SUPE RYACHT SAL E & PURCHASE Supe r yac ht Claims Adjuste r s’ Assoc iation We dne sday 26 th Oc tobe r 2016 T ony Alle n, Hill Dic kinson to ny.a lle n@ hilldic kinso n.c o m Ya c ht & Priva te Avia tio n L a wye rs o ndo n & Mo na c o L
OWNE RSHI P ADVI CE SAL E & PURCHASE CONST RUCT I ON F I NANCE PRI VAT E AVI AT I ON
SUPERYACHT SALE & PURCHASE • The Broker Central Agency – Exclusive / Joint Sub-brokers – represents buyer – or CA acts for both Scale Fees 3
• MYBA form, once signed, the Vessel is effectively sold, subject only to survey – ie. Seller (S) and Buyer (B) are both immediately bound. • FYBA form merely creates an option in favour of B, who may accept or reject the Vessel at his discretion post-survey; S is bound, but B not immediately so. • More a difference of form than substance, as even with the MYBA approach - where B has only a limited right of rejection, it’s still possible B to withdraw if survey reveals material defects. 5
SE A T RIAL & CONDIT ION SURVE Y
Mechanics of seatrial & survey: • MYBA MoA is signed, time is running, with dates by which seatrial & survey are to be completed. • Unless amended, seatrial comes 1 st , which, even in MYBA form, gives B a discretionary right to walk away, • but only for 24 hrs or until survey starts. If survey before seatrial, discretionary right is lost, unless MOA is amended by Special Condition, Clause 13. B is bound unless material defects found. Survey proceeds, eg a week, and B then has 7 days to receive • survey report AND to raise any material defects not previously disclosed by S. MYBA MOA defines actionable defects as ones that “ affect the operational integrity of the VESSEL or her • machinery or her systems or render the VESSEL unseaworthy”. Any lesser defects and B will remain obliged to proceed at the agreed price. • If surveyor certifies that any defect crosses that operational or seaworthiness threshold , B may either • withdraw and recover his deposit, or require the defect(s) to be remedied, or require price reduction equal to the cost of repairs. 7
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• Default position on name: • MYBA Clause 33 - S retains / B cannot use. • If B wishes to continue to use name, it must be agreed in advance, ideally as a Special Condition, Cl. 13. • FYBA – reverse applies – any restriction S wishes to impose on continued use of name must be expressly agreed. 9
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• Inventory should ideally be prepared and agreed when MOA is signed, with a list of any Exclusions. • MYBA - expressly provides for Inventory to be issued by S within 7 days after signing , which leaves B exposed. • FYBA – no reference to Inventory, but B can withdraw in any event. • Inventory disputes are surprisingly commonplace. Aim for clarity from the outset. 11
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Place of delivery is often crucial for VAT reasons. Sale of VAT-paid boats generally should be • completed in EU waters, whereas non VAT-paid boats are almost invariably delivered in international waters. 1. MYBA form provides that S should not use the yacht after signing, which creates a conflict if completion is to take place offshore. How is S to get the boat to international waters if he’s not permitted to use it? A simple amendment will cure this apparent conflict, but is often not made, putting S in technical breach. 2. Completion process often takes the form of a meeting between lawyers ashore, with one or both brokers and outgoing and incoming captains on board. It’s important for B to be represented on board as well as ashore, so if S’s captain will continue in post after the change of ownership, becoming B’s captain at closing, B should have someone else acting as his representative on board. 3. Closing documents to be tabled at completion meeting ashore; captains confirm Vessel’s presence in international waters and in same condition as at MOA signing, photo of GPS sent to shore meeting, lawyers confirm closing documents in order, Protocol of Delivery signed on board, scanned ashore, funds transfer initiated - then pause – until funds hit S’s a/c. 4. Banking delays can be avoided if funds are pre-placed with lawyers who can accept each other’s undertakings, but some owners insist on cash reaching their a/c before allowing the Bill of Sale to be released to the Ship Registry. 13
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NOTICES • Potential for both B & S to be caught out by the small print. • The seatrial, survey and defect provisions have various notification requirements, with fixed deadlines. • If required notices are given in the wrong form or to an incorrect address, notice will be invalid and the entitlement – whether to require remedial works, renegotiate or reject – will be lost. 15
Part Exchange (PEX) - sometimes promoted as an option in a poor market • but infrequently seen in practice. For some sellers, a useful way of reducing financial exposure and realising • equity (or repaying debt) but, in the large yacht world , not seen as a particularly attractive option. With some justification, given that most of the problems associated with • yacht ownership don’t reduce significantly when swapping a high value yacht for a lesser value one. PEX deals inevitably bring with them relatively complex closing and • insurance issues. 17
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Deferred consideration – sales on instalment terms , or a variant on the • Hire Purchase concept, with essentially 2 options: Sell now, with a mortgage back to S as security for balance of price, or • Charter now, with an option for B to purchase later, plus a mortgage as • security for his deposit or part-payment. Lawyers mostly favour option 1 – as the risks of ownership (without • possession or control) tend to outweigh the security risk of not receiving the balance. Both present all sorts of contractual and insurance challenges which • accounts for their relative scarcity - but in appropriate circumstances they can unlock an otherwise unachievable deal for both S & B. 19
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• Two different concepts: - The more conventional arrangement, whereby S effectively discounts the price by offering B the benefit of future charters that he has already contracted. The fulfilment of charters to regular charter guests of S is then assigned to a captain and crew who are new to the yacht. - Quite separately, S may require the use of the yacht post- closing, as the quid pro quo for a price reduction. - The small print will need detailing in Special Conditions. 21
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“Addendum 1” is a misnomer, as it should, from B’s perspective, be agreed and • signed at same time as MOA. A bespoke document which lists the docs B will require at closing to ensure good • title, no claims etc. Often left until later, by which time B has no leverage to demand full protection, • particularly a request for a Personal Guarantee and full details of the yacht’s tax status. From S’s perspective, Addendum 1 is less significant, as it simply lists B’s corporate • documents, to which B is unlikely to have any objection. 23
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WHAT GOES WRONG? • Service of invalid notices • Buyer missing time periods • Definition of a defect • Inventory • Insurance issues… 26
- WHAT GOES WRONG – PERILS FOR INSURERS 1. PRICE & THE COMPLETION PROCESS - Asking price / sale price } sum insured/ - Rejection / defects } agreed values? - Gear ashore - Art etc - Liabilities – of & to brokers & their clients 27
WHAT GOES WRONG – MORE PERILS FOR INSURERS 2. DELIVERY - Offshore – Protocol - timing of risk transfer - Delay - Buyer’s crew 3. POST-DELIVERY - Seller’s crew - Breakdown – caveat emptor / B’s risk - Claims against S – assignment of claim, retention, Personal Guarantee to include indemnity? 28
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