Dei'ah veDibur - Information & Insight

A Window into the Chareidi World

21 Iyar 5764 - May 12, 2004 | Mordecai Plaut, director Published Weekly








Falling for the Investment Opportunity of a Lifetime

by N. Katzin

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!"

Contact Information

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.

Club Hotel Responds

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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