Deposits & Legal Action
The traditional Destination Club business model typically includes a refundable portion of the membership fee due to the member when they exit the club. Members who request to exit the club are subject to the terms of their Membership Agreement. The industry standard is 3 in 1 out: 1 member is allowed to exit the club for every 3 new members who join. The 3 in 1 out rule is designed to protect the club if it is deluged with members wanting to exit when there are no new members wanting to join. Since the economic downturn in 2008 the volume of equity club members complaining and requesting to exit destination clubs has increased dramatically prompting legal action in some instances: specific examples of this are a lawsuit against Ultimate Escapes LLC and the Exclusive Resorts Member Lawsuit.
Destination Clubs typically include contractual protections requiring liquidation after a certain period of time if not enough new members have joined to offset those resigning, in which case the liquidation proceeds are distributed to fulfill the refund requirements.
Some traditional destination clubs have attempted to reduce the risk of the 3 in 1 out rule by providing members with ownership and priority over other creditors, making fluctuations in the value of the club's residence portfolio an important consideration. The evolution from the traditional destination club model to next generation club has removed the 3 in 1 out rule entirely by allowing users to renew membership annually, exit the club at any time without penalty, and even offers a money-back guarantee to some new members.
Read more about this topic: Destination Club
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