P.R. Laws tit. 31, § 1254
(1) In order to demonstrate that a particular accommodation or facility is a protected accommodation or a protected facility, the developer shall provide the Company with satisfactory evidence that such accommodation or facility is owned, free and clear of the claims of any lienholder, by one or more owners of accommodations, timeshare or vacation club rights, unless one of the following has occurred with respect to each lienholder prior to any representation by the developer that the accommodation or facility is included as a part of the timeshare plan or vacation club:
(a) The lienholder has executed and recorded among the appropriate public records in the jurisdiction in which the subject accommodation or facility is located a subordination agreement which provides that:
(i) The subordination agreement shall be effective as between each owner and the lienholder, despite any rejection or cancellation of any such owner’s purchase contract with the seller as a result of any bankruptcy proceedings with respect to the seller;
(ii) so long as an owner remains in good standing with respect to his obligations under the timeshare plan or vacation club documents, including but not limited to paying all assessments levied upon his accommodation, timeshare or vacation club right, the lienholder will honor all rights of such owner relating to the subject accommodation or facility as granted by the timeshare or vacation club documents, and
(iii) the subordination agreement contains language sufficient to provide subsequent creditors of the developer and the lienholder with notice of the existence of the timeshare plan or vacation club and of the rights of owners of accommodations, timeshares or vacation club rights therein and protects such owners from the claims of any such subsequent creditors.
(b) The developer delivers to the Company a surety bond or an irrevocable letter of credit which satisfies all of the following conditions:
(i) Any such bond is issued by a surety or insurance company authorized to do business in Puerto Rico and having a sufficient net worth to be acceptable to the Company. Any such letter of credit is issued by a bank, savings and loan association, or other federally insured financial institution authorized to do business in Puerto Rico and having a sufficient net worth to be acceptable to the Company;
(ii) the bond or letter of credit is irrevocable during the entire term that the subject accommodation or facility is represented by or on behalf of the developer as being included as part of the timeshare plan or vacation club;
(iii) the bond or letter of credit is in such amount as the Company reasonably deems necessary in order to ensure the continuing availability of the subject accommodation or facility for the period of time represented by or on behalf of the developer;
(iv) the beneficiary of any such letter of credit and the obligee of any such bond is the Company, on behalf of the owners of accommodations, timeshares or vacation club rights, and
(v) the amount of the bond or irrevocable letter of credit may be reduced periodically to reflect any corresponding reduction of the remaining aggregate outstanding principal balance of the indebtedness secured by the blanket encumbrance(s).
(c) The developer has transferred the subject accommodation, facility, or use rights therein and thereto to a trust for the benefit of all owners of accommodations, timeshares or vacation club rights in such timeshare plan or vacation club, subject to the following conditions:
(i) Prior to such transfer, any lienholder with respect to such accommodation or facility has executed a subordination agreement which complies fully with the requirements of subsection (1)(a) of this section;
(ii) the trustee is a bank, savings and loan association, trust company, or other person authorized to conduct trust business in Puerto Rico and not an affiliate of the developer, the managing entity, a component site managing entity, or any lienholder with respect to any accommodation or facility which is included as part of the timeshare plan or vacation club;
(iii) the trust is irrevocable so long as any owner has a right, pursuant to the timeshare or vacation club documents to use or occupy the subject accommodation or facility, the title or use rights to which have been conveyed to such trust;
(iv) the trustee has no right to convey, pledge, mortgage, hypothecate, assign, or otherwise transfer or encumber in any fashion any accommodation or facility held in trust which any owner has a right to use or occupy unless the timeshare plan or vacation club is terminated pursuant to the timeshare or vacation club documents, the subject accommodation is deleted from the timeshare plan or vacation club, pursuant to § 1255b(c) of this title or another accommodation is substituted therefor, pursuant to § 1255(b) of this title (in which case title or use rights to such substitute accommodation shall immediately be conveyed into said trust). The foregoing prohibition shall not be construed to affect an individual owner’s rights to convey, pledge, mortgage, hypothecate, assign or otherwise transfer or encumber such owner’s accommodation, timeshare(s) or vacation club right(s), but not the accommodation, timeshare(s) or vacation club right(s) of any other owner;
(v) the trustee agrees to function as a fiduciary with respect to all beneficiaries of the trust. The personal liability of the trustee shall be governed by the laws of Puerto Rico. All expenses reasonably incurred by the trustee in the performance of its duties, together with any reasonable compensation payable to the trustee in consideration for the performance of such trustee’s duties, shall be common expenses of the timeshare plan or vacation club, and
(vi) the trustee may not resign upon less than thirty (30) days prior written notice to the managing entity. Upon its receipt of such written notice, the managing entity shall immediately and in good faith seek to engage a substitute trustee to fulfill the same responsibilities for substantially the same financial consideration as the resigning trustee. No such resignation shall become effective until a substitute trustee has been appointed by the managing entity and has accepted such appointment.
In the event that the developer merely transfers to a trust use rights with respect to a particular accommodation or facility, pursuant to this subsection (1)(c) of this section, the developer shall be required to comply with either subsection (1)(a) or (1)(b) of this section with respect to such accommodation or facility.
(2) In lieu of satisfying the requirements of subsection (1) of this section, and in recognition of the impossibility or impracticability of a developer’s satisfying some of such requirements as a result of circumstances over which the developer has little or no control, the Company may accept other financial assurances from the developer with respect to a particular accommodation or facility, including but not limited to a surety bond, an irrevocable letter of credit, or a trust arrangement not meeting all of the conditions set forth in subsections (1)(b) or (1)(c) of this section, based upon the value of the subject accommodation or facility as established by independent appraisal or other evidence acceptable to the Company, in the reasonable exercise of its discretion. Any such alternative financial assurance or arrangement must, in the judgment of the Company, afford benefits and protection to the owners of accommodations, timeshares or vacation club rights that are comparable in scope but not necessarily in nature to those set forth in subsection (1) of this section.
History —Dec. 26, 1995, No. 252, § 4-101.