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IN-DEPTH FEATURES
This is the story of an investment in a timesharing hotel,
that went bad. The reason may well have been, as the company
says, due to factors beyond its control and ability to
predict. Nonetheless, the investors have their losses. Buyer
beware!
Like most people, at least once every few months you probably
find an elaborate letter in your mailbox gaily announcing
you've won some sort of valuable prize if you only agree to
give two hours of your time to uncover the big secret by
listening to what the company has to say to you.
This is a widespread marketing technique to lure potential
customers to a site where they become prey to a sales
onslaught. A team of salesmen lie in wait to sell their wares
-- typically vacation apartments -- to comers who would never
be interested in the offer under normal circumstances and
would not even free one minute of their time to hear the
proposition, let alone sign a contract.
In most cases the recipients of the letter -- particularly if
they happen to be chareidim, for whom such things are
inconsistent with their lifestyle -- are not enticed by the
anonymous offer, even if they feel a light pulling of the
heartstrings saying, "Who knows what we might be losing?" Yet
even a tiny percent of recipients who fail to heed the
warning bells and are drawn by the enticing promises is
enough to fill a company's coffers.
Many innocent people who come "just to pick up the gift item"
and set out determined not to fall into a sales trap, come
away duped and exploited.
Yet in one case intelligent, experienced, sober people who
decided to put their money in a good investment by purchasing
a vacation apartment unit got caught in the snare. Recently
the largest collective suit (this will be explained below --
it is not a class-action suit) in Israeli history was filed
in the Tel Aviv District Court by a group of 773 owners of
vacation units at the Club Hotel Eilat and Club Inn Eilat who
are accusing the company of deceit, fraud and exploitation.
Meanwhile a second group of 41 chareidi owners are accusing
the company of misleading them since the hotels do not meet
the minimal requirements needed for them, as chareidi Jews,
to make use of their right to vacation!
Big Losers
The proud new owners of the vacation units, thinking they had
made the deal of a lifetime, discovered they had lost big.
The property in which they had invested large sums of money
lost its value and the promises they had been made were not
fulfilled, say the investors. Even worse they were compelled
to continue with the deal--a milk cow for the company--by
paying high annual maintenance fees that exceeded the full
cost of a luxury vacation.
The S. family of Jerusalem's Ezras Torah neighborhood fell
into this misadventure eight years ago and quickly realized
they had been taken in, along with other chareidi families
baited by the company's marketing efforts in the chareidi
sector.
As one of the 41 chareidi families that filed a suit against
the Club Hotel, S. explains the double broch they fell
into. "All of the purchasers of vacation units at the Club
Hotel and the Club Inn Eilat fell into a trap. [But we
chareidi buyers] fell from the trap into a [worse trap . . .
] Everybody lost financially, but as chareidi Jews we were
even prevented from making personal use of the vacation units
at the secular hotel in . . . Eilat. The absurd thing is the
company held special events for chareidi families, bringing
in chareidi sales agents, presenting us with chareidi clients
who bought and were very pleased and misled us with all sorts
of fictitious promises, creating a false impression that the
deal was appropriate for chareidim!"
Who Wouldn't Want a Vacation?
The vacation units market in Israel gained momentum at the
beginning of the 90s. For many people who always wanted to
take a vacation but were deterred by high hotel costs the
solution was simple: a share of an apartment hotel where
suites were sold for a period of 1-2 weeks or 1-2 months per
year. The concept was called "timesharing" in English,
referring to the fact that many people shared the ownership
of individual suites, by buying just the right to use them
for a fixed period each year -- as little as a week at a time
in some cases.
The vacation unit is listed in the official registry (Tabo)
in the buyer's name and it is his to keep for those two weeks
or more during the year. The buyer can even bequeath the
annual stay to his children. An investment and a bit of
pleasure all in one. Who wouldn't want a vacation once a
year? Buy a vacation unit and you seem to ensure yourself an
attractive vacation for free every year.
The time of year or the location of the hotel doesn't suit
you this year?
No problem, the company pledges to arrange a change in the
dates or a switch to another hotel in the network. If you
prefer, the company is prepared to rent your unit out,
promising you annual earnings of thousands of dollars. In
fact, according to all indications the annual yield will be
higher than average for investments in this industry. The
company will even handle maintenance for "a small fee."
Sounds good? In fact the pitch sounded so good that 30,000
people bought vacation units at the Club Hotel -- Club Inn
Eilat, which was billed as the largest suites hotel in the
Middle East. Some even bought two or three units. The annual
one-week vacation cost a total of $5,000 to $10,000,
depending on the time of year.
Despite all these promises this wise investment and free
vacation turned out to be a sham and the purchasers found
themselves regretting every cent.
"When we purchased the unit we thought it was a worthwhile
investment. But it turned out that in real terms renting a
hotel room is less expensive than owning a vacation unit. The
price of the units plummeted, the maintenance fee mushroomed,
and we blame this on the company," says Lior Spector, founder
of the Organization of Vacation Unit Owners in Israel and
himself an owner of vacation units at the Club Hotel.
Largest Class Action Suit in Israeli
History
The grumblings among the apartment purchasers, who were
required to pay maintenance fees of NIS 2,000 ($450)
annually, soon turned into action. Two years ago two of them
filed a class-action suit against the Club Hotel Eilat over
the maintenance fees. Other purchasers followed the
developments intently. Then suddenly the two original
plaintiffs and the company reached an unexpected compromise
agreement, which received court approval.
"There are serious suspicions of collusion between the
plaintiffs and the defendant," says Lior Spector. "It was
clear to us that they made some sort of unpublicized
arrangement that discriminated against all of the others. We
believe it was ploy designed to stop all of the others from
continuing with a class-action suit and to demand what they
deserved.
"An intensive campaign was waged with the assistance of the
Consumers' Council, and the Attorney General was persuaded to
issue a legal opinion recommending that the judge nullify the
compromise agreement. The Club Hotel appealed to the High
Court to uphold the agreement, but the High Court rejected
the appeal. The court nullified the agreement in February of
this year and now we're beginning from scratch."
Following legislative changes regarding class-action suits,
unit purchasers are now filing a claim against Club Hotel --
Club Inn Eilat on an unprecedented scale. The Consumer
Council estimates the Club Hotel is responsible for NIS 300
million ($65 million) in damages.
Sellers' Market
Yated Ne'eman: What makes your misfortune unique among
all of the other stories of fraud and deceit in this sector?
Many other people also found themselves mired in this mud
after being tempted by aggressive, high-pressure marketing
and bought vacation units that did not prove worthwhile.
Spector: "Without going into the promises they gave
orally and did not honor, which are of course difficult to
prove, the unit itself is a good product for someone who is
interested in purchasing a vacation unit and taking a
vacation every year. But in our case the company created a
situation in which the investment in the apartment was
drained of all financial value.
"The company still holds 30 percent of the vacation units in
its own name, creating a situation in which the company
itself is competing with the apartment owners to whom it sold
the apartments. It is a sellers' market alone . . . The
company still wants people to buy or rent apartments from it
and thus we are blocked from selling or renting the unit we
own, although at the time of sale the company promised to
help us rent out our apartments.
"The main claim has to do with the maintenance fees. We claim
the maintenance fees we were charged were inflated and are
much higher than the actual maintenance costs, making the
enterprise unprofitable. Today the unit cannot be sold even
in exchange for the maintenance fees!"
The vacation unit purchasers claim that, although the
maintenance fees were supposed to be divided among all of the
apartment purchasers, the company charges maintenance fees
based on its expenses for the entire facility, including the
luxury apartments under company ownership and other expenses
that should be incumbent on the company.
The apartment owners are asking the court to do away with the
present management company and issue a tender for a new
management company that would include the unit owners as
partners. The new management company would set realistic
maintenance fees and the unit owners would receive
compensation for overcharging. The organization stresses this
is a collective suit (as opposed to a class-action suit),
meaning that only those who join (at a cost of NIS 250) can
partake of the fruits.
"Who Ever Heard of a Chareidi Family Going to a Secular
Hotel in Eilat?"
"We have owned the vacation unit for eight years now and
during the course of all these years we have not made use of
it even once," says Mrs. A. R. of Jerusalem's Sanhedria
neighborhood. "It was out of the question. Who ever heard of
a chareidi family going to Eilat?"
Yated Ne'eman: Forgive me for asking, but how could a
chareidi family buy a vacation unit in a hotel in Eilat to
begin with?
"We never considered taking a vacation in Eilat. The truth is
we never intended to buy a vacation unit. The company
arranged entire evenings for chareidi families. They called
us at home and invited us to come, "without obligation," to
an evening with tables laid out at a well-known hotel with
mehadrin kashrus, and promised a pearl necklace as a
gift. So we went . . . really not planning to buy a vacation
unit, especially not in Eilat."
Yated Ne'eman: But you were tempted, nonetheless,
despite your initial resolve?
"They launched a powerful marketing assault on us with
chareidi sales agents, using every means of persuasion. We
didn't stand up to the pressure . . . They pressed us to make
a decision that evening because the next day would be too
late. When we said we had no intention whatsoever of
vacationing in Eilat they convinced us it was an excellent
investment, secure, very profitable and my husband had just
received a compensation payment of $20,000 and was enticed to
invest it in this vacation unit. Instead of buying dollars .
. . They spun fabulous stories about how the value of the
property would rise hundreds of percent, that the company
would take care of renting out the apartment for us, and if
we wanted it would also sell it for us. It turned out to be
all lies except for one promise--to collect maintenance
fees."
Today, admits A.R., it is hard even for her to see how
astute, intelligent, chareidi Jews let themselves get lured
into the trap. "The group of victims includes prominent
families who thought this would help them marry off their
children . . . People who live from month to month and made
supreme efforts to get the money in order to join the
investment that would earn them big profits."
* * *
Z.P. of Ramot Polin, like many others, was tempted by the
vacation offer, innocently believing the fabulous promises
and declarations that the place was as suitable as could be
for chareidim. "They sold the vacation units through chareidi
salesmen and brought in chareidi buyers who told us how
fantastic it was. We take a family vacation once a year
anyway so we reasoned it would be a worthwhile investment.
"Their sales agents said it was a very worthwhile purchase
from a financial standpoint because the hotel was under
construction and as soon as it was completed the prices would
rise. They also described to us in fabulous living color a
vacation lemehadrin in a hotel with glatt restaurants
and separate swimming and proper Shabbos observance.
"We tried going there once and went through a shocking
experience. Not only that, but during Shabbos we discovered
the Shabbos mode had not been turned on in equipment there,
although we had requested it in advance and every movement we
made caused chilul Shabbos. We simply didn't know what
to do. We spoke with the hotel [staff] afterwards and we were
told that `as owners of vacation rights the specifications
were known to us at the time of purchase . . . '
"At the time of purchase they promised we could easily switch
for vacation apartments of equal value in Tiberius or other
places and it turned out this is virtually impossible or not
at all worthwhile."
*
One buyer recounts that he and his friends were promised that
during the vacation week they purchased, the hotel would be
occupied exclusively by chareidim . . .
In reality, the prices of the vacation units dropped
drastically, the maintenance fees were beyond belief and
their rights became worthless since nobody wants to buy or
rent such an apartment. Many stopped paying after realizing
it was pointless to throw away more money and the company
notified them they had forfeited their rights. "We signed
under pressure at 1:00 am and on the back side of the
contract in small print it said all pledges were null and
void and only what was specified in writing would be
fulfilled," says S. of Jerusalem.
The group of 41 chareidi victims of the scheme filed NIS 3.5
million suit against Club Hotel, through Attorney Chaim
Bashari, in the Tel Aviv District Court. "Really our main
contention does not require evidence, that if the company
marketed the units to chareidim then without a doubt they
were offered something suited to their way of life as
chareidim. The company even promised in writing to assign a
special person whose job it would be to take care of the
needs of the chareidim!"
The bottom line according to S. is that "the public should be
repeatedly warned that the company is continuing its
marketing activities among chareidim, and to our great regret
people are still falling into the trap!"
To contact the attorney representing the chareidi customers
of Club Hotel Eilat: Chaim Bashari, Begin 7, Ramat Gan. Tel:
03-613-7730. Fax: 03-613-7731.
The company supplied the following statement to Yated
Ne'eman when asked about the charges detailed in this
article:
Within the framework of a reply to an article we cannot
respond in detail to the claims raised during the legal
proceedings in court. The appropriate place to clarify these
claims is within the framework of the legal proceedings and
it is there that our complete answers will be presented.
Nevertheless we can respond to the general claim regarding
the maintenance fees, which is devoid of any factual basis.
The big advantage of the timesharing idea at the Club Hotel
Network is plain and clear under normal conditions when the
hotel industry earns money. According to the timesharing
idea, for the week of vacation in which they purchased
rights, owners pay basic maintenance fees for the actual
costs of managing the hotel, in addition to fixed managing
fees of just 10 percent. This amount is under the supervision
of an independent auditor; only following his approval is the
management company authorized to charge the rights owners the
maintenance fees. During normal periods the costs are far
below the commercial hotel prices and the disparity between
the two represents the (observable) anticipated savings for
the unit owner every time he makes use of the week-long
vacation he purchased.
Unfortunately, for several years conditions in Israel have
been abnormal. It is no secret that the state of the hotel
industry is not what it was in past years. Security incidents
have brought about a significant decrease in [the number of
tourists coming] to Israel, along with a noticeable decrease
in hotel occupancy, and the losses are apparent in the
industry. Prominent hotels have closed and the remaining ones
operate under strained conditions. At times prices are below
costs.
Sometimes it seems various deals can be found today that are
even less expensive than the maintenance fees which, as
stated above, are based on actual costs. This situation is
temporary, of course, and cannot continue indefinitely. There
is no financial body in the world that would base its
marketing policy on fixed losses and all of us are waiting
for the light at the end of the tunnel.
Under normal circumstances, beyond a doubt, the savings of a
unit owner compared to a regular hotel guest are clear and
significant. And the resale price of the vacation units will
also return to reasonable [levels that reflect] the unit
owner's real savings.
Regarding the specific claims of the chareidi public, we can
only express our profound and genuine surprise. The company
never made any commitment to separate swimming, a glatt
kosher restaurant and/or full Shabbat observance. It was
promised that there would be a kosher restaurant under
Rabbinate supervision and that there would be a beit
knesset. The hotel is intended for the whole of the
public in Israel and every individual is entitled to conduct
himself according to his own worldview and values, and as
long as there are guests at the hotel who are not chareidim,
and they are the majority, it is not possible to demand that
they accept all of the rules of modesty and Shabbat
observance accepted in chareidi society. We have done and
will do everything we can to allow each of our guests to
enjoy the vacation week purchased, but this is only as long
as there is no infringement on the expectations and rights of
another unit owner. We are unable, and never promised, to run
the hotel as a chareidi hotel.
Respectfully yours,
Dr. Y. Manirav
Club Hotel Network
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