Thinking of buying a yacht?

Thinking of buying a yacht? Here are some points you may want to consider.

At LA Marine we often receive instructions to assist with yacht purchases and sales. A number of the clients we help are, nevertheless, brand new to the yachting sector and unsure of the process.

In light of this, Tim Woollard has outlined some of the matters one would do well to consider when looking to enter the yacht market.

Get the yacht surveyed

When purchasing a second-hand yacht, the seller will be keen to exclude any liability as to her condition.

The importance of knowing exactly what you are buying cannot be overstated, as knowledge of any defects can allow you to (i) demand that repairs are made prior to completion, (ii) negotiate a lower price in lieu of repairs or (iii) walk away from a bad deal altogether.

Review the yacht’s ownership documents

When purchasing a yacht it is critical to ensure that there’s a clear chain of title between the builder and seller. There are three reasons for this:

  1. The last thing you want after purchasing a yacht is for someone else to come along with better title. Your only course of redress would then be against the seller, whose pockets may not be that deep or which may just be a shell company. In any event you would be facing an expensive legal battle for compensation.
  1. Ship registries often require properly documented proof of ownership for you to fly their flag. Part 1 of the UK Ship Register, for example, requires 5 years’ clear chain of title.
  1. Lenders may be unwilling to provide finance if a clear chain of title cannot be established.

It’s worth asking the seller for copies of title documents before agreeing to anything. Any responsible seller will be happy to provide copies in the first instance.

Review the yacht’s VAT documents

With the convoluted nature of tax legislation, not all vessels are subject to the VAT regime. VAT is, nevertheless, chargeable on the majority of pleasure yacht sales unless it can be shown that VAT has already been paid and not subsequently reclaimed.

Customs officers are entitled to board yachts at port to review their VAT status, and have been known to force owners lacking the required documentation to account for VAT.

Given the above, finance providers are particularly keen to ensure a clear VAT position when looking to lend.

Document the transaction

While no-one likes more paperwork (well, maybe we do!), putting together a properly worded written agreement is vital to safeguarding one’s position during and after the transaction.

Agreements can be used to ensure that the seller is properly warranting adequate title and VAT positions, as well as that all original documents are suitably accounted for. Special attention should be drawn to the wording of warranties and indemnities to protect the buyer as fully possible against hidden or yet-to-arise problems.

Where a survey has highlighted repairs that need doing, agreements can clearly document the extent of such repairs to be completed by the seller as a condition precedent for the purchase going ahead.

The seller may also require a deposit in consideration of the work it will have to do to prepare the yacht for sale, so an appropriately worded agreement would protect the parties’ interests with regards to how the deposit is to be held and what should happen to it in the event that the deal goes south. In a similar vein, an agreement could also deal with how completion funds and original documentation should be held prior to and exchanged on completion.

Ongoing charter parties and crew contracts could also be dealt with. The list goes on…

Think about where the yacht should be registered

All registries profess to provide the best service for yacht owners, although all are unique in their requirements for registration. Some registries do not allow for commercial use, which would prevent an owner from chartering out their yacht, while others provide particularly attractive tax incentives for commercial entities. Going back to the discussion on title, some registries are less lenient than others when it comes to requiring proof of title.

Final thoughts

I’ve managed to touch on a few of the factors a prudent yacht purchaser would want to consider when looking to purchase a yacht. The important theme is to make sure you get what you’re paying for!

For any further advice in respect of yacht sales and purchases, please don’t hesitate to contact Tim Woollard on 02380 827 477, or any other member of the LA Marine team.

Tim Woollard
Tim Woollard
Solicitor

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