The Director of Legal Services at FNTC, Philip Broomhead gives us an insight on fractional legal structures.
A property is normally divided into fractions ranging from two weeks to ¼ shares (13 weeks). Owners of larger fractions
usually have the benefit of occupying part of their fraction as fixed weeks each year and the remainder subject to a rotating period of annual use. Fractional structures can exist in perpetuity or for a shorter term, for example 115, 50 or 25 years. This will depend on the commercial objectives of the developer of the project.
A one off purchase price is normally paid for the fraction and then the owners will share the annual costs of maintenance of the property, as well as the common areas and facilities by paying an annual fee.
Fractions can be sold for stand alone real estate developments or where the accommodation is part of a holiday complex which may include a hotel and leisure facilities.
It is often complicated and expensive to divide a property into fractions and a country’s law may not provide for this to happen. In this instance, FNTC can provide different structures in order that this process can be easier to administer in the long term, cheaper to run and when an owner wishes to sell his fraction, there are minimum costs and taxes.
Normally the legal title to the whole property to be fractioned will be granted to a company, which can be owned and controlled by FNTC as trustee for the benefit of the fractional owners, who in some fractional developments form themselves into a club of owners. By this method, owners derive their fractional title through the trustee subject to a set of rules and a deed of trust. This offers the same level of protection and security to each owner that he would have had if he had an individual registered leasehold title. Depending on the country where the property is situated will dictate the type of title being granted to the company. In the UK, this would be either a freehold or long leasehold title if the fraction was being bought in perpetuity, or a shorter leasehold title if the fraction is to exist for a shorter period, for example 25 or 50 years. In the case of fixed term fractionals, there can be a mechanism whereby the trustee, on behalf of the fractional owners, sells the property on termination of the fixed usage right and distributes any net proceeds of sale to all the fractional owners registered at termination.
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