Continuing the series in which our Clinic experts provide a guide to those thorny issues that can trip up the unwary. This week, Lorna Vestey on fractional ownership. What is fractional ownership? It simply means that you are buying a share of a property, which entitles you to use it for a period each year equivalent to your share. That may sound like an upmarket label for timeshare, but there is an important difference. With timeshare, you buy the right to stay for X weeks a year in a certain property over a specified number of years; it is effectively a re-saleable, pre-paid booking. Fractional ownership means you actually co-own the physical property, not just the right to occupy it.
The concept started in the US and the American website www. fractionallife.com covers it widely. There are now fractionally owned properties in glamorous spots all over the world (www.luxury fractionalguide.com). Although still in its infancy in this country, you will also find a good range of options here: you could buy a share in a Devon country cottage (www.penhavencottages.co.uk), a Mayfair apartment (www. grandresidenceclub.com) or property on the Pittormie Castle estate in Fife, part of the international Eden Club for golfers (01334 844924). Is this a good investment? Bricks and mortar do appreciate in value over the long term, and you will have something more concrete than with a timeshare.
But fractional ownership should be viewed as a lifestyle rather than financial investment. In total, the co-owners are likely to pay over the odds for their property, and there will be an annual service charge. The upside is better holiday property than you might otherwise afford, often with grounds, swimming pool and tennis courts, and, in cities, a very good location. The management company will deal with maintenance and other problems; you pay for this in your service charge, but it saves a lot of hassle. Are there any downsides? You won’t always be able to have your preferred weeks at the property. You are unlikely to obtain a mortgage, so need to be cash- buyers. And it may not be easy to sell your share, though some developers do offer a guaranteed buy-back.
You should get a survey and independent legal advice, as with any other property purchase. Make it clear to your solicitor that you expect a share in the deeds, not a sleight-of-hand timeshare. Check the services offered by the management company and that the contract with them covers all eventualities and provides a proper financial framework for the upkeep of the property, with provision for a sinking fund. Reputable developers will show you their previous schemes.
Lorna Vestey is a former partner of a blue-chip London estate agency.