Performance Period: Pre-Construction Discount Addenda do not Permit Timeshare Vendors to Indefinitely Delay Construction |[OH CT APP]|

In 2008, a timeshare purchaser entered into a contract with a Lake Erie resort vendor for a right to use a certain unit one week every even year, beginning in 2008. The unit, however, was not yet constructed. In conjunction with the timeshare contract, the purchaser signed a pre-construction discount addendum, which provided the following:

“I understand and acknowledge that my timeshare unit may be under construction at the time I elect to make my exchange or stay. In that event, [the vendor] may substitute a two bedroom unit, until my unit is complete. I acknowledge that I received a pre-construction discount in exchange for my agreement to the above.”

Two years later, the purchaser bought another timeshare interest to begin in 2010. The vendor had not yet built that unit either. Like the first contract, the purchaser executed a similar pre-construction discount addendum.

Over the following six years, the vendor delayed the construction of both units. Meanwhile, the vendor offered substitute units, per the pre-construction addenda, to the purchaser in 2008, 2010, 2012, and 2014.

In 2014, the purchaser sued the vendor for breach of contract for failure to complete construction. Before trial, the vendor’s president stated during a deposition that construction of the units was actually conditioned upon selling enough timeshare interests like the ones the purchaser bought. Specifically, he admitted that the “purchased units identified in the agreements may never be constructed at all unless some unidentified percentage of the building was sold.” The purchaser argued that because the contract was silent on this condition, any reasonable person would have understood the contracts to have meant that the vendor would construct the units by 2008 and 2010 respectively. This condition led the purchaser to additionally sue for the vendor’s violations of the Consumer Sales Practices Act (CSPA) which provides that “no supplier shall commit an unfair, deceptive or unconscionable act or practice in connection with a consumer transaction.”

At trial, the vendor moved for summary judgment based on the assertion that the pre-construction addenda clearly indicated that construction might not be complete by the contract dates and, therefore, offered the purchaser a substitute unit. The vendor also asserted that the contracts’ integration clauses foreclosed the purchaser from relying on any evidence of possible completion dates not found within the contracts. Lastly, the vendor rebutted the CSPA violation claim by showing that it does not apply to real estate transactions such as the sale of timeshare property interests. Overall, the trial court agreed with the vendor and granted it summary judgment against the breach of contract claim and all those asserting CSPA violation. The purchaser appealed.

In KNIGHTEN v. ERIE ISLANDS RESORT & MARINA, 2016-Ohio-7108, 2016 WL 5788928 (Ohio Ct. App., Ottawa County Sept. 30, 2016), the Sixth District Ohio Court of Appeals reversed the trial court’s breach of contract decision yet upheld its summary judgment award against the CSPA violation claim regarding the timeshare purchase contracts. Responding to the purchaser’s breach of contract claim, the appellate judge disagreed with her claim that the construction completion date could be inferred from the dates in which her right to use the units began. The judge stated that the plain and ordinary language of the pre-construction addenda clearly indicated that construction need not have been completed by 2008 or 2010. However, the appellate judge did find issue with the contracts’ silence on the construction condition and lack specified completion dates. Generally, performance in a contract cannot remain incomplete indefinitely without an agreement stating otherwise. The judge stated that when a performance period is not specified, courts can imply that the parties intended on performing within a reasonable time. Reasonable time, the judge said, is a fact-based issue that requires further review during trial. Consequently, the Sixth District reversed the trial court’s summary judgment award against the breach of contract claim and remanded the case back to the trial court to determine the performance time.

Regarding the CSPA violation claim, the court agreed with the trial court’s finding that a timeshare is a real estate property interest to which the CSPA does not apply.

Best Practices:

1. Unless specified, courts can imply a performance deadline if not specified within a contract – The appellate court cited the rule that “when the performance period of a contract is undefined, the law implies that the parties intended and agreed that performance will take place within a reasonable time. Stewart v. Herron, 77 Ohio St. 130, 147 (1907).
2. “Reasonable time” is an objective standard that courts should look elsewhere within a community to determine – The court stated that “what constitutes as reasonable time for contract performance is an issue of fact determined by the conditions and circumstances which the parties contemplated at the time the contract was executed.” Stone Excavating, Inc. v. Newmark Homes, Inc., 2d Dist. Montgomery No. 20307, 2004-Ohio-4119. Although the language “conditions and circumstances” seems to implicate a subjective standard based on the parties understanding, it has been applied by using community standards outside of the contract. See Stone Excavating, Inc., 2004-Ohio-4119 (holding that the city’s two-year limitation for subdivision construction projects was a reasonable time to impose on a subdivision development project that lacked a specified performance period).
3. If construction is contingent upon something external, like the number of timeshares sold, provide for performance exceptions within the contract – As shown by the Sixth District, courts will generally imply a timeline based on the parties’ intentions. In Knighten, the court says that the vendor cannot withhold its performance indefinitely. The court’s ruling in effect forces the vendor to either construct the units or breach the contract. The court would have likely held otherwise if there was a provision in the contract stating that the construction was contingent upon x number of timeshares sold.
4. The Consumer Sales Practices Act (CSPA) does not apply to pure real estate transactions but may apply to some construction services – CSPA, or R.C. 1345, applies to personal property but not real property. However, the court in Brown v. Liberty Clubs, Inc. held that it could apply to the “services portion of a mixed transaction involving…services and the transfer of real property.” Brown v. Liberty Clubs, Inc., 45 Ohio St.3d 191, 193 (1945).

– Christian H. Robertson II

All materials have been prepared for general information purposes only to permit you to learn more about construction law. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.