GETTING THE DEAL RIGHT – TOP TIPS FOR BUYERS AND SELLERS OF SUPERYACHTS
According to some estimates, the superyacht industry contributes a staggering a €24 billion per year to the global economy. To put that into perspective, that’s about €3 billion more than the total GDP of Iceland. For industry insiders, that figure may be unsurprising, especially when you consider that the average price tag of a newly built ‘midsized’ superyacht is circa €50-80 million and the industry has grown steadily at a rate of, on average, 7% per year for the last ten years and shows no signs of slowing down anytime soon. Indeed, many of the top shipyards currently have a limited number of build slots available for yachts over 100 metres in size.
It’s worth pausing here to note the change that has occurred in our industry – in the early 90s, there were only a handful of yachts in the world larger than 100 metres. At the time of writing, there are almost 70 yachts over 100 metres. It is, therefore, imperative, in my opinion, that yacht buyers and those advising them have a clear understanding of this unique and demanding asset class.
This article outlines the key legal and practical issues for buyers and their advisors to think about when involved in the sale and purchase of a second-hand yacht – as well as the positive steps buyers and their advisors can take to help ensure a positive purchase experience.
Sale and Purchase transaction
I am often asked “What are the key issues for us to think about in a sale and purchase (S&P) transaction?”
It’s a broad question to answer, but let’s start by briefly considering the dynamic of a yacht S&P transaction. You have two very wealthy individuals and their advisors coming together to convey a movable, technically complex and very expensive asset. This is an asset which, more likely than not, has a full-time complement of crew, stretching, in some cases, to 50 plus people.
Whilst there are many issues to be considered when purchasing a yacht, some of the headline issues to think about include:
Consider the tax position: After confirming the sale price, this is one of the first issues that I start to explore with my clients. Take, for example, a yacht that is based in the EU: Has VAT been paid on the yacht? Has the yacht been operating commercially? Where is it flagged? How was VAT paid? What evidence is available to prove the payment of VAT? These are all questions to ask the brokers and the seller or, if you are a seller yourself, these are questions you should be ready to answer. A failure to do so as a buyer can result in a potential 20% uplift on the purchase price (in the form of VAT). It is an expensive thing to miss.
The inventory: As a prospective buyer, when you view a yacht, you see it in all its glory; the aft deck infinity pool, the bespoke, personally designed interior and, moving down, the fully-equipped beach club, with all of the associated water toys. Naturally, you might expect that the yacht will come equipped as seen, right? Well, sometimes sellers (especially sellers who own more than one yacht) want to take some things with them: a statue they are particularly fond of, a vintage tender or a chair they have grown to love.
The inventory is where both parties make clear what they expect from the sale and purchase and its importance cannot be overlooked in a world where works of art and tenders are selling for multiple millions of pounds
Future use planning: As a buyer, you may have very clear expectations about what you intend to do with the yacht; for example you may know that you only ever want to use it privately with your family and friends. To the contrary, some buyer’s like the idea of offsetting some of the running costs through chartering it out to third parties. Either way, it is important to consider how you will use the yacht prior to becoming the owner. This is because the manner in which a yacht is used has a direct relationship with its tax status and the certifications the yacht must have, i.e. whether it meets the relevant standards for commercial operation.
Use a company: It doesn’t happen that often, but it is not unheard of for buyers to sign a sale and purchase contract and take delivery of the yacht in their own name. The risks of this are significant, as the buyer’s liability to the world at large is unlimited, potentially putting their entire net worth at risk. The solution is a simple one: purchase the asset using a limited liability company. At this point, the choice of jurisdiction of the owning entity should be considered in light of the proposed future use of the yacht and its tax position.
The actual sales contract: I could write a short book on what should and should not be included in a sales contract. However, since it differs from deal to deal, I would rather highlight some of the key things to think about and questions to ask:
Firstly and simply, has the contract been written in clear English? Do you understand the duties of all of the parties and the relevant time frames? Secondly, what documents are you agreeing to give and by when? What documents are you receiving? Are the documents you are receiving sufficient to either register the vessel in the buyers name or evidence of the authority of the seller to sell the vessel?
Who is the stakeholder in the transaction? Is there a stakeholder? Are they impartial or do they represent one of the parties in the transaction? If the latter, have they agreed to act impartially, notwithstanding their obligations to one of the parties?
Has account been taken of any charter contracts that may have already been entered into prior to an agreement in principle being reached? If so, is it clear that the buyer will perform those charters? Alternatively, is it clear that the seller will pay the charter fees to the buyer upon receipt or has provision been made for the relevant charter contract to be novated?
Finally, as a buyer, what rights of sea trial and condition survey do you have? When do these rights expire and do you have sufficient time to complete all the surveys you want to carry out?
If you are considering purchasing a superyacht, working through the questions raised above will contribute significantly to a smoother purchase process.
About the Author
Mark Needham is a specialist superyacht and luxury asset lawyer and a partner in the London law firm Hannaford Turner LLP. Mark regularly represents buyers and sellers of superyachts internationally and is ranked as a leader in the field of superyachts globally in the Chambers & Partners High Net Worth Guide – the leading independent directory of lawyers operating in the High Net Worth industry.
Tel: +44 7828 092379