7 minute read
SECOND-HAND YACHTS
from Seabreeze 2015/16
DUE DILLIGENCE
THE MARKET IN SECOND HAND BOATS IS BOOMING AS MORE AND MORE PEOPLE TAKE UP THE YACHTING LIFESTYLE. IT MAY NOT BE GLAMOUROUS, BUT BEFORE YOU SET SAIL IT IS IMPORTANT TO GET THE PAPERWORK RIGHT. ALEX TEJI OF HILL DICKINSON LLP’S SPECIALIST YACHT TEAM OFFERS HIS ADVICE TO NAVIGATE THE PROCESS DEALING WITH THE SECOND-HAND MARKET
Second-hand Beneteau Sense 43 for sale
When buying a second-hand boat, the first line of enquiry should be the key commercial terms. These will include the price, the deposit – usually 10 per cent of the sale price payable within a few days of signing the sale and purchase agreement – the named stakeholder, who should be one of the party’s lawyers or an independent and reputable escrow agent, details of the sea trial, survey and delivery dates, and the location where the vessel will be handed over. The latter point is important as this can have tax implications and specialist fiscal advice should be sought to avoid attracting unnecessary additional expense.
The purchaser must consider two main issues: the first is the physical condition of the yacht and the second is the relative ‘health’ of the vessel title. The seller should provide a warranty to prove not only that he/ she has both the title and the right to sell the vessel, but also that it will be free and clear of all debts and encumbrances such as mortgages, outstanding debts for goods and services, or crew wages. All of these must be paid in full before the sale is completed and the buyer will require an indemnity against any loss should this not be done.
As to the physical condition of the vessel, the buyer will typically require both a sea trial and a condition survey. The sea trial normally precedes the condition survey and is conducted at the seller’s expense. It is essential that the buyer either attends the sea trial or, more likely, nominates an expert to attend. On most standardised forms of contract, failure to do this will mean the buyer will forfeit his right to unconditionally reject the vessel and terminate the contract at his discretion.
The condition survey is an important mechanism that allows the buyer the option to check the vessel’s condition, but thought should be given in the sale and purchase contract as to the buyer’s rights in the event that any defects are discovered.
Lagoon 52
After the sea trial and condition survey, the seller will usually be required to give an undertaking not to use the vessel and bears the risk of any loss or damage to the vessel until completion of the sale. If anything happens that renders the vessel an actual, constructive or compromised total loss before completion, the agreement usually provides for this and the deposit must be returned to the buyer with interest and less expenses related to the condition survey.
If the buyer fails to pay the deposit the seller generally has the right to terminate the agreement and may also claim losses and reasonably incurred expenses. If the buyer fails to pay the balance of the sale price on completion the seller has the right to terminate the agreement and the deposit becomes forfeit. After deduction of any costs incurred in relation to the sea trial and the condition survey, the balance and interest may be divided between the seller and the broker.
The seller is generally responsible for paying taxes, duties or other government levies arising from the sale of the vessel and will also be responsible for obtaining any necessary permissions to sell the vessel. This is an important consideration when first negotiating the commercial terms which should be enshrined into the contract.
Both the seller and the buyer should each provide an indemnity to one another in relation to any claim by a broker, not party to the agreement, which has been involved in the sale on behalf of either party and is therefore entitled to payment of fees. The agreement should also specify the law that governs it (English law is the preferred standard) and the jurisdiction where any dispute is to be resolved, eg by arbitration in London.
One final important matter to consider is that of confidentiality. It is standard to agree that the parties keep all aspects of the sale confidential except from those who may also be involved, such as legal advisers, banks and government authorities. On completion of the sale a brokerage house often wishes to announce the sale and if the buyer and/or seller do not wish to have this information made public this should be in the agreement. As the broker(s) will also be party to the agreement this is a matter for careful negotiation.
Buying a second-hand yacht is an attractive option for many but it requires consideration of a number of issues that do not apply to buying a new boat. Make sure you understand it properly to ensure smooth sailing ahead.
ALEX TEJI Senior Associate, Hill Dickinson LLP
Alex specialises in the commercial and transactional aspects of the yacht team’s work, advising internationally based owners and industry leading professionals in relation to the construction, sale, purchase, design, ownership structures, management, crewing and registration of superyachts.
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