Another Unburdening Approach – Contract of Adhesion

Recently a TTR subscriber reported they were contacted by a debt relief company demanding the Association accept a deed over and waive all past due assessments, The debt relief company asserted their claim was based upon that the contract to pay Assessments between the owner and the Association is a contract of adhesion. This dispute involves a California Resort. Simply asserting a contract is a contract of adhesion and then asserting that it is unenforceable, does not make it so. Only a court can decide this issue. The Subscriber responded:
Contract of Adhesion. You’ve asserted that, “this contract in question to be a legally unenforceable contract of adhesion.” As you or your legal team should be aware:

A. California Business and Professions Code Section 11265 requires that all interests in a time-share plan for which a Public Report has been issued are interests subject to the payment of regular and special assessments. The State of California is the drafting party of the terms of the contract to pay Assessments, not the Association.

B. It is only if a court determines that a contract is adhesive, the court must then decide whether to enforce the contract. In California, a determination that a contract is adhesive is merely the first step that courts take in deciding whether to enforce such contracts: “[t]o describe a contract as adhesive in character is not to indicate its legal effect.” The Scissor-Tail court stated that adhesion contracts are fully enforceable “unless certain other factors are present which, under established legal rules-legislative or judicial-operate to render it otherwise.” California courts consider two factors in determining the enforceability of adhesion contracts: (1) whether the contract or provision falls within the “reasonable expectations” of the consumer; and (2) whether the contract or provision is considered unconscionable. [Scissor-Tail, 623 P.2d at 172]

C. Reasonable Expectations. See Allan, 59 Cal. Rptr. 2d at 824.We see a substantial argument that your clients will be found to have reasonable expectations. With regard to whether the contract or provision to pay Assessments fall within your clients’ reasonable expectations, please be advised:

1. Constructive Notice. Please review your clients purchase and sale Documents.
(a) Paragraph 13. of their Purchase and Sale Agreement states:
Pursuant to the Declaration, Buyer shall be required to pay a Basic Assessment to the Association for each Time Share Interest purchased each year.
(b) Your clients signed a receipt stating “I have read the Commissioner’s public report,” evidencing that they were given The FINAL TIMESHARE PLAN PUBLIC REPORT File No. 010071HF. A prominent section of that report noticed your clients, “The Time Share Associations has the power to bring a lawsuit for damages and/or to place a lien on a Time Share Interest, and to prevent an Owner from reserving a Use Period if the Owner does not pay assessments (excluding Personal Assessments) or other charges due. The remedies available to the Association against Owners who are delinquent in the payment of assessments are set forth in the Declaration.”

D. Actual Notice. At the time of sale, your clients signed a Buyers Acknowledgement of Representations and each initialed the paragraph that reads: “In addition to the purchase price for a Time Share Interest, you will be required to pay to the Association an annual maintenance fee (the “Maintenance Assessment”) for as long as you own the Time Share Interest. Assessments are payable whether or not you use the Time Share Interest in any particular calendar year. Failure to pay Assessments may result in the suspension of your use privileges and a lien against your Time Share Interest. The Basic Assessment may be changed in the manner provided in the Declaration.

E. Unconscionable. With regard to whether the provision is unconscionable, In California, in order to prevail on an unconscionability claim, the complaining party must demonstrate that the contract is both procedurally and substantively unconscionable. [Stirlen v. Supercuts, Inc., 60 Cal. Rptr. 2d 138, 146 (Cal. Ct. App. 1997)] Since California Business and Professions Code Section 11265 requires that all interests in a time-share plan for which a Public Report has been issued are interests subject to the payment of regular and special assessments. This is a matter of public policy and by that definition alone your clients’ contract to pay Assessments cannot be found unconscionable.