Pay to Use Method
The Pay to Use method is a usage allocation method where a co-owner pays a usage fee for each day/week of usage. This method can be particularly useful when the property's is located in a place where different seasons of the year make it more or less desirable (the mountains during ski season, the water during the summer, or a house near a golf course when the PGA comes to town).
If the value of occupying the property significantly spikes during one season of the year versus another, the Pay to Use approach may make sense. Co-owners who really desire the house during ski season may pay a premium to use it so that the other owners, who are not ski enthusiasts, do not suffer lost rental income.
There are myriad ways to set up a Pay to Use allocation system and the right solution depends on the needs of the particular owners. Some key elements to consider include:
- Any usage fees or rental income derived from the property should be used to pay group expenses. Any surplus divided among the owners.
- Some Pay to Use agreements allocate a set number of "free" days to each owner and then employ Pay to Use for any additional days.
- Some will have no "free" days but will offer owners discounted "Pay to Use" rates.
- Some will designate certain periods -or blocks- of the year as "Pay to Use".
- Pay to Use allocation can be problematic if not actively managed by the owners or by a management company. The main problem is excess vacancy resulting in the owners having to cover any difference between expenses and income.
- Co-owners should collectively decide on "who gets what when" as well as what the usage costs and rental rates will be.
- Decide upfront if owner usage rights can be transferred to friends and family. This is particularly important if owner usage rights are discounted from rental income.
- Define what constitutes "reserving" the property. Is it making a deposit? Receiving a confirmation or receipt? Lack of clarity on this issue can result in overbooking and damaged relations among co-owners.
- Define cancellation and refund policies in advance.