Converting a Home to Fractional Ownership

The fractional ownership industry has been around since the early 1980s, with roots tied to single homes in the Lake Tahoe (California) basin. Developers such as Carl Berry and Gordon McMahon developed homes and sold co-ownership shares in luxury built and furnished lakeside homes.

Over time, the concept evolved to resorts conceived and developed entirely around the concept of fractional ownership. A developer would typically build a resort property that included fractional homes/condos, either solely fractional or mixed with whole-ownership homes. Examples of these resorts would be Villa La Estancia (Cabo San Lucas, Mexico) and Old Greenwood (Truckee/Lake Tahoe, California).  Our resort directory has a somewhat-complete listing of typical fractional resorts (http://www.fractionalexchange.com/resort_directory).

The primary growth of the fractional industry has been due to fractional resorts. However, we’re seeing more and more interest in “standalone” vacation homes being converted to fractional ownership.

Converting an existing vacation home to (or developing a new home for) fractional ownership involves mainly legal documentation to establish co-ownership and to specify the rules and regulations specific to co-ownership. For the physical home, very few, if any, changes need to be incorporated — typical would be the addition of “lockers” in the basement or garage for each co-owner’s storage of personal items, for example.

An informative discussion of the legal considerations for fractional ownership is available at the website of Andy Sirkin, a California attorney specializing in fractional ownership:  http://www.andysirkin.com/Index.cfm Mr. Sirkin is known in the fractional industry as an expert on fractional ownership and his website is an absolute wealth of information for anyone interested in fractional ownership.

There are many things to consider with fractional ownership and one of the most important is the rotation schedule — specifically, when will each owner be allowed to use the property and when will maintenance be performed? Other specific rules need to be considered as well:

• What is the smoking policy?
• Pets?
• May an owner allow unaccompanied guests to use the property?
• What is the minimum age allowed to use the property?  For example, there may be a requirement that at least one person in the party be older than 25 years of age (so that an owner doesn’t allow his teenagers unaccompanied access to the property).
• Breakage/damage policy?
• What types of personal effects are allowed?  When may an owner “add” to the decoration of the home?
• What is the replacement policy for furnishings, fixtures and equipment?
• What is the policy when an owner desires to sell their ownership? Do the other owners have the right-of-first-refusal?
• Who will manage the property?

These are just recommendations. Beyond the specifics, for all intents and purposes a fractional property is administered similar to a homeowners association, with collection of dues and maintenance performed collectively.

For anyone interested in fractional co-ownership, we highly recommend a consultation with Andy Sirkin (http://www.andysirkin.com/Index.cfm) to examine the various methods of establishing fractional ownership.