Fractionals In the Dominican Republic

AnonTraveler · Sep 1, 2008

I do not believe there is a set legal structure for fractional ownership in the Dominican Republic, but I could be wrong. I know you can create a company and have each owner have the equitable fraction of the ownership. That's the easy part (e.g. ownership).

The question, though, is how a fractional property is controlled, managed and profits are distributed. Is it possible there are condo law variations which can be used to create a fractional ownership? Or are there legal frameworks I am not familiar with to help legally create and operate a fractional ownership?

Fabio J. Guzman · Sep 3, 2008

No, there are not.

AnonTraveler · Sep 4, 2008

But I take it there is no legal reason why someone could not create a fractionalized investment property. Is there?

Fabio J. Guzman · Sep 8, 2008

The problem is in the relationship between the holders, and how one holder is protected in relation to the rest or the title holder, or the entity holding the title. There is no easy solution contractually.

What is needed is specific legislation for time-sharing, etc. as it exists in other countries.

AnonTraveler · Sep 8, 2008

True, I can see that. So the temporary solution appears to be:

1. Have the DR property owned by a DR corporation
2. Have the DR corporation owned by a US corporation
3. Have the US corporation (which has excellent fractional laws) define the relationship between the holders.

Starwood worked very closely with the Bahamian government to help bring in what are basically the US fractional laws to that government. I wonder if someone 'large' like that can lead the way here?

rubio_higuey · Sep 9, 2008

Most resorts in Bavaro sell timeshare in one way or another... and they have been doing that for ages. They either don't see a need for DR timeshare laws or they found a comfortable way around it. Either way, they have been and are selling timeshares/fractional ownerships.

Maybe Leonel's friend who wants to build 150 cabanas near Jarabacoa and wants to sell timeshare at 100KUS push the law...

bart6 · Sep 9, 2008

fractional

the way i have seen it done all of the rules are put in the corporate bylaws and thus each party has the spelled rights, so many weeeks, right to buy others out, and there rights are based upon the number of shares which they hold.

i have seen some documents which seemed to work pretty well

AnonTraveler · Sep 9, 2008

rubio_higuey said:
Most resorts in Bavaro sell timeshare in one way or another... and they have been doing that for ages. They either don't see a need for DR timeshare laws or they found a comfortable way around it. Either way, they have been and are selling timeshares/fractional ownerships.

Maybe Leonel's friend who wants to build 150 cabanas near Jarabacoa and wants to sell timeshare at 100KUS push the law...

There is a huge difference between time share and fractionalization. So it is much easier to establish laws. Time share owners do not actually own anything other than time, which is somewhat meaningless. Fractional owners actually own a deeded title to their portion of the property so they enjoy the asset appreciation.

The rub in the DR is that the property ownership laws do not currently allow for more than one entity (or individual) to own a single property deeded specifically to them and unencumbered by any other titles to the same property. So the answer is to have a corporation hold the title while the corporation is held by another company operating under the laws of a country that does have fractional laws.

...at least I think so (I'm not a lawyer, only an investor).

AnonTraveler · Sep 9, 2008

bart6 said:
the way i have seen it done all of the rules are put in the corporate bylaws and thus each party has the spelled rights, so many weeeks, right to buy others out, and there rights are based upon the number of shares which they hold.

i have seen some documents which seemed to work pretty well

I agree that this is a reasonable solution should all parties be acting reasonably. The issue surfaces, I believe, when one of the parties does not act reasonably.

For example, a fractional owner also owes his/her fractional portion of the maintenance fees. If s/he does not pay those maintenance fees, for whatever reason, the other owners have no real recourse by property law. They have recourse by civil law, of course.

But if you want to torture yourselves just try and get a Dominican court to actually listen to and understand a civil lawsuit. It is virtually impossible, IMHO. And even if a civil lawsuit is found in your favor there is almost no way to force the other party to comply with the terms of the court. It's really a very, very bad system to rely upon.

STEVE G. · Sep 10, 2008

rubio_higuey said:
Most resorts in Bavaro sell timeshare in one way or another... and they have been doing that for ages. They either don't see a need for DR timeshare laws or they found a comfortable way around it. Either way, they have been and are selling timeshares/fractional ownerships.

Maybe Leonel's friend who wants to build 150 cabanas near Jarabacoa and wants to sell timeshare at 100KUS push the law...

What is sold in DR is ''right to use'' ( floating / fixed week or points ) based on a contract only , not a property title .

STEVE G. · Sep 10, 2008

AnonTraveler said:
There is a huge difference between time share and fractionalization. So it is much easier to establish laws. Time share owners do not actually own anything other than time, which is somewhat meaningless. Fractional owners actually own a deeded title to their portion of the property so they enjoy the asset appreciation...

Well , if a Time Share owner holds a lifetime Property Title ( not a ''Right to Use'' contract for 25-30 years) of 2 or 4 fixed weeks in the condominium , there is not a big difference from the one that holds a fraction of let's say of 4 , 8 or 12 weeks ( when a property fraction is made for 12 , 6 or 4 owners as an example) Technically just less quantity of fractions sold for a single unit . When a Time Share unit is divided by 50 / 25 or less owners , Fraction unit usually is divided by 2 - 4 - 8 owners . Really just the name , that helps to sell a ''different'' concept .

Fabio J. Guzman · Sep 12, 2008

Let??s try to get back to the original thrust of this thread: the protection afforded a normal timeshare buyer in the Dominican Republic.

My point is that the only effective legal protection is to have the owner?s rights (?registered?) at the appropriate Registry of Titles. Registration grants the buyer rights ?in rem? (over the property) which cannot be ignored by a third party. Lack of registration, which is standard procedure in the D.R., leaves the buyer no recourse except against the other contracting party which of course may become insolvent or may not have the best of intentions.

How do you get you rights registered on a property under Dominican law? A purchase is recorded by filing at the Registry a deed of purchase, the Certificate of Title of the owner and evidence of payment of the required transfer taxes; a mortgage, by filing at the Registry the mortgage agreement, the title of the owner and evidence of payment of the required transfer taxes; an easement, by filing at the Registry the easement agreement, the title of the owner and evidence of purchase of the required stamps; and so on. In each case, the buyer, mortgage creditor or lessee obtains from the Registrar a Certificate which acknowledges his particular rights over the property and is enforceable ?erga omnes?, a Latin phrase used a lot in Dominican Land Law meaning ??with respect to or against everybody".

Why aren?t timesharing contracts recorded? For two main reasons:

1) Because it??s easier for the timeshare sellers to just give the buyer a one-page piece of paper in English and be done with it. The buyer usually doesn??t know better. Sometimes the seller is also in the same position of blissful ignorance. The law requires that to be recorded any agreement must, among other things, be drafted in Spanish and have the signatures of the party authenticated by a Notary Public.

2) Because ?timesharing? per se is not a recordable right in our legal system.

As for AnonTraveler?s solution, consisting of :

1. Have the DR property owned by a DR corporation
2. Have the DR corporation owned by a US corporation
3. Have the US corporation (which has excellent fractional laws) define the relationship between the holders.

The problem is trying to enforce the fractional laws of the US in the Dominican Republic. You won?t be able to sue in the Dominican Republic. Instead, you?ll have to sue in the US first, and then try to enforce that judgment in the Dominican Republic. Not an easy proposition.

The solution is to get the DR to adopt fractional laws as AnonTraveler suggests. There are many in Europe that work marvellously and which are more compatible with our legal system than US laws. The problem is that the developers won't have any interest in the subject unless buyers start demanding it. Most buyers are happy to sign the one-page wonders presented to them thinking that they are protected.

J2resorts · Sep 30, 2008

Fractional questions

This is an excellent thread addressing many of the legal and usage issues surrounding fractionals in the DR. As a member of ARDA - the American Resort Development Association we are accustomed to these many issues.

There is a new group being formed in ARDA with stand alone bylaws called the Caribbean Development Association with ARDA support. Once it is established this will be an excellent group to work with to enact legislative change in Caribbean nations.

In the mean time a well executed and complete set of corporate bylaws for the corporate partnership is the best approach. If the project has a rental program unpaid dues and partner commitments may be met through rental income forfeit by the delinquent partner. In essence the benefits of use and income fall to the other partners. Management and front desk control access.

Castellamonte · Sep 30, 2008

Fabio J. Guzman said:
Let??s try to get back to the original thrust of this thread: the protection afforded a normal timeshare buyer in the Dominican Republic.

My point is that the only effective legal protection is to have the owner?s rights (?registered?) at the appropriate Registry of Titles. Registration grants the buyer rights ?in rem? (over the property) which cannot be ignored by a third party. Lack of registration, which is standard procedure in the D.R., leaves the buyer no recourse except against the other contracting party which of course may become insolvent or may not have the best of intentions.

How do you get you rights registered on a property under Dominican law? A purchase is recorded by filing at the Registry a deed of purchase, the Certificate of Title of the owner and evidence of payment of the required transfer taxes; a mortgage, by filing at the Registry the mortgage agreement, the title of the owner and evidence of payment of the required transfer taxes; an easement, by filing at the Registry the easement agreement, the title of the owner and evidence of purchase of the required stamps; and so on. In each case, the buyer, mortgage creditor or lessee obtains from the Registrar a Certificate which acknowledges his particular rights over the property and is enforceable ?erga omnes?, a Latin phrase used a lot in Dominican Land Law meaning ??with respect to or against everybody".

Why aren?t timesharing contracts recorded? For two main reasons:

1) Because it??s easier for the timeshare sellers to just give the buyer a one-page piece of paper in English and be done with it. The buyer usually doesn??t know better. Sometimes the seller is also in the same position of blissful ignorance. The law requires that to be recorded any agreement must, among other things, be drafted in Spanish and have the signatures of the party authenticated by a Notary Public.

2) Because ?timesharing? per se is not a recordable right in our legal system.

As for AnonTraveler?s solution, consisting of :

1. Have the DR property owned by a DR corporation
2. Have the DR corporation owned by a US corporation
3. Have the US corporation (which has excellent fractional laws) define the relationship between the holders.

The problem is trying to enforce the fractional laws of the US in the Dominican Republic. You won?t be able to sue in the Dominican Republic. Instead, you?ll have to sue in the US first, and then try to enforce that judgment in the Dominican Republic. Not an easy proposition.

The solution is to get the DR to adopt fractional laws as AnonTraveler suggests. There are many in Europe that work marvellously and which are more compatible with our legal system than US laws. The problem is that the developers won't have any interest in the subject unless buyers start demanding it. Most buyers are happy to sign the one-page wonders presented to them thinking that they are protected.

Fabio, I think you have slightly confused the issue here by blending time sharing and fractionalization. I suspect it was because you are trying to respond to the two different topics in the same response.

Fractionalization in the DR will be difficult, of course, but I think AnonTraveler has the 'genesis' of an idea here. There are many other countries, such as Spain, where fractionalization is not legally recognized yet there are companies doing it successfully. The key is in the corporate bylaws of the corporation offshore which owns and controls the asset.

You are correct <sigh> that enforcing anything in this country is nigh on to impossible. So if it has to be enforced it should be enforced in a country where the buyers are more comfortable with the legal structures.

I tend to agree with AnonTraveler and others that fractionalization might be coming to the DR sooner than people think.

AnonTraveler · Sep 30, 2008

I believe fractionalization is already here in the DR, albeit not supported by current Dominican real estate law. The challenge will be for those early adopters to enable an evolution of their structure to adapt to Dominican fractionalization laws if, or when, they are adopted. Since nothing occurs overnight here, except the sunrise, I think they have plenty of time to figure it out.

Thanks, Mr. Guzman, for the answers.

Fabio J. Guzman · Oct 4, 2008

Castellamonte, perhaps I should have mentioned from the beginning that BOTH time-sharing AND fractionals can be protected with the appropriate legislation. In both cases what is needed is a recordable right "in rem"; the only difference being that in time-sharing, you record "usage" rights; while in fractionals, you record property rights.

For those who are not lawyers, "in rem" means that you have a right on or against the property itself ("rem" means "thing" in Latin), not just a claim against the other party in a contract. Only in the first instance is the buyer or the time-share owner trully protected.

Castellamonte · Oct 6, 2008

Fabio J. Guzman said:
Castellamonte, perhaps I should have mentioned from the beginning that BOTH time-sharing AND fractionals can be protected with the appropriate legislation. In both cases what is needed is a recordable right "in rem"; the only difference being that in time-sharing, you record "usage" rights; while in fractionals, you record property rights.

For those who are not lawyers, "in rem" means that you have a right on or against the property itself ("rem" means "thing" in Latin), not just a claim against the other party in a contract. Only in the first instance is the buyer or the time-share owner trully protected.

Hi Fabio. When are you and the missus going to visit us again here in my humble abode?

Okay, to business. I understand what you are saying in the above. I guess the point I was making is the same, that while your recorded rights are here (in rem) they are not enforceable under Dominican Law for a fractional share of a property. The only recourse to a disagreement would be litigation in civil court which, as we all know, is hardly an optimistic path.

AnnaC · Dec 21, 2010

Fabio J. Guzman said:
Let??s try to get back to the original thrust of this thread: the protection afforded a normal timeshare buyer in the Dominican Republic.

My point is that the only effective legal protection is to have the owner?s rights (?registered?) at the appropriate Registry of Titles. Registration grants the buyer rights ?in rem? (over the property) which cannot be ignored by a third party. Lack of registration, which is standard procedure in the D.R., leaves the buyer no recourse except against the other contracting party which of course may become insolvent or may not have the best of intentions.

How do you get you rights registered on a property under Dominican law? A purchase is recorded by filing at the Registry a deed of purchase, the Certificate of Title of the owner and evidence of payment of the required transfer taxes; a mortgage, by filing at the Registry the mortgage agreement, the title of the owner and evidence of payment of the required transfer taxes; an easement, by filing at the Registry the easement agreement, the title of the owner and evidence of purchase of the required stamps; and so on. In each case, the buyer, mortgage creditor or lessee obtains from the Registrar a Certificate which acknowledges his particular rights over the property and is enforceable ?erga omnes?, a Latin phrase used a lot in Dominican Land Law meaning ??with respect to or against everybody".

Why aren?t timesharing contracts recorded? For two main reasons:

1) Because it??s easier for the timeshare sellers to just give the buyer a one-page piece of paper in English and be done with it. The buyer usually doesn??t know better. Sometimes the seller is also in the same position of blissful ignorance. The law requires that to be recorded any agreement must, among other things, be drafted in Spanish and have the signatures of the party authenticated by a Notary Public.

2) Because ?timesharing? per se is not a recordable right in our legal system.

As for AnonTraveler?s solution, consisting of :

1. Have the DR property owned by a DR corporation
2. Have the DR corporation owned by a US corporation
3. Have the US corporation (which has excellent fractional laws) define the relationship between the holders.

The problem is trying to enforce the fractional laws of the US in the Dominican Republic. You won?t be able to sue in the Dominican Republic. Instead, you?ll have to sue in the US first, and then try to enforce that judgment in the Dominican Republic. Not an easy proposition.

The solution is to get the DR to adopt fractional laws as AnonTraveler suggests. There are many in Europe that work marvellously and which are more compatible with our legal system than US laws. The problem is that the developers won't have any interest in the subject unless buyers start demanding it. Most buyers are happy to sign the one-page wonders presented to them thinking that they are protected.

It's been two years since you posted this Mr Guzman and I was wondering if there has been any changes to the law to protect people that buy timeshare.

Someone told me that the timeshare they purchased recently was registered in the British Virgin Islands, does that mean anything under Dominican law?

Any update would be appreciated

Fabio J. Guzman · Dec 24, 2010

AnnaC, unfortunately there is no progress to report. I have proposed publicly on several occasions the need for a statute on time-sharing, but so far, no response.

CaptnGlenn · Feb 4, 2011

Sr. Guzman,

First, I'd like to thank you for all of your effort and wonderful advice here on D.R.1

Is the legal situation still the same for fractional ownership as well? Last year when I was shopping for my condo, there was a property, in Cortecito which was being sold as fractionals, (now there are several). These are not associated with any of the big resorts. Although I wasn't interested in fractional ownership at the time, I toured the unit, (very nice one), and the fractional concept was described to me. In effect, (as suggested earlier in this thread), the property is owned by a corporation and individual fractions are "owned" by individuals as shares of the corporation. The shares were/are liquid and can be transferred to heirs, or sold outright. In fact this was featured on the T.V. show popular in the U.S., "House Hunters International".

Since we didn't get to the "fine print", I don't know what recourse the management or other owners would have against one owner acting inappropriately, or who might be delinquent in payment of "home owners dues", etc. Obviously, physical restriction of use would be one way, but is it possible to void the shares of an owner acting in bad faith?
The reason for my question is that I have been considering the feasibility of purchasing an inexpensive property through formation of a D.R. corporation and creating fractional opportunities with it.
Additionally, if this is possible, I'd like to hear what legal and registration costs would be, (very rough estimate would be fine), involved in the creation of the corporation, management company, by-laws, etc.

I have read your very comprehensive guide regarding real estate purchasing in the D.R., and paid particular attention to the section regarding purchasing through a corporation. It appears the initial purchase is possible, but the management aspect might be the difficult part.

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