Council modifies timeshare definition to include fractional ownership, amendments head to CCC
By SARA HALL
City Council this week agreed to modify the definition of timeshare to clearly include fractional ownership.
Council voted 7-0 on Tuesday (May 9) in support of several code amendments related to timeshares. As a timeshare use, fractional homeownership would be prohibited in all residential zoning districts and only allowed in certain commercial and mixed-use zoning districts subject to existing timeshare regulations.
Council approved the staff-recommended action to define timeshare plan to mean “any arrangement, plan, scheme, or similar device” that limits the owner to the right for “exclusive use of real property, or any portion thereof” for “less than a full year during any given year, on a recurring basis for more than one year.” This means the use of any real property in which an owner has exclusive use of said property for less than the full year would be classified as a time share.
It was specifically crafted to capture the fractional homeownership model, staff emphasized. It does not restrict the fractional ownership of the property, but rather it would apply to the use of the property, which is within the city’s zoning powers.
“We’re not proposing to regulate ownership, that’s not what this is at all, it is a very specific use, we’re trying to regulate the use of it,” said Community Development Director Seimone Jurjis.
They don’t want to regulate friends and family having LLC, trust, or estate together, he added.
“That’s not what this is,” he reiterated.
The ordinance is very focused on fractional homeownership, he said.
The city has had several robust discussions on this topic over the last year and a half, said Principal Planner Jaime Murillo. They’ve talked with the public, representatives from fractional ownership companies, and a consultant, who prepared a comprehensive study on the topic.
At the February 23 Planning Commission meeting, an ad hoc committee made some basic recommendations on regulations, but declined to suggest specifics on several points.
On March 14, City Council unanimously approved broadening the definition of timeshares to include fractional homeownership. Councilmembers agreed to move forward with city staff’s “preferred recommendation” to change the definition as described in city code. Staff noted that, as a timeshare use, fractional homeownership would effectively be prohibited in all residential zoning districts.
Most recently, on April 20, the Planning Commission unanimously approved the modified definition of timeshares and gave added direction to staff about wordsmithing the language to address some of their specific concerns, primarily regarding multi-generational family-owned homes.
At the April Planning Commission meeting, commissioners also suggested two additional changes for council consideration: 1) prohibit advertising time shares for sale, and 2) clarify timeshare definitions to exclude shared vacation homes by family or friends so that it is clear what is not intended.
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Photo by Kevin Pellon (Instagram @socalsnapz)
As a timeshare use, fractional homeownership would be prohibited in all residential zoning districts
Fractional homeownership is when multiple owners purchase a property and split the allowed time at the property through a formal arrangement. It’s not a new concept – it’s fairly common with real estate among a group of friends or family members – but it’s gaining popularity online through agreements between strangers and managed by third-party companies.
Properties are often purchased under a limited liability corporation and shares of the real estate are typically 1/8 ownership or greater. An online calendar usually helps organize the various co-owners’ use of the property, typically limited to no more than 30 days at a time.
An operating agreement is used to manage the property and usage plan. Owners share property costs, including maintenance, management, HOA, cleaning, tax, utilities, insurance and reserve fund costs.
The changed definition closely mirrors the definition that’s defined in the state’s Business and Professions Code, Murillo said.
He explained that there are four main conditions that must be triggered in order to be defined as a timeshare:
–The use of an accommodation (he noted that it needs to be real property, like a residential unit, it does not include boats or planes).
–Pursuant to a plan (some kind of formal arrangement).
–Involves a purchaser, in exchange for consideration.
–The exclusive right to use the accommodation for less than one year, on a recurring basis for more than a year.
The second component of the amendment is updating the city’s existing timeshare regulations, Murillo said.
“For the most part, we’re maintaining the existing framework, they’re just small revisions for consistency with the new modified definitions,” he explained.
Timeshare uses would continue to be prohibited in all residential zoning districts and permitted in certain commercial and mixed-use zoning districts (subject to certain conditions).
Based on feedback from the Planning Commission and the public, staff made an additional modification to prohibit any person, including owner, agent, or broker, from: Establishing a timeshare; converting any unit into a timeshare; advertising for sale a timeshare, or managing a timeshare.
This would only apply to new uses after the effective date of this ordinance. Existing units would not be subject to this new regulation, Murillo confirmed.
Staff also made a last-minute change to the code, in response to comments the city received on Tuesday from an attorney representing Pacaso, to clarify that the intent of the prohibition on the advertisement of prohibited timeshares is aimed to apply to persons that would benefit or receive economic benefit from the sale of a timeshare, Murillo explained.
“This is intended to apply to a broker or real estate agent that would benefit from the sale of one of these prohibited timeshare units, but it’s not intended to apply to someone that simply is reposting a social media post,” Murillo said.
The final component of the amendment is an update to a section related to visitor accommodations (which includes timeshares) within the city’s LCP to clarify that new development as well as creation (which includes conversion from existing uses) would be subject to these regulations. They are also adding language that clarifies that the conversion of existing dwelling units into timeshares is prohibited, Murillo said.
The 12 known existing fractional homeownership locations in the city would be grandfathered in as legal nonconforming uses, he noted.
While only a handful of people spoke during public comment (compared to dozens at previous meetings), nearly all were in support of the item and encouraged the council to regulate fractional homeownership use.
Longtime resident Paul Watkins offered some straightforward comments on what a majority of locals want.
“We simply want to sustain the quality of life that we have here in the city, that we’ve all worked hard for: The tranquility, peacefulness (and) predictability,” he said. “What we don’t want is: Move in, party, move out, repeat. That’s what we want to avoid.”
Newport Island resident Gina Cruz agreed. She pointed out that Pacaso (a company that facilitates and manages fractional homeownership agreements, and has been the most vocal industry voice during the city process) representatives have claimed their model is “the same as everybody else,” Cruz said, like a tenants in common agreement, yet their proposed alternative ordinance suggested 500 permits.
“Which is it? Is it the same? If so, why do you need a permit? If not, say it’s not,” she said. “To me, it’s a lot of hot air and it’s a lot (like) a wolf in sheep’s clothing.”
She understands Pacaso’s position, she added, but they’re saying one thing and doing another.
“They’re trying to have the cake and eat it (too),” Cruz said.
The only speaker opposed to the item was Purvi Doshi, senior public affairs manager for Pacaso, U.S. West.
“We believe the two ordinances before you tonight are unlawful and should not be adopted,” Doshi said, referencing the letter the company’s attorney submitted to the city.
She asked the council to “make a commitment to protect property rights” and deny the ordinance. She understands the council’s goal to address community concerns, but the staff recommended ordinance doesn’t work.
“These ordinances before you tonight miss the mark,” Doshi said.
She also reminded them that Pacaso proposed an alternative ordinance for the city’s consideration which “presents common sense regulations and preserves property rights.”
“Should the city have any interest in exploring other regulatory options, we continue to be resource and partner in the endeavor,” Doshi concluded.
Several other speakers supported the staff recommended ordinance, but also suggested the city simplify what gets submitted to the California Coastal Commission. It would help speed the process along, people pointed out. A few were concerned about the lag that usually happens between the city submitting an application to the CCC and the state agency actually taking a recommendation to the Coastal Commission and the Coastal Commission actually voting and taking action.
Councilmember Robyn Grant, in response to the public’s comments, asked staff to clarify the timeline and assure the community about the next steps that will “move the needle on this.”
They definitely Understand the urgency in this matter, Murillo confirmed. They’ve already had some informal discussions with CCC staff, he noted.
“They understand our position and, generally, support our position,” Murillo said.
They’ve also emphasized the need to accelerate the review of the amendment, he added, so they also discussed the idea of a de minimis amendment, which is how they plan to submit it tot the CCC. That would allow the approval process to be as short as two months, Murillo explained. Once they determine that the amendment is de minimis they will schedule it for a hearing.
If the CCC determines that it doesn’t meet the findings for de minimis amendment, then there’s two options, Murillo added. They can process it as a minor amendment or a major amendment. The regulations state they have a total of 60 days to review the city’s LCP amendment, but they typically ask for a one-year extension. In the past, the city has worked with them to expedite that review and prioritize an item (like they did with short-term lodging) over other Newport Beach amendments in the queue for CCC review.
“That would be kind of our Plan B strategy, but our primary strategy is to try to get it approved as a de minimis amendment,” Murillo concluded.
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Sara Hall covers City Hall and is a regular contributor to Stu News Newport.