|Jan. 12th, 2009|
How to Buy a Superyacht
Superyachts are the summit of success. They offer adventure, comfort, privacy and security. But ownership means responsibility, and, potentially, liability. Of course, you don't have time for steep learning curves, and some will try to exploit this. Benjamin Maltby, an English barrister and Director of independent superyacht consultants MatrixLloyd, provides a little guidance for those thinking of joining the élite fleet.
What is a Superyacht?
Yachts over 24 metres in length are generally considered to be superyachts. Why such a precise division? Because above this size the rules and regulations really start to kick in, crew must be employed, and the whole adventure becomes a little more exclusive. Thankfully, charter income can contribute significantly towards running costs and some vessels have been specifically built to be profitably chartered.
Choosing Your Superyacht
Superyachts are the embodiment of the truly successful individual's personality. They should genuinely reflect the owner's character if he or she is going to truly enjoy time spent onboard. Sailing yachts have a more natural feel at sea and can be raced competitively. Motor yachts provide more space, can be faster and built to more individualistic designs. There exists a warm-hearted rivalry between the two camps. At this scale, there is little difference in running costs.
As an aspiring owner, you may have spent at least some time chartering a superyacht, and will have an idea as to the sums involved. Yet new owners should still be realistic as to how much they are prepared to invest. A good rule of thumb is that you should expect to spend 10% of your vessel's value each year in running costs. It's common to start with a modest vessel, and progress to something larger every few years.
New or Existing?
Superyachts are not built on production lines. Your input will be sought at every stage. They are also complicated, with much to go wrong. Owners like to push back technological and aesthetic frontiers. Unproven combinations of materials and concepts are often incorporated. The results are awe-inspiring, but teething problems can take time to be resolved. Superyachts often take years to build. Buying an existing vessel gives you immediate use, and a subsequent refit can soon provide individuality and a box-fresh feel.
Having Your Superyacht Built
Having spent some time leisurely researching the market, you may know which builders and designers will be capable of delivering your dreams. Builders may offer you their "standard" contractual terms. With this amount of buying power, these terms, which may favour the builder in ways you may not have thought possible, will need amending. For example, legal title may not be allowed to pass until completion, meaning that your (substantial) deposits paid before that time may be lost if the builder goes out of business.
There is no point finding a designer who pens the perfect superyacht, which the builder then interprets in his own cost-cutting way. The specifications must be highly detailed. Further, a separate interior designer will be instructed, as well as a naval architect and independent technical surveyor: a lot of voices. The contracts with these parties should be incorporated into a single build agreement, to ensure all sing from the same hymn sheet.
Builders must adhere to a complex array of regulations. This will depend on where the vessel is to be used, whether it is to be chartered and which country's flag it will be sailed. The contract must reflect these requirements in exquisite detail. Modifying a superyacht afterwards can be particularly expensive.
It's not just the total cost of the project which must be agreed. The builder may need instalments paid to cover the cost of materials. Far better, though, to pay following the completion of various stages, to encourage the builder to stick to the schedule. The builder will also need to factor-in fluctuations in materials costs and exchange-rates, to prevent surprises later on.
The builder will often employ outside suppliers and sub-contractors for the trickier parts of the process. This is normal and does not mean that the builder is incompetent. The builder should, however, always remain liable for any of the suppliers or sub-contractors' mistakes. It is also important for the builder to have paid the suppliers for materials as soon as possible to prevent anything being reclaimed later.
Builders' yards are hazardous places. The yard should be obliged to carry insurance against your superyacht being damaged or destroyed even before it hits the water. Meanwhile, you should have the option of a refund on payments made to the builder, or for the insurance payout to be used to repair both yard and project.
If the builder goes bankrupt during the build - it happens - the builder will be obliged to repay any instalments. But you will be at the end of a long queue of creditors. Far better, then, to have this obligation backed by a bank guarantee. Alternatively, you can have legal title to the half-built superyacht, but the builder may then ask you for a guarantee against not paying the remaining instalments.
As no two superyachts are ever identical, their performance in terms of speed, noise levels, vibration and range, are difficult to predict - even with today's computer-aided design techniques. So it's normal to agree a fixed sum as compensation which the builder must pay if the performance criteria aren't met but still fall within certain limits, but still allow you to pull out if even these limits aren't met. Quibbling over discrepancies is an expensive business, involving expert witnesses. It's also difficult to put a figure on your disappointment. The builder will also be able to insure more easily against the design not working as expected.
Sorting matters out with a builder after the final instalment has been paid can be difficult. It is crucial that all the correct documents relating to legal title are presented before 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. The newly completed vessel will have to be formally tested, at sea, to make sure that the performance matches the specification. For this you will need to appoint an expert representative with the right qualifications and testing equipment.
Given the complexity of the project and the importance of things happening at the right time and in the right order, delays are possible. Best to agree in advance how much delay is acceptable, and how much money will be deducted from the instalments when larger delays occur. Otherwise, arguing over this can be expensive.
Not all your new superyacht's inevitable little faults will come to light during the trails. Only over time will all the equipment and systems will be used in varying weather conditions. The builder should guarantee materials and workmanship for a period of warranty - typically around a year - after delivery. Once again, the builder will need to put up security in the form of a bank guarantee, or have the last instalment withheld until the end of the warranty period.
Buying an Existing Superyacht
The usual place to start is the broker. Like estate agents, brokers promote superyachts in the market and provide guidance on price. Their descriptions, however, are usually without guarantee.
Unlike a house, it is perfectly possible to buy a superyacht without any legal formalities. The dangers of doing this are incalculable and a detailed agreement must be drawn up. The contract to buy and sell, covering all the ifs and buts, is contained in a single legally binding document called a Memorandum of Agreement (MOA), which is signed by both parties. 10% of the purchase price is normally paid straight away, with the balance only being paid once the superyacht and the all-important documentation have been formally handed-over to you at the agreed time and place.
The two other keys documents are the Bill of Sale, which formally records the transfer of legal title from buyer to seller, and the Protocol of Delivery & Acceptance, which sets out the exact time and date of the transfer - to ensure that insurance cover is seamless.
It is entirely up to you to check exactly what is being bought. This means having the superyacht surveyed, out of the water, by a qualified and insured surveyor. If satisfactory, this should be followed by a sea trial. As these stages are expensive, the MOA needs to describe the parties' rights and duties when issues are raised, including your right to pull out altogether.
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