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Published On: Sat, Sep 26th, 2020

Supreme Court sends Alegria/TOCA timeshare case back to the Court of Appeals for a new ruling

PHILIPSBURG – The Supreme Court of the Netherlands ruled on Friday that Alegria Real Estate does not have to honor the rights of timeshare-owners at the former Caravanserai Beach Resort. The timeshare-owners, united in the Timeshare Owners at Caravanserai Association (TOCA) may yet see their investments go up in smoke, after the Court of Appeals had still ruled in their favor in December 2018.

The Supreme Court reversed this ruling and has now sent it back to the appeals court for a new ruling.

The judgement of the Supreme Court ruling can read (in Dutch) online here: http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:HR:2020:1499

Kildare Properties developed the Caravanserai Beach Resort in 1996 in Beacon Hill. It established two entities to run the business: Island Hotel Corporation (to manage the hotel activities) and Endless Vacation (to manage the sale of timeshares). Scotiabank financed the project and Kildare, Island Hotel and Endless Vacation transferred all their income from the resort as collateral to the bank. Between 1996 and 2013 Endless Vacation sold more than 2,000 timeshares.

In 2013, Scotiabank called in the resort’s debts and on August 13, 2014, Alegria bought the rights of long lease and the rights of apartment at an auction for $14 million US Dollars. In a letter dated September 30, 2014, Alegria invoked the annulment of all timeshare-contracts. “Alegria is not bound by these agreements and you are no longer entitled to make use of the timeshare unit or any related timeshare exchange programs,” the letter stated.

The timeshare-owners were outraged and petrified. They formed an association to fight the decision and went to court. In December 2018, the Common Court of Justice ruled in their favor: Alegria was forced to respect the timeshare-contracts, providing that the timeshare-owners paid their maintenance fees.

The Supreme Court examined whether the rule that purchase does not break lease-agreements applies, considering that the timeshare-owners had a contract with Endless Vacation and not with Kildare Properties.

The Supreme Court ruled that this rule does not apply when a property is transferred to a new owner by another party than the lessor. “The rule only applies when the lessor is also the owner of the property,” the ruling states.

The Parliament of St. Maarten approved the Timeshare Ordinance but it has not yet been ratified and implemented. The ordinance contains an article that aims to protect timeshare-owners when a property is sold by a party that is not their direct contract-partner. This is the case with the Caravanserai sale: Kildare was the owner and Endless Vacation was the contract partner of the timeshare-owners.

The Supreme Court acknowledges that the owner of the right of long lease (Kildare) and the company that leased and sold the properties (Endless Vacation) belong to the same group. “Splitting the entity that held the right of long lease and the entity that leased accommodations was exclusively inspired by the group’s interest (and possibly those of the bank),” the ruling states. “The timeshare-owners had no part in this and in many cases they will not have been aware of this.”

The result of all this, the ruling states, is that with the auction of Kildare Endless Vacation also disappeared and that Endless Vacation was incapable of providing the agreed upon lease-rights; it also did not offer any redress for claims from timeshare-owners.

The Supreme Court ruling confirms that when Alegria bought the resort at auction in 2014 it did not also buy the rights and obligations of Endless Vacations towards the timeshare-owners. “It was the bank as creditor of Kildare – and therefore not Endless Vacation or the bank as its creditor – that transferred the rights to Alegria.”

The ruling sets the protection-article from the local Timeshare Ordinance aside, because it deviates too strongly from applicable law and because it is unclear if and when the ordinance will be ratified.

The attorneys for Alegria – Chris de Bres, Eric de Vries and Chris van Amersfoort of HBN Law & Tax – stated in a press release that Alegria is “extremely pleased” with the ruling. “All efforts can now be directed towards the development of the Alegria-owned Morgan Resort with an opening day slated for March 1, 2021, a five star development with a $100 million investment and employment opportunities for 500 St. Maarten citizens.”

Attorney Hans van Wijk of Pels Rijcken assisted the HBN lawyers with the procedure at the Supreme Court.

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Publisher’s Note: Femke Jansen, whose office of LEXWELL Attorneys at Law is representing the timeshare owners disagrees with the synopsis presented in the press release issued by HBN Law & Tax. She wrote to StMaartenNews.com: “Unfortunately, it is inaccurate.”

“In essence, the following two paragraphs are partially inaccurate,” she explained.

In this landmark case, the Supreme Court in essence ruled that (i) the rights and obligations of the former lessor based on the timeshare agreements did not pass to Alegria on the basis of art. 7:226.2 of the Civil Code, (ii) the draft St. Maarten Timeshare Ordinance does not apply to this case, and (iii) Alegria is also not obligated to comply with the former lessor’s obligations based on tort or good faith.

The prior judgment of the Court of Appeals has been set aside, with the case referred to the Court of Appeals for finalization.

According to Jansen, a more accurate synopsis would be as follows:

In this case, the Supreme Court in essence ruled that the rights and obligations of the former lessor based on the timeshare agreements did not pass to Alegria on the basis of art. 7:226.2 of the Civil Code, because the resort’s buildings were auctioned by a creditor of the entity that owned the property and not by a creditor of its sister company that sold the timeshares. The draft St. Maarten Timeshare Ordinance could not be relied upon, because it has not come into force as yet.

The Supreme Court furthermore ruled that Alegria may be obligated to comply with the former lessor’s obligations based on tort or good faith, if the specific, extraordinary circumstances warrant so. The Court of Appeals had ruled that such extraordinary circumstances did exist, however, did not sufficiently motivate that decision, according to the Supreme Court. The Court’s decision only relied on the fact that Alegria was aware of the timeshare agreements when it purchased the resort at the auction, which is insufficient to carry its conclusion. The Supreme Court adds that there may be other circumstances that can carry that conclusion and, therefore, refers the matter back to the Court of Appeals for a new ruling on this matter.

“Thus, a final outcome of the case is still to be awaited.” stated Jansen.

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Press release HBN Law: Supreme Court of the Kingdom of the Netherlands rules in favor of Alegria in TOCA timeshare case




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