John Howell & Co

Specialist international legal advice

Fractional Ownership - better and cheaper than buying the whole property?

This content is archived.

For more up-to-date information, please see Guides Global
This content is archived. For more up-to-date information, please see Guides Global

What is Fractional Ownership?

This is simple – and complicated. 

Fractional Ownership is, at its simplest, any arrangement whereby a number of people share the ownership and use or financial benefit from a property.

We have been dealing with Fractional Ownership schemes for nearly 30 years. It's just that, 30 years ago, they weren't called Fractional Ownership schemes! In those days we called them Joint Ownership Schemes or (for our American clients) Tenancy in Common Programs.

How is Fractional Ownership different from Timeshare?

Good question! 

It depends upon the type of timeshare.

Old fashioned timeshare – what we at John Howell & Co call 'Methodist' or 'cooperative' timeshare – involved people buying a share of what boiled down to being an hotel. 

They owned it. They managed it. They used it. 

This was Fractional Ownership under another name. Unfortunately, it was often hugely over priced Fractional Ownership, sold in a decidedly 'dodgy' way.

More recent timeshare offerings have had more in common with pre-booking holidays in a major resort. 

The resorts are often owned by major hotel companies. The resort doesn’t belong to the timeshare 'investor' and they will have no say over its management. 

This is not Fractional Ownership.

It still, sadly, tends to be over priced and aggressively sold – despite over 10 years' of regulation within the UK and the EU.

Why should Fractional Ownership be of interest to YOU?

There are THREE reasons.

As a Developer

This offers a whole new market – long popular in the US and now, increasingly, in Europe.

There are people who do not want the complexity of owning a holiday home which they have to let out to others to help pay for its running costs. They will be happy to invest in a less expensive property that gives them the right to use the property of 2/4/6 weeks per year PLUS a share in the potential capital growth of the property.

There are investors who would prefer several low cost investments in several places or countries rather than one apartment in one country.

The challenge for developers: keeping your pricing structure such that the (inevitable) mark-up for setting up the Fractional Ownership project is not too high. 20% - Yes please. 50% - No thank you.

Lifestyle Owners

You will probably only have the time to use your property for a few weeks per year. What do you do with it for the rest of the time? 

If you don't need to rent it out to anyone else to help cover the costs associated with ownership, Fractional Ownership is probably not the best bet for you. It involves compromises on when you can use the property, on how it is furnished etc.

If, however, (like 80% of all lifestyle buyers) you want to generate some contribution to your expenses and you want to do that by letting the property for a few weeks each year, then Fractional Ownership may well be of interest.

Instead of paying £200,000 to buy a property and to generate, say. £10,000 per year in rental income why not buy a 1/13th share in the house (with 4 weeks occupancy per year) for, say, £20,000?

If you occupy the property during this period you will not generate any income but you will get 1/13th of any capital growth on the property and you will have to pay only 1/13th of the running costs.

For a surprising number of people, this is very attractive. A lot less aggravation. No income but no mortgage. Yet still retaining a decent amount of potential capital growth.


Many investors have limited funds. Would they rather invest all their money in one apartment or put money into a part share of several properties?

This requires a careful calculation but, in principle, diversification is a very attractive option – providing that you are not paying too much for the Fractional and that the letting potential (the net rental income) will be comparable with that in similar, non Fractional, investments.

This, in turn, means buying carefully and shopping around. 

And, of course, getting proper legal advice before buying.

How do you set up a Fractional Ownership scheme?

There are several ways. 

What is best in any situation will depend upon the country where the property is located and the place(s) where your likely buyers live. 

The best choice will, quite dramatically, reduce both the developers' and the buyers' tax bills. It will also ease all of the administration associated with running of the Fractional Ownership scheme.

In some countries there are limits upon the ways in which such schemes can be set up, sold and managed. In others you have a relatively free choice.

In some countries, unless the schemes are set up properly, you fan fall foul of the equivalent of the Financial Services Act. This is generally best avoided if possible as it makes life more complicated.

When thinking about the best structure for a Fractional Ownership scheme there are two main challenges: 

  1. What should be the legal ownership of the property
  2. How do you regulate the rights of the individual owners so that they can use the property as agreed and bear their fair share of the expenses of doing so?

In general, and where the local law makes this sensible and the law where the likely buyers live permits it, we tend to choose a UK or US based entity (owned, in turn, by the people who invested in the Fractional Ownership) to own the property and a separate owners agreement to govern each owners' use of the property.

The structures, contracts and other documents needed in these cases can be quite complicated, yet the best choice is essential.

What happens when you buy a Fractional Ownership?

You will be buying a share in a property – directly or via ownership through a company – and you will be acquiring the right to use the property, either for your personal use of for your financial benefit.

Exactly how this is done – and the tax arrangements that will apply – will vary from project to project. Getting these arrangements right will save you a lot of money when you buy and even more aggravation later on.

Another major consideration is whether the Fractional is merely for your own use and enjoyment – possibly including the use and enjoyment of your family and friends – or whether it is intended as a commercial investment with little or no personal use allowed.