Buying a yacht can be equally exciting and daunting. But, as with all property transactions, knowledge really is power. So, with that in mind, Keystone Law has produced this guide for things to consider both before and during a yacht transaction.
Depending on the type of yacht (and your budget), it is likely that you will require the services of the following advisers:
- The broker – a broker can be employed to search the market and track down the right yacht for you.
- The surveyor – a surveyor will be needed to survey the condition of a yacht and to undertake a sea trial. Furthermore, depending on the requirements of the registration country, a surveyor may be needed to undertake a tonnage survey.
- The lawyer – a lawyer may be seen as a luxury and the instruction of one may well depend on your budget. However a lawyer’s advice can be invaluable in ensuring a trouble-free transaction. Ideally a lawyer should be instructed after a yacht has been found but before a Memorandum of Agreement (MoA) has been signed. Although standard wordings are often used, a lawyer can draft and negotiate amended or new terms that are specific to the buyer and the particular transaction. A lawyer’s role is also important in terms of ensuring good title and where the survey brings up any issues with the yacht.
Condition of the Yacht
The buyer should ensure that the MoA entitles them to survey the yacht and to undertake a sea trial. This is the best way to confirm the condition of the yacht. The MoA should also be drafted so as to give the buyer the option to terminate the sale contract or negotiate a reduction in sale price if significant defects are found with the yacht. It is best that the extent of the defects needed to trigger a termination or renegotiation is defined in the MoA. Leading standard wordings, such as the Meditteranean Yacht Brokerage Association (MYBA) form, do that, but a buyer should check properly before signing the MoA. If there is not one, instruct your lawyer to negotiate a term.
As well as the general condition, an inventory should be drawn up by the seller confirming what is included in the sale – for example, tenders, furnishings, radio equipment and any other accessories.
Where to Register and Tax Issues
All yachts in excess of 24 metres have to be registered in a country of the buyer’s choice. Also, if you wish to use your yacht in waters belonging to other countries, then you will need to register yachts less than 24 metres.
The choice of country will depend on a number of issues such as whether you wish to use the yacht commercially, tax and ownership structures, where she will be based, or simply personal choice. Common choices include the UK, Malta, the Isle of Man and the Cayman Islands. The various choices can be discussed with your lawyer.
In terms of tax implications it is especially important to determine whether VAT will be an issue in the purchase of a yacht as well as for use of the yacht once in your ownership. It may be necessary to seek tax advice, and Keystone Law can assist in this regard.
As with buying a property you will need to ensure that the yacht is free from encumbrances. Although the MoA and Bill of Sale will both stipulate that the seller warrants that the yacht will be free of encumbrances at the time of sale, it is better to know what they are prior to the sale rather than afterwards! The usual way of checking if the yacht is encumbered in any way is to request a transcript of the yacht register, but beware that the detail and accuracy of these transcripts do change from country to country. Furthermore, not all encumbrances may have been registered (and this is where the seller’s warranty becomes important).
If the yacht has a crew, you will also need confirmation from the seller that the crew’s salaries have been paid up to the date of the sale. You will also need to consider whether you wish to retain the crew (in which case you will need to have drawn up new employment contracts for them) or whether you wish to employ new crew. Either way, Keystone Law or a yacht management company (if you are engaging one) can help with any employment issues.
Ownership and Sale
Although many yachts are purchased by individuals, special purpose vehicles can be created for the sole purpose of owning and operating the yacht.
If you are buying a yacht that is currently owned by such a vehicle, you must ensure that you are provided with the correct documentation to evidence that all the directors and shareholders have authorised the sale of the yacht in accordance with the incorporating documents. It is also advisable to seek a personal guarantee from the beneficial owner of the yacht before signing the MoA in case of any breach of the terms of the sale contract.
Keystone Law can assist with such issues, including setting up a special purpose vehicle to own a yacht.
Once all the formalities have been completed and you are happy, then the Bill of Sale can be signed and exchanged with the seller on the day of completion. This document confirms transfer of the legal title to you as the purchaser.
The yacht can then be delivered to you as the new owner. One final recommendation is that a Protocol of Delivery and Acceptance is signed on board with the buyer and seller (or their representatives) confirming the time and place of delivery.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.