Over six hundred shareholders in a timeshare resort in the Mpumalanga region of South Africa are set to lose their investment. The reason is down to the shareblock scheme operated by the timeshare resort, whose failure to submit a project plan in 2015 in respect of maintenance and repair work caused the company to breach the terms of their lease agreement.
The scheme has rented the property since 2003, but following the breach, the landlord, Meercathoryx Property, took action on its entitlement to cancel the lease. The judgment was handed down from the Johannesburg High Court in July this year.
The shareblock company, Burchell’s Bush Lodge, has dug in its heels promising that it would not be vacating the premises and would, in fact, be applying for an appeal against the judgment.
Those owning shares in the scheme are desperately crossing their fingers in the hope that the appeal is successful, otherwise their rights to occupy their timeshare units will be lost, despite their holding of shares in the property.
In South Africa, the rules on timeshare are slightly different to those in Europe. One of the ways in which one can own a timeshare is by buying shares in a shareblock company. These shareblocks are established in terms of the Share Blocks Control Act. When a timeshare scheme is launched, a share owner has the right to use and occupy their unit, as is the case in timeshare in general. The property itself continues to be owned by the shareblock company, but can be leased out. This is what the situation is with the Burchell’s Bush Lodge timeshare resort. As with all timeshare, the holders pay maintenance fees to keep the timeshare resort up to scratch.
Even if the appeal fails, however, all is not lost for the shareholders. If the company is forced to vacate, then the board would have to declare a liquidation dividend. This is a kind of distribution made by a company to its shareholders during the liquidation process, and are not paid solely out of the profits of the corporation. Essentially, it means that they’ll get some money back, though whether or not it matches their investment sum is subject to some debate.
So, on what grounds is the Burchell’s Bush Lodge seeking its appeal?
The company asserts that, since it was responsible for all the repair and maintenance of the property, it alone was the only party with the right to determine the project plan. It’s not really a very strong case, to be honest.
This assertion, made during the initial case, was labeled “farcical and unsustainable” by Judge BA Mashile, presiding. Why? Well, because the property was actually owned by another party, and – according to the lease – the owner would delegate what should be maintained and repaired on the property.
If such a rule wasn’t in place, as with any rented property, then the tenant (or scheme in this instance) would be able to run down the property and the landlord would have no rights to prevent it. There are still 85 years left on the lease, so if the scheme had sole responsibility and could run the place however it wanted, the “landlord may have no property to be restored to it at the end of the lease,” the judgment said. Luckily for the landlord, this isn’t the case!
Shareholders in schemes like this, where a lease agreement is the shareblock company’s main asset (rather than the land on which the resort is built and the buildings upon it), are in a precarious situation, as this case proves.
The case is also important for the timeshare industry to take note of. What the judgment demonstrates is what could occur when a timeshare resort (or its managing agents) violated the terms of its lease. Shareblock holders could launch a claim for personal liability against the company for doing something as careless as breaching the terms of their lease agreement.
Where a shareblock company, or a timeshare company anywhere in the world, operates on leased land, it puts all parties in a vulnerable position. It’s important, if your timeshare sounds like the one featured here, to find out what your rights are in the event that such a breach occurs, or if problems with the landlord arise.
If you are concerned by what you’ve read here, then don’t hesitate to get in touch with us. We will be happy to clear up and questions you may have!