Can Disney charge DVC for parking?

[ziravan]

I think you are mischaracterizing the Developer Guarantee regarding payment of dues by DVD on points that it owns. Here is the wording of the Developer Guarantee from BLT's 2017 Annual Notice:

DVD has agreed to guarantee to each Purchaser and Owner that they will only be required to pay an assessment for operating expenses of $3.3680 per Vacation Point through December 31, 2017, exclusive of ad valorem taxes which are billed separately. In consideration of this guarantee and pursuant to Florida law, DVD will be excused from the payment of its share of the expenses which otherwise would have been assessed against its unsold Ownership Interests during the term of the guarantee. As a consequence of this exemption, during the term of this guarantee, existing Owners and current Purchasers will not be specially assessed with regard to Common Expenses, except as hereinafter provided, if Common Expenses exceed the guarantee per Vacation Point amount and DVD will pay any difference between actual expenses and assessments collected from all Owners and income from other sources.
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There is also a Developer Guarantee to cover Capital Reserves expenditures.

its not that DVD only pays "if they [sic] calculated dues wrong." Instead, DVD has guaranteed that it will make up any shortfall in each Association's budget if revenues do not satisfy expenditures.

Since Member Owners account for no more than 98% of an Association's total points, there is an inherent "shortfall" in each budget for which DVD is liable. In addition, when Member Owners fail to pay dues, such as in foreclosure situations, the Developer Guarantee can make up for this lost revenue.

If DVD did not make this guarantee, it would be billed the exact same amount as any other Member Owner for the points that it owns. However, it would also mean that if there were any shortfalls in an Association's operating expenses or capital reserves, then Member Owners could be hit with a special assessment to cover any shortfalls.

I don’t think that I’m mischaracterizing it at all. This deal is far better for DVD than members.

If DVD paid dues on their points, that would likely cost them far more than a guarantee where they have operational control of the parameters in play.

Must be nice.

Members would likely have a far better guarantee if DVD had to pay dues like the rest of us. As the largest dues payer, then they’d have a vested interest in keeping dues down without triggering assessments.

As it stands, this deal advantages DVD to overestimate dues in order to prevent a shortfall that they would have to guarantee.

By the terms of this deal, DVD is exempted on the front end while having complete control over having any obligation on the back end. I don’t think this guarantee has member’s interests at heart coming or going. By cutting themselves out of paying dues, DVD removes any financial incentives they would otherwise have to keep dues down. Moreover, to protect against having to make up a shortfall, this deal encourages DVD to “aim high” when setting dues that, as the largest point holder, they nevertheless won’t have to pay.

Florida law allows this. I concede this is a trade off in requiring developers to hold points in inventory; the law also gives them the opportunity to avoid dues on points they must keep by law. The purpose of the holdover is to be able to take rooms out of service as need be and you can’t recoup dues on rooms not in service.

I get it. But it’s still an arrangement that benefits the developer. My concern isn’t that they’re getting a special deal; it’s that the deal that they’re getting not only removes incentives to keep dues low, it actually encourages them to set dues on the high side.

 

[wdrl]

Also, and I didn’t know this, but DVD exempts itself from paying dues on the points that it owns by offering a guarantee that they’ll pay the difference if they calculated dues wrong. Must. Be. Nice.

I don’t think that I’m mischaracterizing it at all. This deal is far better for DVD than members.

Your followup discussion on the pros ands cons of the Developer Guarantee has merit. Nevertheless, the original characterization of how it works is misleading. A timeshare developer can correctly calculate the operating expenses and capital reserves, but a shortfall can still occur if Member Owners default and do not pay their dues. In such cases, the Developer Guarantee would apply even though there was nothing wrong in how the dues were calculated.

 

[drusba]

The guarantee that DVD gives annually, and its ability to avoid paying dues on its ownership share absent costs actually exceeding the annual budget, is allowed by statute to any developer of condominiums or timeshares, Florida Stats. 718.116(9)(a)2. Whether DVD actually makes money off that guarantee is an unknown. Accounting rules for condominiums require that the annual budget be reasonable and based on actual anticipated costs to the association, not costs plus some amount for profit. Moreover, the actual total budget in setting dues per point assumes that DVD's interests (points) in the DVC timeshare resort are counted. In essence, it is designed to assure members that they will not pay special assessments during the year (with exception for costs arising out of disaster-type events not fully covered by insurance) and to allow the developer to escape payment at least until it appears that more than the amount collected from members is needed in the year. One way members are benefited is that DVD may have to cover in that situation dues not collected due to owners who fail to pay (and likely result in foreclosures) even if the total annual costs end up equalling only the total amounts assessed to members at the beginning of the year. (Note, that the guarantee does not apply to the property taxes portion of the dues and DVD does pay its share of those, and if it ends up that taxes are less than budgeted, or more than budgeted, an adjustment is added to the next year's budget for taxes -- that has occurred in numerous occassions with DVC)

In any event, setting a reasonable budget based on anticipated costs is not an exact science and there is likely an acceptable range of "reasonableness," where DVD might be able to end up advantaged by the end of the year because actual costs do not exceed the amounts collected from members.

Personally, I doubt DVD makes much if anything because of the guarantee. If you really want to see where profit is made, you need to examine other things in the budget which legally permit profit despite the rule that members dues need to be based on actual anticipated costs payable by the association. There are things included in the budget that allow other Disney companies to profit even though the DVC entities do not. For example, costs of the WDW transportation system are included in the budget. A Disney entity other than DVD, the association, or the association's managing entity, DVCMC, provides that transportation. That separate Disney entity is not precluded by the condominium/timeshare laws from profiting under the contract it has with the association/DVCMC by including more than its actual costs in the price charged to the association.

Another area of probable profit is in the annual management fee charged each resort which equals 12% of the annual budget excluding certain items such as taxes, the management fee, and a couple other low cost items items. That is a charge included in the original Public Offering documents for each resort that does not, and cannot, change regardless of actual costs. However, though it is always 12%, it is annually usually more in dollars than the prior year because of any increase in other budgeted costs.

Other areas of profit include: (a) DVD's ability to rent room space that is within its own retained ownership interest; (b) DVD's ability to rent room space for points recaptured by members trading out such as to non-DVC Disney resorts; (c) DVD's ability to recapture points through foreclosures and then resell them and, in the interim, renting the room space.

One area that likely provides large profit and explains why the DVC reservation system always seems to be less than ideal is the area of breakage income and its relationship to the costs of Member Services. Despite what many may believe, the cost of reservation services including the online sytem and MS, is not a charge significantly covered by the dues. The only dues item that relates to the reservation system is a $1 per member, per year charge called the DVC reservation component. That charge cannot be raised or lower so it is impossible for an increase in the costs of the reservation systems to either raise or lower dues.

That $1 per member charge is not enough to cover the computer and MS reservation systems. How much of the costs are actually covered is contained in two agreements that the association has, one with DVCMC, the managing entity for each resort that is charged under contract with the responsibility for handling all reservations of members reserving their owned resorts and the costs for doing so, and the other with BVTC (Buena Vista Tradung company), another Disney entity, which is responsible for all reservation systems inciuding MS and the computer systems to the extent they relate to members reserving DVC resorts they do not own or trading put to non-DVC resorts. The reality is that the two are mainly companies separate on paper but have most of the same employees.

The way you actualy pay for reservation systems, including MS, is through the breakage income provisions of the official documents that allow the DVC entities to rent rooms not rented by 60 days out from date of arrival. The income from the rentals goes first to provide a set-off to annual dues equalling 2.5% of the annual dues budget excluding certain items in the budget (similar to those mentioned above). After that, the income from the breakage rentals goes to BVTC, which is also the entity that officially gets that $1 per member annual charge mentioned above. BVTC gets the breakage income up to an amount that equals the total costs of BVTC for the year plus 5% of those costs -- thus a profit (BVTC also gets that $95 trade-out fee relating to trading out of DVC). After that, all remaining breakage income goes to DVCMC to cover its reservation services. I do not know how much breakage income there actually is per year. However, annually there has always been enough to cover the share that is returned as a required offset of dues, and one DVC related manager once told me the amount of breakage income is a lot. I surmise it is also getting much better with Disney's new DVC building plan that started with Poly and continued with CCV, in building outrageously priced bungalows and beach cottages, which DVD knows will likley end up having many openings that it can rent come 60 days out many times of the year -- giving it a substantial annual income from those units, while the owner members pay the maintenance costs for those units for the year.

If the breakage income DVCMC gets is not enough to cover its share of reservation costs, then it has to use the management fee it gets to cover the costs. The ultimate outcome is that members, except for that $1 per member charge, do not have dues charges for the computer and MS systems applicable to reservations. That kind of sytem was likely set up partially to avoid members ever being able to validly claim that the DVC entities should spend less on MS and the computer systems to avoid higher dues. But it also creates a huge incentive for the DVC entities to provide computer and MS services at the lowest cost possible so they get to keep more breakage income and more of that 12% management fee. They have to provide systems that are reasonably usable, but that they are doing much to keep costs as low as possible and provide only what is absolutely necessary in computer and MS systems is something best shown by the many problems members have had historically using the computer sytems and MS.