produced from the olive groves around the property, lavender from the grounds and a share of the wine from the Estate’s vineyard.

Estate Giacomo Leopardi is set close to Montefiore dell’Aso in the gorgeous region of Le Marche. The wonderfully preserved medieval Montefiore dell’ Aso has been voted one of Italy’s most beautiful towns. It offers visitors great local food, wonderful scenery and classic architecture around the town centre, with beaches 10 minutes away and the Sibillini Mountains less than an hour away.

Estate Giacomo Leopardi comprises two properties in five acres of land, with views overlooking the Adriatic Sea. The estate has been created so that the large swimming pool can be used in all seasons, there’s an all-weather tennis court and there are private terraces, landscaped gardens and newly planted vineyard.

Casa Giacomo is a four-bedroom, three-bathroom property comprising 2,150 square feet over two floors. Interior designer Dawn worked hard to ensure that the property possesses the best of classic Italian design, mixed with modern conveniences. Casa Leopardi is a traditional Italian farmhouse currently being restored into a five-bedroom home that will contain the same level of accommodation throughout.

For more information on Appassionata go to: http://www.appassionata.com

Solicitor Peter Esders

I have been reading a lot about Fractional Ownership recently and have been asked a lot about it over the last couple of years. “Fractional will save the industry” and “Fractional – the new way to buy” are typical of the sort of phrases that I hear and read about. Somehow this mystical ‘new’ product is being hailed as the new way of buying international property and which will help not only those agents and developers struggling to sell but also those buyers who can’t afford to buy a whole property.

What constantly amazes me about Fractional Ownership is the lack of knowledge about the product. For a start Fractional Ownership is not new. Those of us who have been dealing with international property for some time will have come across Fractional Ownership from time to time over the years (although admittedly not in the volumes that appear now). Back then we called it Co-ownership rather than Fractional Ownership but make no mistake, it is basically the same thing. All that has changed is what we call it.

Fractional Ownership is nothing magical – it is just a way in which something is owned by several different people. You have a Fraction of the Ownership – hence the name. At a basic level, if I get together with a couple of friends and buy a property then that is Fractional Ownership. At the other extreme you can own part of a property along with lots of other people, whom you have never met before, and that is Fractional Ownership as well. There are various different ways of structuring Fractional Ownership, ranging from simply having the property registered in the individual owners names, to more corporate structures.

The other thing that amazes me is the lack of understanding among some of those involved with Fractional Ownership as to what Timeshare is. People selling Fractional Ownership take great pains to disassociate themselves from Timeshare because it had a bad reputation.

In reality Timeshare can be a good product – the problem with it is the way that it is sold, the price and the increasing maintenance fees. I have long said that Timeshare is actually a type of Fractional Ownership, but Fractional Ownership is not necessarily Timeshare. One is a sub-set of the other, if you like. Timeshare has a strict definition in accordance to the various directives and laws. Some Fractional Ownership schemes that I have seen actually come within the definition of Timeshare (although people don’t like it when I point that out to them!), but not necessarily.

Fractional ownership of a property abroad can really improve your lifestyle

Ah, I hear them say, but Fractional Ownership means that you get legal title to your property whereas Timeshare is only a right to use! No, not necessarily, although ordinarily this is the case. I have dealt with Timeshares where the client had his right in the property registered at the land registry. I have also dealt with Fractional Ownership where from a strictly legal point of view you are just buying a right to use the property. Both of these examples are exactly the reverse of what is expected.

I mentioned Timeshare earlier. It is impossible to talk about Fractional Ownership without doing so. The reason why those people selling Fractional Ownership do so much to try and distance themselves from Timeshare is the bad reputation of that product.

What worries me is that the lack of knowledge about both Fractional Ownership and Timeshare could mean that people involved with Fractional Ownership might make some of the mistakes that Timeshare made over the years. I really hope that I am wrong.

Peter Esders is a solicitor at Chebsey & Co and can be contacted on tel: 01494 670440  Fax; 01494 670276  Email; pje@chebsey.com Web; www.chebsey.com

‘Fractional Ownership’ describes shared ownership, which allocates usage rights based on time. Only one owner will be allowed to use the unit at a time. Co-owners may have ownership rights to all, some, or only one unit. Usage rights and cost obligations may or may not correspond to ownership rights.

Most definitions of the term ‘timeshare’ include arrangements by which people share use of a property, based on time, regardless of whether they own the property or whether a management company/ developer manages the property.

“Timeshare’ and “Fractional Ownership” differ greatly. It is not a question of devolving title. Many ‘timeshare’ properties involve direct, titled ownership and many ‘Fractionals’ don’t.

The main differences are:

• The extent to which participants’ rights and responsibilities are limited to a particular unit or units.
• Each owner’s degree of ownership/control. (Ownership evidenced by deed, doesn’t give a person any particular level of control over how the unit will be managed).
• The document governing the shared unit, not the name of the ‘arrangement’ is decisive.

Ask yourself:

• Is the agreement flexible?
• Can it be changed and is each person protected from changes that will reduce the usefulness of the property?
• Is the usage system fair and can someone ‘manipulate’ it?
• Can each owner control which unit they will use on a particular visit?
• Can they always return to the same unit? If not, what changes will there be in size and amenities?
• Are costs and responsibilities limited to the unit(s) they will use, or do they extend to other units that others will use?
• Will each person’s costs/responsibilities be proportional to usage rights?
• Can they control management fees and management/maintenance?
• Can owners rent out the property and control the rent?
• Can an owner holiday elsewhere, and can they get the desired location and dates?
• Do restrictions apply on disposal?
• Is finance available?

Free up capital

Many people dream of owning a holiday home, but either can’t afford the type they want or couldn’t justify the small annual usage period. Fractional ownership provides a solution by reducing the costs/annual expenses, sharing maintenance problems and depreciation. By dividing costs/risks, owners surrender usage rights associated with full ownership; often an acceptable sacrifice and a huge cost saving.

‘Fractionals’ free up capital to invest elsewhere. They provide an alternative to a full sale in a depression. ‘Fractionals’ are cheaper on a new development, providing an extra choice and developers have an alternative in a recession. A cheaper option also increases the visibility of the site and sales of ‘whole ownership’.

Local legal restrictions may impact on fractional arrangements, even where friends purchase. National law determines the structure, how and where the interest will be marketed and who can buy. Regulatory approval means costs and delay and in some cases approval may be denied based on the location of the property.

Restrictions are imposed because, shares are sold as a promise that one owner can use the unit at a particular time. They may apply where rental income is pooled, management responsibilities are delegated or the purpose is primarily for investment.

Number of scheduled visits

The usage calendar depends on location, size, seasonality, number of scheduled visits and travel time. A complicated system will fail and increase costs. In most schemes, owners are assigned exclusive use for a specified period each year. The period can be fixed, variable or both.

Price depends on time bought, type of unit and use. Occupancy is calculated on a yearly calendar. Not all calendars work fairly!

The management tasks of fractional ownership properties are divided into time allocation, accounting, cleaning and repairs. Co owners or contractors can perform these. Operating expenses are usually divided in proportion to ownership. To avoid ‘financial’ disputes, collect contributions based on the future budgets, not ‘ad hoc’.

Solicitor Stefano Lucatello

Anticipated expenses should include fund reserves for long term recurring expenses. Use a payment schedule. This makes tracking payments easier. Cleanliness is paramount. Co-owners prefer clean units and cleanliness is essential for renting. Employ a cleaner!

Repairs are important as no one person is responsible for repairs and small problems can become large ones. The management must inspect regularly.

Eventual control

Developers determine owners’ powers, how decisions will be made and how to devolve eventual control. They establish certain mandatory duties, unless all owners otherwise agree, including paying the recurring expenses and maintenance. Decisions can be taken by board management or by majority vote.

Written fractional agreements are a MUST, detailing reciprocally binding rights, obligations and enforceability. The principal advantage of a written document is the reduced risk of disputes. The principal disadvantage of written documents is that they are more difficult to modify.

What happens if co-owners default? While a potential risk, it is important to keep the problem in perspective. Co-owners are most concerned about non payment, abuse of the shared property, failure to clean and unauthorised/improper usage. The agreement must allow the group the choice to deal with defaults quickly. Provide for the service of a notice on the defaulting party and the right to reply. Give time to remedy and then act if not remedied quickly. Use alternative dispute resolution.

The ultimate sanction is sale. Sale proceeds are applied to pay arrears, costs, legal fees and penalties. Any remainder goes to the defaulting owner.

Establish a ‘default reserve fund’ to pay overdue payments. This is not intended to be a pool from which a defaulting party can borrow. Upon default, the group uses the fund to make up the shortfall. It’s still a default and the group will take the same remedial action had the fund had not been used.

‘Fractionals’ sometimes involve a ‘vehicle’ holding the property, with the co-owners as shareholders. An LLP offers several advantages including:

• Protecting other assets from liabilities arising from fractional ownership
• Avoid seizure by creditors or co-owners
• Increased flexibility for ownership changes

Can owners dispose of their shares? Most owners are concerned that disposal causes incompatible or unqualified co-owners to enter the group. Prohibiting individual disposal requires unanimous consent. The problem is that no other owner may want to buy and there is little incentive for them to pay market price, as the seller must take what he is offered. Therefore, allow individuals to dispose subject to restrictions, such as a right of first refusal. Co-owners can only force the sale of the entire property if it is in the agreement. It may be the plan to sell the whole investment at a predetermined future date.

Carefully investigate

Fractional ownership involves the risks of sharing use and relying on others to fulfil certain obligations. You can’t do what you want when you want! Necessary maintenance might not happen, as a result of co owner default and the whole investment could be lost. There is no way to eliminate this, but there are ways to reduce it:

• Carefully investigate the potential co-owner’s background.
• Collect payments monthly and pay bills from a group account.
• Assign essential tasks to specific persons.
• Have each co-owner contribute to a default reserve fund.
• Allow the group to act quickly against a defaulter.

Finally, use a local lawyer from the UK, specialised in fractional ownership, who operates with a lawyer licensed in the country where the property is located to draft the agreement and structure.

Written by Stefano E M Lucatello,

Senior Partner

The International Property Law Centre LLP

TEL No; 02071736180

www.internationalpropertylaw.com

email stefanol@iplc.co.uk

© The International Property Law Centre LLP 2009