Money Help Desk: Give me a break from soaring timeshare fees

I AM a member of a points holiday timeshare company, Diamond Resorts International. The points owned 'purchase' holidays at their resorts worldwide. In addition to having to initially buy the points to join the holiday company, there is an annual management charge on a scale governed by the number of points owned, payable in advance of the holiday season.

For next year, DRI has increased this management charge by nearly 40%, pushing up the cost of the holiday to an unacceptable level. Many members wish to leave the company, abandoning their points in doing so.

However, DRI says they cannot do this, and must either sell the points, which they cannot do because these high management charges have rendered them valueless, or they can give them away, also a non-starter as no one wants a financial liability.

Finally, the company has offered to convert them into a timeshare week, but this would still incur a management charge over which we have no control.

Is the company within the law in specifying these conditions in their membership?

I bought in about 10 years ago after being invited to a free visit to their Kenmore resort in Perthshire, and until now have never had cause for complaint, because the resorts are of an extremely high standard.

But I do strongly object to the policy of not allowing a member to resign, forcing them to remain liable for management fees until 2054 when your membership lapses, regardless of age, illness, redundancy, personal circumstances etc.

To give an indication of the fees, I own 15,000 points and for 2008 I paid £966 in management fees. In May 2008 we were asked to pay a 'special levy', which in my case was £135.

But now for 2009 I am being asked to pay £1,320.50, which represents an increase of almost 37% and means that my two weeks' holiday will now cost £660 per week instead of £483, irrespective of my initial investment. Others have been hit by even bigger increases.

I do not know what the minimum points membership would now cost, but for a reasonable holiday facility I would estimate something approaching £10,000. Many members feel they could do better on the open market, but are unable to get out.

It is virtually a 'blank cheque' policy, no matter how good their resorts.

DM, Penicuik

Teresa Hunter writes:

SCOTLAND on Sunday has contacted the company on several occasions for more information about their policy, but has received no reply. We understand that this is not unusual.

In general, holiday clubs are a very bad idea. And don't just take our word for it. This is the view of the consumer lobby group Which? Holiday and the Timeshare Consumers Association, both of which advise against buying into holiday clubs.

They are not covered by timeshare consumer protection legislation. Inadequate though it is, the Timeshare Directive of 1994 offers some safeguards to owners of timeshares attached to an individual property and which run for at least three years.

Coincidentally, there is an attempt to extend these provisions to holiday clubs, but the earliest this could come into force would be 2010. It may be that some club operators will seek to maximise profits before the new regulations threaten their activities.

In this case, however, the eye-watering increase in management fees is being blamed on the sharp fall in the pound, particularly against the euro. In European resorts, the club says its bills are paid in euros, which is why those who pay fees in sterling have faced such large increases.

The company has put out a statement claiming: "The increase in maintenance fees is a necessary move in today's environment to ensure we offer our members the quality of accommodation and vacation experience which they deserve."

It seems members who pay in dollars have not seen such sharp increases in their fees, which are up only around 12% to 15%.

It is also true that many holiday firms, along with other businesses, have been badly hit by the credit crunch, particularly if they already have big borrowings.

The worry is that this year's increases were announced before the pound went into meltdown, which would point to even bigger hikes in fees next year.

The question is what can be done about it? And is the company entitled to pursue you for the money if you 'opt out'?

This will come down to what was in the contract, and whether that contract is deemed to be fair. As this reader bought his points in Scotland, any complaint will fall within the remit of the UK's Office of Fair Trading, which has jurisdiction over these kinds of matters.

His position is further clouded by the fact he bought his points from another company, the Grand Vacation Club, which was subsequently taken over by Diamond Resorts International.

DRI cannot interpret those original contracts in a way which suits its purpose, but must abide by the letter.

The contract called a "disclosure document", which the reader signed, does stipulate that: "Annual management charges, including membership charges, must be paid by all members."

But it goes on to say: "Each member's management charge is based on a formula described in the management agreement."

It would seem crucial therefore to obtain a copy of this formula to establish whether the current fees are being accurately calculated.

It is a huge mistake to ever buy into any kind of investment which forces you to pay fees over which you have no control.

Significantly, however, the disclosure document also lays out what would happen if members do not pay their fees.

It warns: "Members who do not pay their management charge are unable to occupy accommodation and their membership is liable to be cancelled."

It does not anywhere in this document state that if you abandon your points you will still be liable for the management fee up until the scheme expires in 2054 and you will be pursued for the total cost of those fees through the courts.

Unfortunately, such is the law, this may not necessarily mean you have a watertight case that will allow you to cease paying the charges and sleep easily at night.

I am aware that many thousands of individuals are caught up in the same plight, many facing much higher penalty fees of around £2,000. It would probably be a good investment for a group of you to get together and fund a definitive solicitor's opinion. I'm sure this could be secured for less than £50 each.

An alternative is to complain to the OFT. If the company is acting illegally then it will take action against it. But it has no powers if the company is within its rights.

Your other option would be to complain to the OFT that a contract which permits fees to be hiked in this way is unfair. If the watchdog agrees, it has powers to unravel the terms and make them null and void.

Other good sources of information are the Timeshare Consumers Association at www.timeshare.org.uk, which has a helpline, or the Which? legal service at www.which.co.uk.

Finally, if further documentation is forthcoming we will run it past one of our legal contacts for an informal opinion.