Yacht purchasing 101 – behind the scenes of a yacht purchase

Yacht purchasing, whether for personal or commercial use, is a surprisingly complicated process and can come as something of a shock to buyers who have never gone through the process before.

Finding your yacht, whether through a brokerage, private sale, or elsewhere online is only the first step. You should always have a contract which applies to the purchase, ensuring that it is comprehensive and protects your interests. Things to look for include balanced dispute resolution and jurisdiction clauses, and a clearly set out sea trial and condition survey process.

While you are negotiating the contract terms, it is sensible to give some thought as to where you want the vessel to be registered. Different registries operate under different requirements and appeal to different types and locations of use. This is relevant to negotiating contractual terms as different registries have differing requirements for the documents they need to register a vessel under their flag, for example whether the documents require notarisation, what class survey documents are required, or if they need loadlines and stability booklets. Knowing what these requirements are, and ensuring they are included in the suite of closing documentation the seller will provide you at the completion of the sale, is much easier than having to chase those documents down urgently once you have taken delivery of the vessel and your application for registration is being held up!

Another consideration that you should think about before signing the contract is how you want the yacht to be owned. There are a variety of available ownership arrangements which can have different implications. For example if you want the vessel to be owned by a company it can be easier to incorporate that company (if it is not already established) prior to signing the contract so the company can be the party to the agreement rather than you as an individual having to assign it to the company later. It is important to also note that, where a company is the buyer, it is normal to have resolutions appointing a power of attorney for the relevant people who are producing, presenting, and executing documents for the sale.

By this point, you have established where you want your vessel to be registered and what documents are required for that registration, how it will be owned, and who will be the listed buyer in the contract. Once these points are negotiated and reflected in the contract the contract is still not ready to sign, until closing processes have been negotiated and set into the contract.

Yachts can be very expensive assets to own, which gives rise to the question of who should hold the deposit and balance until the closing is completed. You may be hesitant to send the funds over to the seller or their lawyer before you take delivery – not unreasonably – so you may want to consider an escrow arrangement. This is an agreement within the main contract where an agreed party – often the broker or one party’s lawyer – is bound to hold the funds until the closing processes have been successfully completed, at which point they pay the funds to previously agreed upon recipients. Negotiating an escrow arrangement before the contract is signed can save a lot of headaches close to delivery and ensures that both parties are safely assured that the money will be in safe hands and paid out in a pre-arranged manner.

Finally the closing process itself – how the sale mechanically will be conducted – needs to be determined. Some jurisdictions have quite severe tax implications for vessel sales within their waters, meaning you may want to take delivery offshore, or alternatively the closing meeting could happen entirely online with delivery taking place some weeks later. As with many aspects of the yacht purchase process, it is normally far easier to negotiate the process in advance with the seller, ensuring that both parties know what is required and enabling the necessary arrangements to be made.

Having resolved all of these points the contract can then be safely signed, and you as buyer can be safely assured that you have signed up to a reliable and robust process for the purchase. This is the best way for a stress free and smooth closing which results in you receiving clean title to your yacht, and in a manner which is ready to go for whatever use you have in mind for it.

Based on all of the above, you can understand that a yacht purchase is quite a complicated process!

Dawson & Associates are experts in yacht sale and purchase agreements and have strong connections with a number of flag registries and classification societies internationally, making us trusted partners for our clients in advising on contracts, registration, and ownership arrangements. If you are looking at buying a yacht, have been provided with a draft contract by a seller, or want advice on the process, please contact Peter Dawson by email peter@maritimelaw.co.nz; phone +64 27 229 9624 or Troy Stade by email troy@maritimelaw.co.nz; phone +64 27 368 6730.