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Superyachts

Poster: 01/03/2007

How to buy a superyacht

Superyachts are the summit of success. They offer adventure, comfort, privacy and security. But ownership means responsibility. Of course, you don't have time for steep learning curves, and some may try to exploit this. Benjamin Maltby, an English barrister and director of "independent" superyacht consultants MatrixLloyd SL, provides a little guidance for those thinking of joining the elite fleet.

Superyachts are yachts longer than 24 metres. Above this size certain rules and regulations apply, crew must be employed, and the whole adventure becomes expensive - and exclusive. The good news is that charter income can contribute significantly towards running costs, with some vessels being chartered profitably. They can take years to build, but buying an existing vessel gives you immediate use, and a subsequent refit can soon provide individuality and a box-fresh feel.

Building your superyacht

Builders may offer you their "standard" contractual terms. These could favour the builder in ways you may not have thought possible, and will need amending. Specifications must be highly detailed and reflect a complex array of regulations: modifying a superyacht afterwards can be expensive. Your builder may need payment in regular instalments but it's better to pay on completion of specific stages, to encourage a punctual launch. It is also important for the builder to remain liable for any sub-contractors' mistakes, and for them to be paid promptly to prevent anything being reclaimed later. Given the complexity of the project an acceptable delay should be agreed in advance. Bank guarantees neatly solve the issue of what happens to your instalments if the builder goes bankrupt during the long build. Alternatively, you can have legal title to the incomplete superyacht. The newly completed vessel will have to be formally tested, at sea, and you will need to appoint a qualified expert representative. Not every little glitch will come to light during the sea trail, so your builder should guarantee materials and workmanship for a warranty period, typically a year. Once again, the builder will need to provide security in the form of a bank guarantee, or have your last instalment withheld until expiry of the warranty. It is crucial that all the correct documents relating to legal title are presented before the final payment is made. Otherwise your new superyacht cannot be registered and you will not be allowed to sail anywhere. The place of delivery may also have tax implications, and must be agreed.

Buying an existing superyacht

The usual place to start is a broker, but using them is not strictly necessary. The contract to buy and sell is contained in the Memorandum of Agreement (MOA). Typically, 10 per cent of the purchase price is paid straight away, with the balance paid once the vessel and documentation has been handed over to you. It is up to you to check what you're buying. The superyacht must be surveyed by a qualified surveyor; and, if satisfactory, a sea trial follows. The MOA must describe your rights and duties when issues are raised, including your right to pull out altogether. The MOA should also list all the equipment and spares included. Crucially, the MOA must state that the superyacht will be handed over free of debts, which can stay glued to the vessel even after purchase. The MOA should also cover the documentation needed for a smooth transfer of legal title and any previously booked charters. Given the complexities of superyacht ownership, bespoke terms must be negotiated and agreed each time.

Financing your superyacht

Should you require financial assistance - most do - many banks are now happy to finance the purchase of both new and existing vessels. A proportion of the loan and interest repayments can be delayed until the end of the loan term and paid using sale proceeds or by refinancing. For security, the bank may wish to buy the superyacht itself and charter it to you, with your charter fees repaying the loan. Either way, the lender will take a keen interest in the maintenance and insurance of the vessel. Annual surveys and independent valuations may also be needed.

Value Added Tax

If you want to keep your superyacht in European Union waters, you may have to pay Value Added Tax (IVA in Spain), ranging from 15 to 25 per cent of the vessel's value depending on the country of entry. The correct paperwork is vital and the VAT status should be a term of the purchase agreement. There are many ways of legally avoiding VAT, however.

Registering your superyacht

All vessels must be registered with a particular country, and wear that country's maritime flag or "ensign". Registering also provides that country's consular and naval protection. Insurers and financiers may insist on certain countries' flags, to help ensure that the highest regulations are being applied to their liability. There will be tax implications inherent in any choice.

Resting assured

Although relatively rare in the restful world of superyachting, accidents do occasionally happen. Insurance spreads risk and brings certainty. There can, however, exist opportunities for underwriters to walk away from claims. You need to make sure that underwriters have no excuses when it comes to the crunch. As with any insurance, you must disclose anything which might influence a prudent insurer when considering whether to take on the risk, and if so what the premium should be.

Managing your manager

Nearly all owners use shore-based managers. In fact, international safety regulations require superyachts over a certain size to have management ashore. The use of managers, however, can still leave you liable for legal non-compliance if the relationship is unbalanced. Crew members may prefer to be the employees or contractors of the manager rather than the owner, but either way the whole crew must meet certain training and medical fitness standards.

Conclusion

Buying a superyacht is the start of an incomparable adventure. With the right guidance from the start, all will be plain sailing.

(Note: This article does not provide, or replace, legal or financial advice.)

MatrixLloyd SL
Tel. 971 729 198
info@matrixlloyd.com
www.matrixlloyd.com

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