SRC-LBB S.B. 1105 78(R) BILL ANALYSIS
Senate Research Center S.B. 1105
78R4091 PAM-FBy: Fraser
Business & Commerce
3/29/2003
As Filed
DIGEST AND PURPOSE
The Texas Timeshare Act was codified in the mid-1980s and amended several
times in the early 1990s. The current Texas Timeshare Act is becoming
outdated. As proposed, S.B. 1105 provides greater opportunities and
protections for purchasers and increases the Texas Real Estate
Commission's flexibility in regulating the industry. This bill also makes
changes to the regulatory process.
RULEMAKING AUTHORITY
Rulemaking authority is expressly granted to the Texas Real Estate
Commission in SECTION 4
(Section 221.024, Property Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 221.002, Property Code, to redefine
"accommodation," "advertisement" (rather than "advertising"), "amenities,"
"developer," "escrow agent," "exchange company," "exchange disclosure
statement," "exchange program," "project instrument," "promotion,"
"purchaser," "timeshare disclosure statement," "timeshare estate,"
"timeshare instrument," "timeshare period," "timeshare property," and
"timeshare use." Defines "assessment," "association," "component site,"
"incidental use right," "multistate timeshare plan," "reservation system,"
"single-site timeshare plan," and "timeshare plan." Deletes definitions
for "council of purchasers," "master deed," "master lease," "declaration,"
"promotional disclosure statement," "seller," "substantially complete,"
"timeshare estate," "timeshare liability," "timeshare regime," "timeshare
unit," "timeshare fees," and "owner." Deletes former Subdivision 5 and
renumbers accordingly, by redesignating previous Subdivisions (6)-(31) as
Subdivisions (8)-(30).
SECTION 2. Amends Section 221.003, Property Code, by adding Subsection
(d) to provide that a timeshare property subject to this chapter is not
subject to Chapter 209 (Texas Residential Property Owners Protection Act).
SECTION 3. Amends Sections 221.011, 221.012, 221.013, and 221.014,
Property Code, as follows:
Sec. 221.011. DECLARATION. (a) Requires the developer of a timeshare
plan any part of which is located in this state to record the timeshare
instrument in the real property records of the county in which all or part
of the property is located. Requires that a property be established as a
timeshare plan when a person expressly declares an intent to subject the
property to a timeshare plan through the recordation of a timeshare
instrument that sets forth the information provided in Subsections (b) and
(c).
(b) Requires the declaration made in a timeshare instrument recorded
under this section to include certain items.
(c) Provides that any timeshare interest created under this section is
subject to Section 1101.002(5) (Definitions), Occupations Code, but
Section 1101.351(a) (License Required), Occupations Code, does not apply
to the acts of an exchange company in exchanging timeshare periods.
Deletes former Subsection (d) regarding timeshare interests located
wholly without this state.
Sec. 221.012. CONVEYANCE AND ENCUMBRANCE. Makes a conforming change.
Sec. 221.013. COMMON OWNERSHIP. (a) Creates this subsection from
existing text.
(b) Authorizes a timeshare estate to be jointly or commonly owned in the
same manner as any other real property interest in this state.
Sec. 221.014. PARTITION. Prohibits an action for partition of a
timeshare interest from being maintained during the term of a timeshare
plan.
SECTION 4. Amends Sections 221.021, 221.022, 221.023, 221.024, and
221.025, Property Code, as follows:
Sec. 221.021. REGISTRATION REQUIRED. (a) Provides an exception and makes
a conforming change.
(b) Authorizes a developer or any person acting on the developer's
behalf, before a registration application for a timeshare plan is
submitted or completed, to accept a reservation and a deposit from a
prospective purchaser if the deposit is placed in a segregated escrow
account with an independent escrow agent and if the deposit is fully
refundable at any time at the request of the purchaser.
(c) Prohibits a developer or anyone acting on the developer's behalf
from offering or disposing of a timeshare interest during any period
within which there is in effect an order by the Texas Real Estate
Commission (TREC) or by any court of competent jurisdiction revoking or
suspending the registration of the timeshare plan of which such timeshare
interest is a part.
(d) Authorizes TREC, at the developer's request, to authorize the
developer to conduct pre-sales before a timeshare plan is registered if
the registration application is administratively complete, as determined
by the commissioner of TREC or as established by TREC rule. Provides that
the authorization for presales permits the developer to offer and dispose
of timeshare interests during the period the application is in process.
Requires the developer to provide certain items to obtain a pre-sales
authorization.
(e) Requires the developer, during the pre-sales authorization period, to
provide each purchaser and prospective purchaser a copy of the proposed
timeshare disclosure statement that the developer submitted to TREC with
the initial registration application and offer each purchaser the
opportunity to cancel the purchase contract as provided by Section
221.041.
(f) Requires the developer to give each purchaser and prospective
purchaser a copy of the proposed timeshare disclosure statement submitted
to TREC with the registration application and provide the purchaser an
opportunity to cancel the purchase contract as provided by Section 221.041
after the registration is completed if TREC determines that a material
adverse change exists between the disclosures contained in the proposed
timeshare disclosure statement and the final timeshare disclosure
statement approved by the TREC.
(g) Provides that the requirements of this subchapter remain in effect
during the period the developer offers or disposes of timeshare interests
of the timeshare plan registered with TREC. Requires the developer to
notify TREC in writing when all of the timeshare interests of a timeshare
plan have been disposed.
Sec. 221.022. APPLICATION FOR REGISTRATION. (a) Requires an application
for registration filed under this section to include a timeshare
disclosure statement and any required exchange disclosure statement
required by Section 221.033, rather than 201.033, copies of all timeshare
instruments, and other information as may be required by TREC. Provides
that if existing or proposed accommodations are in a condominium, an
applicant who complies with this section is not required to prepare or
deliver a condominium information statement or a resale certificate as
described by Chapter 82 ( Uniform Condominium Act).
(b) Changes "timeshare units" to "accommodations."
(c) Authorizes TREC to accept an abbreviated registration application
from a developer of a timeshare plan if all accommodations in the plan are
located outside this state. Requires the developer to file written notice
of the intent to register under this section not later than the 15th day
before the date the abbreviated application is submitted.
(d) Prohibits a developer of a timeshare plan with any accommodation
located in this state from filing an abbreviated application unless the
developer is a successor in interest after a merger or acquisition and the
previous developer registered the timeshare plan in this state preceding
the merger or acquisition.
(e) Requires a developer filing an abbreviated application to provide
certain information.
(f) Requires a foreign jurisdiction providing evidence of registration as
provided by Subsection (e)(7) to have registration and disclosure
requirements that are substantially similar or stricter than the
requirements of this chapter.
(g) Redesignated from existing Subsection (c).
Sec. 221.023. AMENDMENT OF REGISTRATION. Requires the developer to file
amendments to the registration reporting to TREC any material and adverse
change in any document contained in the registration not later than the
30th day after the date the developer knows or reasonably should know of
the change. Authorizes the developer to continue to offer and dispose of
timeshare interests under the existing registration pending review of the
amendments by TREC if the material and adverse change is disclosed to
prospective purchasers.
Sec. 221.024. POWERS OF COMMISSION. (a) Authorizes TREC to prescribe
and publish forms and adopt rules necessary to carry out the provisions of
this chapter and to suspend or revoke the registration of any developer,
place on probation the registration of a developer that has been suspended
or revoked, reprimand a developer, or take any other disciplinary action
authorized by this chapter if, after notice and hearing, TREC determines
that a developer has materially violated this chapter, the Deceptive Trade
Practices-Consumer Protection Act (Chapter 17E, Business & Commerce Code),
or the Contest and Gift Giveaway Act (Chapter 40, Business & Commerce
Code). Deletes language authorizing TREC to bring suit in a district
court of Travis County, Texas, to enjoin a violation of this Act or for
any other relief as the court may deem appropriate.
(b) Authorizes TREC to authorize specific employees to conduct hearings
and issue final decisions in contested cases. Deletes language requiring
the establishment of reasonable fees for forms and documents it provides
to the public and for the filing or registration of documents required by
this chapter.
(c) Provides that if TREC initiates a disciplinary proceeding under this
chapter, the person is entitled to a hearing before TREC or a hearing
officer appointed by TREC. Requires TREC by rule to adopt procedures to
permit an appeal to TREC from a determination made by a hearing officer in
a disciplinary action.
(d) Requires TREC to set the time and place of the hearing.
(e) Provides that a disciplinary procedure under this chapter is governed
by the contested case procedures of Chapter 2001 (Administrative
Procedure), Government Code.
Sec. 221.025. EFFECT OF REGISTRATION: SALE EXEMPT FROM SECURITIES ACT.
Provides that a developer's compliance with this chapter exempts the
developer's offer and disposition of timeshare interests subject to this
chapter from The Securities Act (Article 581-1 et seq., V.T.C.S.).
SECTION 5. Amends Sections 221.031 and 221.032, Property Code, as follows:
Sec. 221.031. New heading: ADVERTISING AND PROMOTIONS. (a) Authorizes
TREC, at any time, to request a developer to file for review by TREC any
advertisement used in this state by the developer in connection with
offering a timeshare interest. Requires the developer to provide the
advertisement not later than the 15th day after the date TREC makes the
request. Requires TREC, if TREC determines that the advertisement
violates this chapter or Chapter 40 (Contests and Giveaways), Business &
Commerce Code, to notify the developer in writing, stating the specific
grounds for TREC's determination not later than the 15th day after the
date TREC makes its determination. Authorizes TREC to grant the developer
provisional approval for the advertisement if the developer agrees to
correct the deficiencies identified by TREC. Authorizes a developer, on
its own initiative, to submit any proposed advertisement to TREC for
review and approval by TREC.
(b) Requires any advertisement that contains a promotion in connection
with the offering of a timeshare interest to comply with Chapter 40,
Business & Commerce Code.
(c) Requires any advertisement that contains a promotion in connection
with the offering of a timeshare interest to include, in addition to any
disclosures required under Chapter 40, Business & Commerce Code, certain
other information. Deletes former Subdivision (b) relating to the
determination of the retail value of an item.
Sec. 221.032. TIMESHARE DISCLOSURE STATEMENT. (a) Deletes "contract."
(b) Requires the timeshare disclosure statement to include certain
information.
(c) Authorizes the developer to include any other information in the
timeshare disclosure statement on approval by TREC.
(d) Requires a developer who offers a multistate timeshare plan to
include in a timeshare disclosure statement in written, graphic, or
tabular form certain information.
(e) Authorizes a developer who offers a multistate timeshare plan to
include any other information in the timeshare disclosure statement on
approval by TREC.
(f) Requires a developer who offers a nonspecific timeshare interest in a
multistate timeshare plan to disclose the information prescribed by
Subsection (b) for each component site.
(g) Authorizes TREC, if the property of a timeshare plan is located
wholly outside this state, to permit the developer to submit a timeshare
disclosure statement the developer is currently providing purchasers or an
equivalent timeshare disclosure statement filed for the timeshare plan in
another state if the current statement or the equivalent statement
substantially complies with the requirements of this subchapter. Provides
that this subsection does not exempt the developer from other requirements
of this chapter.
SECTION 6. Amends Section 221.033(a), Property Code, to make a conforming
change.
SECTION 7. Amends Section 221.034, Property Code, as follows:
Sec. 221.034. New heading: EXEMPT OFFERINGS AND DISPOSITIONS;
COMMUNICATIONS. (a) Provides conditions under which an offering or
disposition is exempt from this chapter.
(b) Provides that certain communications are not advertisements under
this chapter.
(c) Provides that certain communications are exempt from this subchapter.
SECTION 8. Amends Sections 221.041, 221.042, and 221.043, Property Code,
as follows:
Sec. 221.041. PURCHASER'S RIGHT TO CANCEL. (a) Authorizes a purchaser
to cancel a purchase contract before the sixth day after the date the
purchaser signs and receives a copy of the purchase contract or receives
the required timeshare disclosure statement, whichever is later.
(b) Redesignated from existing Subsection (c). Deletes existing
Subsection (b).
Sec. 221.042. NOTICE; REFUND. (a) Authorizes a purchaser, if a
purchaser elects to cancel a purchase contract under Section 221.041,
rather than 201.041, to do so by handdelivering notice of cancellation to
the developer, by mailing notice by prepaid United States mail to the
developer or to the developer's agent for service of process, or by
providing notice by overnight common carrier delivery service to the
developer or the developer's agent for service of process. Deletes all
references to seller.
(b) Provides that cancellation is without penalty, and requires all
payments made by the purchaser before cancellation to be refunded on or
before the 30th, rather than the 21st, day after the date on which the
developer receives a timely notice of cancellation or on or before the
fifth day after the date the developer receives funds from the purchaser,
whichever is later. Makes a conforming change.
Sec. 221.043. CONTRACT REQUIREMENTS. (a) Requires each purchase
contract to contain certain information.
(b) Requires a space to be reserved for the signature of the purchaser
immediately following the required statements in Subsection (a). Deletes
language requiring the seller to obtain the purchaser's signature on
Exhibit A.
(c) Requires the purchase contract to include certain other information.
(d) Authorizes the information required to be provided by this section to
be provided in the purchase contract or in an exhibit to the purchase
contract, or to be provided in part in both if all of the information is
provided.
SECTION 9. Amends Section 221.052, Property Code, to delete an exception
and make a conforming change.
SECTION 10. Amends Subchapter G, Property Code, by amending Sections
221.061, 221.062, and 221.063 and by adding Section 221.064, as follows:
Sec. 221.061. New heading: ESCROW OR TRUST ACCOUNT REQUIRED. (a)
Requires a developer or escrow agent of a timeshare plan to deposit in an
escrow or trust account in a federally insured depository 100 percent of
all funds received during the purchaser's cancellation period.
(b) Provides that an escrow agent owes the purchaser a fiduciary duty.
(c) Requires the escrow agent and the developer to execute an agreement
that includes a statement providing certain requirements.
(d) Requires the developer to continue to maintain all funds received
from the purchaser under the purchase agreement in the escrow or trust
account until construction of the building is completed, if a developer
contracts to sell a timeshare interest and the construction of the
building in which the timeshare interest is located has not been completed
when the cancellation period expires. Provides the documentation required
for evidence of completion of construction.
Sec. 221.062. Redesignated from Section 221.063. RELEASE OF ESCROW. (a)
Authorizes the funds or property constituting the escrow or trust deposit
to be released from escrow only in accordance with this section.
(b) Requires the funds to be paid to the purchaser or the developer if
the purchaser's funds have been refunded previously by the developer, if
the purchaser cancels the purchase contract as provided by the contract.
(c) Provides that if the purchaser defaults in the performance of
obligations under the terms of the purchase contract, the funds are
required to be paid to the developer. Deletes language requiring the
application for release of the escrow deposit to be verified and to
include certain information.
(d) Requires the funds to be paid to the purchaser, if the developer
defaults in the performance of obligations under the purchase contract.
(e) Authorizes the funds to be disbursed to the developer by the escrow
or trust agent if acceptable evidence of completion of construction is
provided, if the funds of the purchaser have not been disbursed previously
as provided by Subsections (a)-(d).
(f) Requires the agent to maintain the funds in the account until the
agent receives written directions agreed to and signed by all parties or a
civil action relating to the disputed funds is filed, if there is a
dispute relating to the funds in the escrow or trust account.
(g) Requires, if a civil action is filed under Subsection (f)(2), the
escrow or trust account agent to deposit the funds with the court in which
the action is filed.
Sec. 221.063. ALTERNATIVE TO ESCROW OR TRUST ACCOUNT: FINANCIAL
ASSURANCE. (a) Authorizes TREC to accept from the developer a surety
bond, irrevocable letter of credit, or other form of financial assurance,
including financial assurance posted in another state or jurisdiction,
instead of depositing funds in an escrow or trust account as provided by
Section 221.061.
(b) Requires that the amount of the financial assurance provided under
this section be an amount equal to or more than the amount of funds that
would otherwise be placed in an escrow or trust account under Section
221.061(a).
(c) Requires the amount of the financial assurance provided under this
section for timeshare property under construction as provided by Section
221.061(d) to be the lesser of an amount equal to or more than the amount
of funds that would otherwise be placed in an escrow or trust account
under that subsection or the amount necessary to assure completion of the
building in which the timeshare interest is located.
Sec. 221.064. DOCUMENTATION REQUIRED. Requires the escrow or trust
account agent or developer to make documents related to the escrow or
trust account or the financial assurance provided available to TREC at
TREC's request. Deletes text relating to the release of the escrow
deposit.
SECTION 11. Amends Section 221.071, Property Code, by amending Subsection
(a) and adding Subsection (c), as follows:
(a) Makes conforming changes and removes an exception.
(c) Provides that if a developer has substantially complied with this
chapter in good faith, a nonmaterial error or omission is not actionable.
SECTION 12. Amends Section 221.072, Property Code, to include a managing
entity in reference to maintaining certain insurance with respect to the
timeshare property. Adds "full" in front of the word replacement in
reference to the cost of the accomodations and amenities of the timeshare
property.
SECTION 13. Amends Sections 221.073(a) and (b), Property Code, to make
conforming changes.
SECTION 14. Amends Section 221.074, Property Code, as follows:
Sec. 221.074. ANNUAL TIMESHARE FEE AND EXPENSE STATEMENT. (a) Requires
the managing entity to make a written annual accounting of the operation
of each timeshare property managed by the managing entity to each
purchaser who requests an accounting not later than five months, rather
than the 60th day, after the last day of each fiscal year, notwithstanding
any contrary provision of the required timeshare disclosure statement,
project instrument, timeshare instrument, or bylaws adopted pursuant to a
timeshare instrument. Requires the statement to fairly and accurately
represent the collection and expenditure of assessments and include
certain items.
(b) Requires the managing entity of the timeshare plan to provide the
owner with the name and address of each member of the board of directors
of the owners' association, if one exists, on the request of an owner.
(c) Requires a developer or managing entity to have an annual independent
audit of the financial statements of the timeshare plan or timeshare
properties managed by the managing entity performed by a certified public
accountant or an accounting firm. Requires the audit to meet certain
requirements. Deletes the requirement that the statement be delivered to
certain persons.
(d) Provides that knowingly furnishing false information in the annual
timeshare fee and expense statement is a violation of the Deceptive Trade
PracticesConsumer Protection Act (Section 17.41 et seq., Business &
Commerce Code).
(e) Requires the managing entity of any accommodation located in this
state to post prominently in the registration area of the accommodations
the following notice, with the date of the last day of the current fiscal
year and the address of the managing entity inserted where indicated:
"AS A TIMESHARE OWNER YOU HAVE A RIGHT TO REQUEST A WRITTEN ANNUAL
TIMESHARE FEE AND EXPENSE STATEMENT. THIS STATEMENT IS PREPARED ANNUALLY
BY THE MANAGING ENTITY AND WILL BE AVAILABLE NO LATER THAN THE FIVE MONTHS
FOLLOWING (INSERT THE DATE OF THE LAST DAY OF THE CURRENT FISCAL YEAR).
YOU MAY REQUEST THE STATEMENT, BY WRITING TO (INSERT ADDRESS OF THE
MANAGING ENTITY)." Makes a conforming change and deletes Subsections (e)
and (f) regarding requests for the statement and annual timeshare fee and
expense statements.
SECTION 15. Amends Sections 221.075(a) and (d), Property Code, as follows:
(a) Adds "receipt of" in front of "a written request" filed with the
commission by a managing entity.
(d) Prohibits a managing entity from assessing against or collecting from
the purchasers, rather than owners, of a timeshare property the amount of
a penalty incurred under this section.
SECTION 16. Amends Sections 221.076 and 221.077, Property Code, as
follows:
Sec. 221.076. New heading: MANAGING ENTITIES THAT MANAGE MORE THAN ONE
TIMESHARE PROPERTY. (a) Authorizes, rather than prohibits, a managing
entity that manages two or more single-site timeshare plans to commingle
the assessments collected from purchasers of one timeshare plan with the
assessments collected from purchasers of any other single-site plan for
which it is the managing entity only if the practice is disclosed in the
timeshare disclosure statement for each timeshare property and the
appropriate statement is included in the declaration for each timeshare
property as required by Subchapter B. Makes conforming changes.
(b) Creates this subsection from former Subsection (c) while deleting
language from former Subsection (b) regarding the commingling of timeshare
fees. Makes conforming changes.
(c) Provides that nothing in this section shall be construed to allow a
managing entity to commingle assessments of a multisite timeshare plan
with the assessments of a separate multisite timeshare plan or a timeshare
plan that is not a part of the multisite timeshare plan.
Sec. 221.077. AVAILABILITY OF BOOKS AND RECORDS. (a) Creates subsection
from existing text. Makes conforming changes.
(b) Requires a developer or managing entity to maintain in its records a
copy of each purchase contract for an accommodation sold by the developer
for a timeshare period unless the contract has been canceled. Requires
the developer to retain a copy of the contract until a deed of conveyance,
agreement for deed, or lease is recorded in the real property records of
the county in which the timeshare property is located, if a sale of the
timeshare estate is pending.
SECTION 17. Amends Chapter 221H, Property Code, by adding Section
221.078, as follows:
Sec. 221.078. FINDER FEE FOR REFERRALS. (a) Provides that in this
section, "finder fee" means a credit or monetary or nonmonetary
compensation given to a former purchaser in return for that purchaser
providing the developer with the name and address of a prospective
purchaser of the timeshare plan in which the former purchaser previously
purchased a timeshare interest.
(b) Authorizes a developer to pay a finder fee for a referral to a
purchaser in the developer's timeshare plan subject to this section,
notwithstanding another provision of this chapter.
(c) Prohibits a developer from compensating a purchaser under this
section for more than 20 referrals during a 12-month period.
(d) Provides that Section 1101.351(a), Occupations Code, prohibiting a
person who is not a licensed real estate broker or salesperson from acting
as a broker or salesperson, does not apply to an act for which a finder
fee may be paid under this section. Prohibits a purchaser who is not a
licensed broker or salesperson from advertising or promoting the
purchaser's services in obtaining or assisting in obtaining prospective
timeshare interest purchasers.
(e) Requires the developer to keep records of finder fees paid as
provided by this section at least until the third anniversary of the date
the payment was made.
SECTION 18. Effective date: September 1, 2003.
Makes application of this Act prospective.