Contracts of Purchase

New Builds

Once a prospective owner identifies his yacht, whether a production or a custom yacht, and agrees with a yard to develop his project, he is immediately faced with a number of important decisions, amongst which the conclusion of the contract of purchase. A good contract will help to secure the successful fulfillment of the project, and ultimately the enjoyment by the owner of the new yacht. It is however, not uncommon, to find that prospective owners fail to seek adequate and professional assistance at this stage.

Any prudent owner should not fail to request legal, fiscal and financial support. One of DF Marine's core services is assisting prospective owners to undertake their project successfully by providing all the professional support they will be requiring. Our services span along the lifetime of the project.

Negotiation Stage

The contract of purchase entered into with a yard, whether intended to build a yacht or acquire an existing yacht or a half-started project, will determine the parameters of the relationship between the prospective owner and the yard. Discussions and negotiation on the technical aspects of the build should be supported by legal advice even at this early stage.

The conditions of the build or acquisition should be drawn up in clear and unequivocal terms, not allowing room for interpretation where this is not needed. Detailed technical specifications, payment terms and timelines are of the essence if a project is to be a success. Safeguards should also be inserted to ensure a correct and punctual performance of the obligations undertaken by the parties. These may be achieved in various ways and bona fide parties are most likely to achieve a common position based on reason and prevailing market conditions at the time of the conclusion of the contract.

Careful negotiation and drafting will ensure that any hitches occurring during the build stage, leading to delays and added costs are provided for, while the prospective owner should be able to have the right to make reasonable variations as the project develops to suite his desires.

It is also important that each prospective owner establishes at this stage a clear plan for the payment and holding of his new yacht. Adequate ownership structures providing for tax efficient solutions should be drawn up beforehand and implemented as soon as possible.

In the event a prospective owner intends to seek third party finance (through a bank or other financial institution) a proper contract of purchase, coupled with the choice of a  yard capable of offering the financier sufficient guarantees in terms of security, working practices, quality of build and reliability, will be crucial. It is not uncommon that poorly drafted contracts in relation to ownership rights, payment terms, guarantees and risk fail to meet financier's expectations and negatively impact on a prospective owner's application.

The Building Process

Each prospective owner will find comfort in having a contract which was properly negotiated and concluded since most often construction is undertaken and completed at a distance from his place of residence, and this many months and sometimes years from the day of the conclusion of the contract. The appointment of a experienced and knowledgeable project manager who represents the owner's interest during the various stages of construction is also very important.

It is important that the prospective owner ensures that the yard chosen has adequate insurance cover, financial stability and is duly certified/classed to be able to fulfill its obligation to deliver the yacht.

Nonetheless it is commonplace that the prospective owner's position is secured in either of two ways:

-       A refund of all monies paid to the yard prior to delivery, should the delivery not occur due to any default of the yard

-       The transfer of ownership of the incomplete yacht upon each individual payment while the yacht is still in the yard.

It is also important for the prospective owner to verify all applicable laws, not only those indicated on the contract, but also those local laws where the yard is situated which may apply notwithstanding that the same are not indicated on the contract.

Delivery

Before final delivery of the yacht and payment of the last installment surveys, examinations and sea trials by the owner and his representatives should ensure that the technical specifications of the yacht are in line with those contracted. All documents of title and warranties relating to the yacht, materials and equipment should be released in favour of the owner upon delivery, while certifications should be released to the yacht before final delivery to ensure the yacht is properly registered upon the final delivery. The certifications would typically include Class certificates, EU certification and stability documentation. These documents are crucial for a successful yacht registration process, as well as ensuring clarity in respect of ownership and fiscal matters.

The sale of the yacht, and consequent acquisition, may trigger the imposition of various taxes upon delivery of the yacht - whether in the place where the yard is established, or where the yacht is delivered, or where the owner is based. Adequate legal and financial advice is crucial to ensure tax efficiency, although it is recommended that advice is sought much before this stage.

After Sales

It is customary that the yard where the yacht was built will offer a commercial guarantee or warranty upon the delivery of the yacht. The conditions of the cover will vary considerably depending on the yard, the country where the yard is established and on the use of sub-contractors by the yard during the building process. It is important that any warranties given by sub-contractors in relation to the material and equipment, particularly the engines, are released or assigned in favour of the owner to ensure these maybe relied on in the event of defects developing after delivery.

The length of the cover is also a factor to be considered and discussed, while attention should be had to the extent of the cover to ensure that all costs relating to undertaking works under guarantee or warranty are covered, while any additional damages, such as loss of income, is taken into consideration.

An adequate after sales service by a reputable yard should always be foremost in a prospective owner's mind when considering whom to entrust his project.

Second Hand Purchases

The purchase of second hand yachts presents risks which are specific and due consideration of all such risks involved in the process of acquisition is considered vital to the good settlement of the deed. It is imperative that precaution is assumed at every stage of the deal, and all the aspects ranging from the technical specifications and the general condition of the yacht, the legal title and fiscal implications of the deal have to be dealt with. This implies that professional advice should be sought even in the apparently most straight-forward situations.

Legal issues relating to a second hand contract of purchase, which demand for professional advice include, but are not limited to: title of ownership (and relative paperwork relating to title), guarantee of the title of ownership of the yacht, the certifications relating to the stability and standards of construction, the existence of any mortgages or encumbrances that may burden the yacht. Further, the fiscal treatment of the acquisition by the new owner should also be examined to ensure that all taxes due are paid or accounted for in terms of the applicable legislation.

Please contact us for advice on any of the above-mentioned matters, we look forward to being of assistance.