Fractional Interest Ownership In British Columbia – A Twist on Buyer Beware

Everyone has heard the old maxim – ‘buyer beware’, or caveat emptor. Usually we think of it in terms of clear ownership and property defects.

But if you’re looking at buying a ‘fractional interest’ in a vacation resort or luxury hotel in British Columbia, you can add another item to the list of things to investigate. The issue is whether or not the property you intend to purchase falls into the category of ‘Short Term Overnight Commercial Accommodation Properties’ (STOCAP, for short).

But first, what is a fractional interest? No, it’s not a time share, although in some ways it’s closely related. With a time share, you don’t actually buy an interest in the property – you merely buy specified rights of usage of the property for limited periods.

On the other hand, ownership of a fractional interest provides you with ownership, along with other purchasers, in a particular individual unit, along with contractual rights of usage for specified periods each year.

Fractional interests have become popular in and around Victoria, providing access to luxurious living for part of the year, without worries about the professionally managed property during the remainder of the year.

But back to STOCAP – why is that important? It’s all about property taxes. If your property gets STOCAP’ed (a new verb?) your property taxes are going to go up, way up, because it will be taxed at commercial, not residential, rates. The rates vary from municipality to municipality, but think in the magnitude of two or three or four times higher than residential taxes. Have you budgeted for that?

This issue has received some press lately, and the BC Government is apparently looking at the policy to ensure they are fair and equitable. It’s anyone’s guess what that means, or what policy changes, if any, might result.

So the bottom line is this: if you are considering a ‘fractional interest’, be alert to the possibility of being STOCAP’ed – and do your homework before you enter into a binding Contract of Purchase and Sale!