Fractional Association – Frequently Asked Questions
Is a fractional syndicate shared ownership scheme another term for timeshare?
No, it is generally quite different to timeshare.
Fractional ownership is an equity ownership position where syndicate members own the asset outright between them.
Timeshare is based on fixed periods of usage only, with no asset value proposition and no return on their investment when they exit. Syndicate ownership generally gives shareholders greater periods of usage coupled with the benefit of a stake in the asset, which they can sell at any stage to get a large return on their initial investment – just as single owners of an asset can.
Fractional syndicate ownership is therefore considered to be quite opposite to timeshare, as the syndicate is a better balance of cost and usage sharing, and offers much greater levels of control to each individual shareholder owner than timeshare generally does.
What are the benefits of the syndicate program?
It is not only the corresponding fractional reduction in the initial investment that represents a large saving for any syndicate member, but the on-going maintenance cost of the asset. Since most people typically use their yacht, vacation home or aircraft on average less than five weeks per year, syndicate membership helps to match operational cost of the asset with actual usage time.
Who is fractional syndicate membership suitable for?
It is ideal for those who do not want the financial commitment of an outright purchase of an asset for their limited likely usage.
Anyone who has chartered a yacht or rented a holiday home for a couple of weeks a year, but would like to spend more time doing so in the future, will find a syndicated share very advantageous, as it provides much greater certainty of quality standards, at significantly lower cost.
It is also appeals to those who could purchase a smaller asset outright, but who find that a much less attractive proposition than part-ownership of a far more luxurious yacht, aircraft or holiday home.
Should one get legal advice about syndicate membership?
The Fractional Association itself does not offer legal advice, but can suggest a number of reputable specialist firms who can give you impartial advice on this kind of arrangement. Many syndicates have a fixed syndicate agreement that cannot be altered for each independent shareholder, but it is nevertheless recommended that legal advice is sought when entering into any contract for substantial expenditure.
Should one have an independent survey of the asset before committing?
Subject to use and scheduling any syndicate should welcome and independent inspection, at the expense of any prospective new owner. However, before committing to that expense you may find that the syndicate themselves or other owners have a recent survey you could have access to.
Is it possible to finance the asset?
Generally not as all the syndicate would be jointly and severally liable and it makes it much more difficult for a single owner to exit the scheme as a new finance agreement would have to be agreed for the sale of that share to take place.
Can one rent/charter or have friends/family use a share?
Generally yes. However many syndicates have restrictions on money changing hands for substitute usage as that would constitute a charter or rental, which often has implications on the insurance and permitted use licence of the asset.
What about VAT and Sales Tax?
The location and type of asset generally determines the nature of any taxes due, rather than an owners tax residency status.
For yachts in EU or US waters it is important to check that the correct sales tax is paid on the vessel and appropriate for its intended use. Likewise for property, there are varying taxes applicable in each local jurisdiction. The syndicator should have detailed information on the taxes due and the taxes paid on the asset, which should be checked against similar assets in similar locations. A local yacht broker or estate agent may be able to advise you on such matters.
How much routine paperwork would I have to get involved with?
One of the advantages of buying into a syndicate is that there can be less on-going paperwork or management oversight needed by the members, unless they choose otherwise.
As a syndicate member, there are generally fewer routine individual ownership duties as a professional subcontractor, on behalf of the syndicate, generally performs them centrally, often because of language complexities.
Owners tend to pay for their share of the operating costs into the syndicate’s bank account periodically.
Owners may need to check the syndicate’s private website occasionally and indicate to the management when they would like to use the asset. Generally, the management company deals with everything else.