Can HOAs Regulate Fractional Ownership?

Here's an interesting article where a Tahoe HOA makes remarks about regulating or eliminating fractional ownership in their development to preserve the status of the community. For some time now, HOAs in certain resort areas have put in place conditions, covenants and restrictions (CC&Rs) that prohibit the sale of timeshares within a development. However, the difference between timeshare and fractional is vast. In my opinion, HOA or municipality attempts to regulate fractional are erroneously rooted: (1) in a misunderstanding of the definition of fractional ownership (they think it's timeshare); and (2) in fear that the "caliber of the neighborhood" will degrade due to the influx of fractional buyers perceived as being lower class.



Of course, fractional ownership is NOT timeshare. See my post on March 12, 2008 and the article by fractional owner / attorney John Gosselin. I'm still formulating my reasons why I believe an HOA or municipality probably can not legally eliminate fractional ownership from a development. My initial thoughts are: (1) CC&Rs and zoning ordinances restrict the use of property, not the form of holding title; (2) If such a CC&R or zoning ordinance was passed, it would be overbroad and effect all co-owned property in the development; and (3) attempts to distinguish those fractional owners who have a formal co-ownership system for use from those who don't will be patently discriminatory. If your HOA is considering such amendments to its governing documents please contact me, as I'd be very curious to learn what their justification is. More on this in future posts as I predict that this will be a very hot topic when fractional projects continue to sprout in exclusive gated communities across the nation in resort areas.

As for the fear that here come the fractional buyers and "there goes the neighborhood" - I find this personally distasteful and factually baseless. What evidence is there that fractional ownership would in any way degrade a community? None. In fact, there is ample evidence to the contrary. Many fractional owners actually can afford a whole property in such developments but choose not to put all their eggs in one basket and instead buy multiple fractions in various geographic locales. In addition, fractional ownership has been shown to actually assist the local economy by keeping a second home occupied a higher percentage of the year and thereby keeping local merchants busier in the slow seasons. Remember, that the fractional owners are "owners" not renters or visitors. Owners, even of fractions, take pride of ownership because they have a significant investment at stake.