Andy Powell Partner
Bulletin 4: Sale and Purchase of Superyachts
In this latest briefing from the Ince Yachts & Superyachts team, we look at some of the obstacles to the sale and purchase of superyachts during the lockdown, and some potential legal solutions.
At a time when yachting crews are experiencing increased levels of confinement and vulnerability, in many cases tackling health care and employment issues, owners and their flag states should be judged by their commitment to supporting their crews. Also in lockdown is the extremely mobile workforce of shore-based professionals on which the world of superyachts depends. But most fundamentally, owners and potential buyers are not able to access the yachts that might otherwise have been bought or sold in preparation for this season.
Sale and purchase transactions, whether new build or second hand, are therefore facing particular challenges right now. One example is LUMINOSITY, a 107m Benetti, delivered in 2020 and announced for sale only last week for EUR 225m. The yacht is lying in Livorno, so out of bounds for the vast majority of potential buyers. If a buyer could be found who is prepared to proceed without first stepping on board, they are likely to ask for that to be reflected in the price.
There will inevitably be some opportunistic buyers in the market, but at present we are hearing of relatively few superyacht owners who need to find a buyer at any cost. That may change as the lockdown continues. Potential buyers may also want to avoid the crush predicted to follow the easing of restrictions, which are expected to last well into the start of the season.
‘Virtual’ boat show events are being promoted, and some brokerages are offering personal ‘virtual tours’, which comply with isolation and distancing rules.
What if a yacht is theoretically accessible? Even if we assume that the buyer and/or their rep are able to travel to and depart from the relevant location, the owners and possibly also the broker have a duty of care not to expose the crew and other port staff to the risk of infection, although the test for and implications of any negligence may vary depending on the flag, the crew contract and location of the vessel.
It is also worth pointing out that a yacht’s P&I cover may not respond to claims arising from the precautionary self-isolation of one or more crew members (for example after a visit from a potential buyer who later develops symptoms), or for routine quarantining ashore at the beginning and end of their contracts. The club may in any event be critical of allowing buyers on board without suitable precautions. It would therefore be sensible to engage with the yacht’s P&I club as part of making any viewing arrangements.
What about the pricing of yachts for sale? As in the commercial world, accurate valuations rely on adequate comparable sales. Valuers of yachts built by the likes of Sanlorenzo and Amels can look to the considerable number of deliveries over the past 12 months, but if brokers are asked to produce valuation certificates for smaller and more specialist makes, they would be well advised to note the unusual market conditions. Buyers should also bear in mind that estimated values are likely to diverge more than normal given the uncertainty of the market. If buyers are seeking to finance their purchase, early engagement with their lender is obviously recommended, and issues in respect of covenants and asset to value ratios could be expected.
If a buyer and seller are able to agree a price and move to the contractual stage, matters may get more technical. The MYBA form of MOA requires the yacht to be made available and a condition survey; the latter might just be possible remotely, with the buyer’s surveyor and the owner’s rep at one end of a video call, providing instructions to senior crew members at the other. Given that the surveyor will not have a free run of the yacht to inspect, the owners may be asked to provide a warranty of full and frank disclosure and/or copies of the yacht’s logs in case known issues do not come to light during the survey. For new builds the buyer has the comfort of the post-delivery warranties, but second hand buyers will want this additional risk to be reflected in the sale price.
Sea trials may simply be prevented by the restrictions in place at the yacht’s present berth or port, and for MOAs entered into post-lockdown, owners would be advised to provide for this to avoid being in breach. Even if the yacht has permission to leave (and return to) its berth or mooring, similar concerns arise about the protection of the crew, even if no third parties attend on board for the sea trial given the possibility that the yacht may need to provision or bunker first. A surveyor may be able to report based on a ‘virtual’ sea trial, but the buyers would have no opportunity to get a feel for the yacht they are about to purchase.
The majority of yacht MOAs will allow a Buyer to cancel the sale and to obtain a refund of their deposit after the sea trial for any reason; cancellation is more difficult once the condition survey has taken place, so the buyer’s rights at the sea trial stage are important to preserve. At present some charterers are being offered deals on a ‘free cancellation’ basis up to the projected end of the European lockdown, and presumably similar deals are being offered to potential buyers for first refusal once restrictions are eased.
If a sale does takes place before the end of the lockdown, possible tax implications may arise. A full change of crew is also likely to be difficult, at least in the immediate term. A purchase of the owning company of the yacht (as opposed to merely the yacht itself) might be a temporary solution, giving the buyer title to the yacht without a change of ownership, at least initially. That approach would need careful consideration, as the buyer would in principle be purchasing all of the owning company’s liabilities as well as the yacht.
The sale and purchase agreement should also allow for interruptions to the sale process caused by the lockdown and to give the parties a framework for varying the terms of the agreement to suit the changing circumstances imposed by the spread of the virus and the apportionment of any costs incurred.
The documentary aspect of the closing and delivery of the yacht cannot be done in the usual way at present, but over the past few weeks Ince has handled a considerable number of vessel and yacht deliveries all involving virtual meetings between the parties, their representatives and the relevant registries. Documentary requirements have been relaxed slightly by a number of the flags, for example in recognition that legalisation or apostilles of notarial certificates are difficult (if not impossible) to obtain at present. Money and documents are otherwise being moved around the world in the usual way.
It is hoped that some of this year’s season can be salvaged, but not at the expense of any avoidable risks to health. This note merely points out that there are potential legal solutions to help business continue until the worse of the lockdown is lifted.
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