Buying a yacht, be it new build or second hand, comes with many legal considerations. Albert Levy, partner at Ince & Co law firm, provides a coherent breakdown of yacht procurement from a legal perspective and points out the aspects to the process which should not be ignored.



Registration


A yacht is an asset, albeit a floating one with an inherent value. Like many assets such as land and stocks and shares, ownership of the asset should be registered. How one achieves registration and how secure one can be with the registration should be considerations taken into account. For instance was the yacht registered on purchase, what is or was the chain of title, could there be an unregistered mortgage secured over the yacht, are there any claims which, although unregistered, have priority even following a change of ownership? In addition, evidence of VAT status and classification of the yacht are all integral elements of the documentary requirements, be it new build or second hand.

Use, VAT & coding

Before taking delivery of your yacht there are other issues to consider, namely is the yacht to be used for purely for social, domestic and pleasure purposes or, is some commercial activity contemplated not only to defray some costs but to mitigate VAT? If one is an EU resident enjoying your yacht in the European Union, the yacht must be VAT paid unless it is to be used commercially, with all the responsibilities of showing real business activity, filing returns, appointing brokers and so on, quite apart from ensuring that the yacht is built and equipped to the nationally relevant standards. There are, for non-EU residents, procedures to mitigate the effect of importing a yacht into the EU and the temporary admission regime is one such avenue.

Inspection and verification

On a production yacht, even though everything is ‘standard’, would not a regular build inspection regime ensure maintenance of high standards to prevent the inevitable snagging list upon delivery? On a new custom or semi-custom yacht it is even more important to have the designer, architect and owner’s representative working as a team to achieve the owner’s dream. A lawyer will test their letters of engagement and terms and conditions even if they are ‘standard terms’.

In respect of a second hand yacht, on MYBA terms one would like to know who is to hold the deposit and how secure it is. On a custom build yacht the documentation will focus on the security of the project’s interim payments as well as the specification, treatment of variations and, becoming more important, the funding requirements of the yard, the owner and their financier.


"Perhaps one begins to understand why the cost of ownership rises in a non-linear fashion." - Albert Levy, Ince & Co.


Size matters

Size matters for compliance with rules relating to safety management systems, the International Ship Port Security Code, oil and waste disposal, safe manning qualification and the employment of crew. The Maritime Labour Convention 2006 will also impact the landscape as it applies to yachts engaged in commercial activity. Perhaps one begins to understand why the cost of ownership rises in a non-linear fashion.

An owner can turn to their captain or a combination of the captain and an onshore manager. Nevertheless there will be legal agreements to consider, the terms of engagement of the captain as well as the terms of the service agreement with the manager. Then of course there are the crew agreements, which will also turn on the location of the yacht, the flag of the yacht, its ownership as well as the nationality of the crew. Subject to circumstances there are cost mitigation possibilities, which may be open to the yacht owner.

Commercial use

The commercial use of a yacht implies that there will be ‘charterparties’ and agreements with agents who will find charterers to take on your yacht. Different types of ‘charterparties’ exist depending on the location of the yacht, be it in the Mediterranean or Caribbean. Also, whether as a charterer or owner, you will have certain responsibilities and may wish to take out appropriate insurance cover.

Disputes and insurance

Ownership of a yacht at all levels of the market can be seen as a business. In business one inevitably gets involved in disputes and accidents. Your lawyer will be able to advise you very much in conjunction with various specialists including insurance brokers who will help mitigate the impact of liabilities as well as advise you on your responsibilities. It is certainly our experience that contacting your broker and your lawyer as soon as practicable after the incident will generally mitigate the consequences.

Albert Levy heads the Ince & Co's global superyacht practice. For more articles exploring the legal issues surrounding ownership, click here.