HOUSE OF REPRESENTATIVES

H.B. NO.

271

TWENTY-EIGHTH LEGISLATURE, 2015

H.D. 2

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO TIME SHARING.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The legislature finds that many time share developers offer short-term products that allow prospective time share buyers to explore the time share experience on a trial basis.  The legislature finds that some other states have adopted laws providing a seven-day right of cancellation to short-term product buyers.

     The legislature further finds that existing time share law requires buyers' funds to be placed in escrow and permits buyer's funds to be disbursed from escrow to help the developer pay the costs of construction and development of time share projects.  A buyer's funds may be disbursed for such purposes prior to the closing and deeding of the property to the buyer.

     The legislature additionally finds that it is common to include a subordination clause in contracts for the sale of time share interests in a project that has yet to be constructed.  In the subordination clause, the buyers subordinate their rights in the project to the lien of the construction lender.  As a result, if the developer defaults under the construction loan, the lender may foreclose and acquire title to the project free of any claims of the buyers.  This would be true regardless of whether the buyers' funds were used to pay the costs of construction and development.

     The legislature also finds that some other states have adopted laws permitting a timeshare developer to use buyers' deposits upon posting a bond, thus assuring that the buyers' deposits will be refunded if construction of the project is not completed or the buyers otherwise become entitled to a refund.  Timeshare developers prefer this approach, and this approach also benefits buyers by providing buyers a remedy in the event that the developer fails to complete construction or defaults under its construction loan.

     The purpose of this Act is to:

     (1)  Provide cancelation rights to persons who contract to buy a short-term product in Hawaii; and

     (2)  Allow disbursement of purchasers' funds to a developer; provided that the developer first posts a bond or letter of credit.

     SECTION 2.  Chapter 514E, Hawaii Revised Statutes, is amended by adding three new sections to be appropriately designated and to read as follows:

     "§514E-A  Short-term product; right to cancel.  (a)  A person who has entered into a contract to purchase a short-term product shall have the right to cancel the contract until midnight of the seventh calendar day after the date that the short-term product buyer first signs the contract, or the expiration of any longer cancelation period expressly provided in the contract.  A short-term product buyer who exercises the right to cancel under this section shall be entitled to a refund of one hundred per cent of the consideration paid under the contract, without deduction.  Any provision in the contract that is intended to waive the short-term product buyer's right of cancelation shall be void and unenforceable.

     (b)  A short-term product seller shall disclose the following in conspicuous type, in the contract or otherwise, to all short-term product buyers:

     (1)  If the short-term product buyer is required to request a reservation in order to use the accommodations:

         (A)  That reservations for accommodations under the contract are subject to availability;

         (B)  That there is no guarantee that a short-term product buyer will be able to obtain specific accommodations during a specific time period; and

         (C)  That the earlier the short-term product buyer requests a reservation, the greater the opportunity to receive a confirmed reservation; and

     (2)  Specific blackout dates if the short-term product is subject to blackout dates; and

     (3)  That the short-term product buyer shall pay transient accommodations tax for the occupancy of accommodations in Hawaii.  This subsection shall apply only if the short-term product buyer is required to pay transient accommodations tax in addition to the purchase price of the short-term product.

     (c)  The contract to purchase a short-term product under this section shall include the date of the contract and contain the following disclosure in conspicuous type on the same page as the short-term product buyer's signature:

"YOU HAVE THE RIGHT TO CANCEL THIS CONTRACT AT ANY TIME PRIOR TO MIDNIGHT OF THE SEVENTH CALENDAR DAY AFTER THE DATE THAT YOU SIGN THIS CONTRACT.  You may exercise your right to cancel by sending the seller a written notice that you are canceling your contract either by faxing it to (insert facsimile number) or by depositing it into the United States mail, first class postage prepaid, addressed as follows: (insert specific contact information).  If you properly cancel this contract, you are entitled to receive a full refund of the amount paid by you pursuant to this contract.

If you buy a time share interest, you will have any right to cancel your contract to purchase a time share interest provided by the law governing the sale of the time share interest.  However, if you cancel your contract to purchase a time share interest, you will not be entitled to a refund of any amounts paid by you pursuant to this contract or the seller may specify an alternate refund policy under these circumstances."

The preceding disclosure shall not be required to be repeated on any addendum to the contract.

     (d)  A short-term product buyer may exercise the right to cancel by giving written notice to the short-term product seller in the manner described in subsection (c).  A short-term product seller shall cause any deposit given by a short-term product buyer who has exercised the right to cancel pursuant to subsection (a) to be mailed or otherwise delivered to the short-term product buyer not later than the last to occur of:

     (1)  Fifteen business days following receipt of the short-term product buyer's written notice of cancelation; or

     (2)  Fifteen business days following the date upon which any deposit becomes good and immediately available funds.

     (e)  If a short-term product buyer enters into a contract to purchase a time share interest and all or any portion of the amount paid by the short-term product buyer for a short-term product shall be applied to or credited against the price of a time share interest then neither the developer nor any other party, including but not limited to the short-term product seller, shall be required to deposit in an escrow account, pursuant to section 514E-16, any amounts received by the short-term product seller under the contract to purchase the short-term product.

     (f)  Short-term products offered by the developer or an affiliate of the developer of a time share plan registered pursuant to this chapter shall not constitute travel services for purposes of chapter 468L.

     §514E-B  Release of purchaser's funds pursuant to bond or letter of credit.  (a)  Notwithstanding the requirements of sections 514E-16 and 514E‑17 or chapters 514A and 514B, the developer of a time share plan may be entitled to the release, prior to closing, and after the expiration of the purchaser's seven-day cancelation period under section 514E-8, of ninety per cent of a time share purchaser's funds from escrow to be used for costs associated with time share development in this State; provided that the following conditions have been met:

     (1)  The developer has deposited with the director and the escrow agent either a surety bond or letter of credit;

     (2)  The developer has not chosen to protect the purchaser from blanket liens using a lien payment trust or alternative arrangements that require the purchaser's funds to be disbursed from escrow directly to someone other than the developer upon closing; and

     (3)  After the purchaser's funds are released to the developer, the amount of the bond or letter of credit, when added to the amount of the purchaser's funds remaining in escrow, will in the aggregate equal or exceed the amount of purchaser's funds that would otherwise be held in escrow.

     (b)  A surety bond filed with the director pursuant to subsection (a) shall be issued by a bonding company that is authorized to do business in the State and is not affiliated with the developer.

     (c)  A surety bond filed with the director pursuant to subsection (a) shall provide that where the developer has failed to refund deposits as required by chapter 514E or agreements with purchasers or has failed to transfer deposits into the escrow agent's escrow account when required under the escrow agreement, either the director or the escrow agent may declare the bond in default and the surety is required to refund deposits that are due and payable to purchasers of time share interests, or transfer deposits that are to be transferred into the escrow account as required, within thirty days by the surety as a debt to the director or escrow agent.

     (d)  If a developer fails to refund a purchaser's funds pursuant to this chapter, including a refund due pursuant to sections 514E-8, 514E-11, 514E-11.1, 514E-11.3, or 514E-17, then within thirty days after receipt of a demand by the State or the escrow agent, the surety shall deposit with the escrow agent funds sufficient to pay any refunds due and payable to purchasers that the developer has failed to pay.  If the surety disputes: 

     (1)  Whether the developer has failed to refund a purchaser's funds as required by this chapter;

     (2)  The amount of the refunds due and payable to purchasers; or

     (3)  Whether the surety is otherwise obligated to make payment under the bond or the extent to which a payment under the bond shall be made;

the surety may, concurrently with the deposit of the funds with the escrow agent, demand that the escrow agent commence an action for interpleader and deposit the disputed bond proceeds with the circuit court.  In the event that the surety demands an interpleader action, the disputed proceeds of the bond shall not be disbursed to any person other than the court or as directed by order of the court.

     (e)  A letter of credit filed with the director pursuant to subsection (a) shall be:

     (1)  Irrevocable; provided that the letter of credit may be amended or canceled with the approval of the director; provided further that the director shall not unreasonably withhold or delay approval;

     (2)  Payable at sight upon presentation by the State or the escrow agent; and

     (3)  Issued by a financial institution acceptable to the director or by a federally insured bank or savings and loan association.

     (f)  The developer shall deposit with the escrow agent a copy of each purchaser's purchase agreement at the time when the developer is required by section 514E-16 to deposit the purchaser's funds, negotiable instruments, and purchase money contracts into escrow.

     (g)  Upon the closing of the escrow for the sale of a time share interest, the remainder of the purchaser's funds held in escrow pursuant to subsection (a), if any, shall be disbursed in accordance with section 514E-18.

     (h)  If a purchaser is entitled to receive a refund of the purchaser's deposits pursuant to this chapter, the amount of such refund shall not be reduced to pay the cost of any surety bond or letter of credit that the developer has deposited with the director and the escrow agent pursuant to subsection (a).

     (i)  If the escrow agreement permits the release of purchasers' funds pursuant to subsection (a), the disclosure statement required by section 514E-9 shall contain the following disclosure:

"Important Notice Regarding Your Deposits:  Deposits that you make under your sales contract for the purchase of a time share interest may be disbursed before closing of your purchase and may be used for any costs associated with time share development in this State.  Disbursed funds are not required to be used to pay for costs of construction and development of your time share units or your time share plan.  The escrow agent cannot disburse your deposits unless the developer has deposited with the escrow agent either a surety bond or letter of credit.  These provide for the deposit of funds into the escrow account if the developer fails to deposit any funds required to pay any refund that the developer is required to make to you under the Hawaii Time Share Act pursuant to Chapter 514E, Hawaii Revised Statutes.  IF THE SURETY BOND OR LETTER OF CREDIT IS NOT HONORED, THERE IS A RISK THAT YOUR DEPOSITS WILL NOT BE REFUNDED TO YOU.  You should carefully consider this risk in deciding whether to proceed with your purchase."

     §514E-C  Closing deadline.  A sales contract for the sale of a time share interest shall specify a deadline by which the closing of the sale must occur.  The closing deadline may be a specific date, or the expiration of a period of time after the sales contract is signed or becomes binding.  The closing deadline shall not exceed twenty-four months from the date that the sales contract is signed unless a longer period is approved by the director.  The purchaser may cancel the sales contract at any time after the specified closing deadline, if the closing does not occur on or before the closing deadline.  A purchaser may exercise the right to cancel pursuant to this section by mailing or delivering a written notice to the developer that the purchaser is canceling the contract.  The written notice shall be sent to the developer at the address specified on the contract, or at such other address as the developer may designate by written notice to the purchaser in accordance with the notice provisions of the sales contract.  The developer may designate by written notice to the purchaser in accordance with the notice provisions of the sales contract.  The developer shall send written notice to the purchaser of any change in the developer's address, and the purchaser shall send written notice to the developer of any change in the purchaser's address, each in accordance with the notice provisions of the sales contract."

     SECTION 3.  Section 514E-1, Hawaii Revised Statutes, is amended as follows:

     1.  By adding five new definitions to be appropriately inserted and to read:

     ""Accommodation" means any apartment, condominium or cooperative unit, cabin, lodge, hotel or motel room, or other real or personal property suitable and intended to provide overnight lodgings for one or more individuals.

     "Conspicuous type" means type in upper and lower case letters, two point sizes larger than the nearest nonconspicuous type, exclusive of headings, on the page on which it appears and in no less than ten-point type.

     "Short-term product" means a contract that provides the buyer a one-time allotment of use nights or points that in either case shall be used within a period not to exceed three years and that includes an agreement that all or a portion of the consideration paid by a person for the short-term product shall be applied to or credited against the price of a future purchase of a time share interest or that the cost of a future purchase of a time share interest shall be fixed or locked in at a specified price.  A short-term product shall not constitute a time share interest.

     "Short-term product buyer" means an individual who has entered into a contract to purchase a short-term product.

     "Short-term product seller" means the developer of a short-term product."

     2.  By amending the definition of "notice of time share plan" to read:

     ""Notice of time share plan" means an instrument executed by the holder of the legal and equitable title to the fee or long-term leasehold interest in a time share unit, and which provides notice of the existence of the time share plan and of rights of owners.  [The notice of time share plan must identify the use period for each time share interest and the name of the initial purchaser thereof.]  If the time share unit is located outside the State, the notice shall be contained in a declaration of covenants, conditions, and restrictions which provide that the notice shall, as a matter of covenant, have the effects described in section 514E-21.  The declaration of covenants, conditions, and restrictions must be prepared so as to (i) constitute a covenant running with and an equitable servitude upon the time share units for the duration of the time share plan, and (ii) have the effects described in section 514E-21."

     SECTION 4.  Section 514E-10.2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Notwithstanding any other provision of this chapter, the director may issue a limited permit to a developer permitting the offer or sale, in this State, of an additional interest in a time share plan to an existing purchaser in the same time share plan; provided that:

     (1)  The developer or an affiliated entity of the developer has a time share plan currently registered with the director; provided that the registration was originally approved or amended within seven years from the date of the offer or disposition, and the registration has not been terminated or withdrawn;

     (2)  The developer has not, during the two-year period preceding the time of the offer, had a time share registration suspended, restricted, or revoked in any state or been convicted of an offense involving fraud or dishonesty.  In the event the developer satisfies the requirement of paragraph (1) above through an affiliated entity, the developer has not, during the twenty-year period preceding the time of the offer, had a time share registration suspended, restricted, or revoked in any state or been convicted of an offense involving fraud or dishonesty;

     (3)  In satisfaction of the disclosure requirements of section 514E-9, the purchaser is provided the time share disclosure documents the purchaser would have received if the purchase had occurred in the state or jurisdiction where the purchaser initially purchased the time share interest;

     (4)  The contract for purchase signed by the purchaser includes a notice that is the same as or similar to the rescission notice required pursuant to section 514E-9(a)(7); provided that the rescission period shall be at least seven days;

     (5)  All funds and any negotiable instruments received during the seven-day rescission period shall be placed in an escrow account in the State.  The escrow agent shall be a bank, savings and loan association, or trust company authorized to do business in the State under an escrow arrangement or a corporation licensed as an escrow depository under chapter 449.  The funds or negotiable instruments may be released from escrow; provided that the release is in accordance with section 514E-17, [or] 514E-18[.], or 514E-B.  Any escrow account established for any out-of-state time share plan offered under this subsection may be maintained in the state where the time share plan is located after the seven-day rescission period has expired; provided that the escrow agent submits to personal jurisdiction in this State;

     (6)  The contract for purchase shall contain the following statement in conspicuous type:

          "THIS TIME SHARE PLAN HAS NOT BEEN REVIEWED OR APPROVED BY THE STATE OF HAWAII BECAUSE YOU ALREADY OWN AN INTEREST IN THIS TIME SHARE PLAN AND BECAUSE                           (DEVELOPER OR AFFILIATE'S NAME) HAS A TIME SHARE PLAN CURRENTLY REGISTERED WITH THE STATE OF HAWAII (INCLUDE REGISTRATION #).  (IF APPLICABLE)(AFFILIATE) IS AN AFFILIATED ENTITY OF THE SELLER AS THE TERM IS DEFINED IN CHAPTER 514E, HAWAII REVISED STATUTES."; and

     (7)  The offer complies with the provisions of sections 514E-11(2) to 514E-11(9), 514E-11(11) to 514E-11(13), and 514E-11.1."

     SECTION 5.  Section 514E-16, Hawaii Revised Statutes, is amended to read as follows:

     "§514E-16  Deposit of purchaser's funds, notes, and contracts into escrow.  (a)  All funds and any negotiable instruments and purchase money contracts received before closing from or on behalf of purchasers or prospective purchasers in connection with the purchase or reservation, in the State, of time share interests must be placed in an escrow account.  However, the developer or a sales agent may hold, until the expiration of the seven-day-[cancellation] cancelation period provided by section 514E-8 or any longer purchaser [cancellation] cancelation period provided in the sales contract, a negotiable instrument, or purchase money contract made by a purchaser:

     (1)  For which subsequent holders cannot claim holder in due course status within the meaning of article 3 of chapter 490; or

     (2)  Where the payee is:

         (A)  The escrow agent; or

         (B)  The trustee of a lien payment trust.

     (b)  The escrow agent must be a bank, savings and loan association, or a trust company authorized to do business in the State under an escrow arrangement or a corporation licensed as an escrow depository under chapter 449.  [However, in connection with sales made out of the State for the use of time share units located in the State, the escrow agent may be located in and the purchasers' funds, negotiable instruments, and purchase money contracts may be impounded in the jurisdiction where the sale is made, if the law of such jurisdiction requires it.  In such event, the out-of-state escrow agent shall be subject to the approval of the director.]

     (c)  The establishment of such an escrow account shall be evidenced by a written escrow agreement between the developer and the [in-state or out-of-state] escrow agent.  The escrow agreement must provide for the handling of purchaser's funds, negotiable instruments, and purchase money contracts as required by this chapter and must contain any provisions required by rules adopted by the director pursuant to chapter 91.

     (d)  A developer or an affiliate of a developer who provides purchase money financing to a time share purchaser shall deposit into the escrow account established under subsection (a) all loan payments made by the purchaser prior to closing.  Such deposit shall be made no later than the last to occur of:

     (1)  Seven business days after receipt of the payment by the developer, an affiliate of the developer, or the developer's or affiliate's servicing agent; or

     (2)  Seven business days following the date upon which any payment made prior to closing becomes good and immediately available funds.

Thereafter, the payments may be released from escrow; provided that the release is in accordance with section 514E-17, 514E-18, or 514E‑B."

     SECTION 6.  Section 514E-30, Hawaii Revised Statutes, is amended to read as follows:

     "§514E-30  Scope of chapter.  (a)  This chapter applies to the offer and sale in Hawaii of time share interests in time share units located in Hawaii.  If time share units are located outside of Hawaii, but any offer or sale is made within the State, this chapter, except for sections 514E-3, 514E-4, 514E-5, 514E-6, 514E-7, 514E-10(c), and 514E-14, shall apply.  As to the offer and sale outside of Hawaii of time share interest in a time share plan which includes time share units located in Hawaii, this chapter, except for sections 514E-2.5, 514E-8, 514E-9, 514E-10(b), 514E-11, and 514E-11.1 shall apply.

     (b)  This chapter applies to the offer and sale in Hawaii of short-term products.  This chapter does not apply to the offer or sale of short-term products outside of Hawaii, regardless of whether the short-term product buyer shall have the right to use accommodations in Hawaii."

     SECTION 7.  In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

     SECTION 8.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 9.  This Act shall take effect on July 1, 2112; provided that:

     (1)  Sections 514E-B and 514E-C of Section 2 of this Act shall be repealed on July 1, 2020; and

     (2)  Sections 4 and 5 of this Act shall be repealed on July 1, 2020, and Sections 514E-10.2 and 514E-16, Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day prior to the effective date of this Act.


 


 

Report Title:

Time Sharing; Time Share; Short-term Product; Right to Cancel; Purchasers; Developers; Bond; Letter of Credit

 

Description:

Provides cancellation rights to persons who contract to buy a short-term product in Hawaii.  Allows disbursement of purchasers' funds to a developer; provided that the developer first posts a bond or letter of credit.  (HB271 HD2)

 

 

 

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