Five reasons your new-build or refit project needs a good superyacht lawyer
Written by Yachting Pages
Last updated: 20/03/2018
The breadth of law within the superyacht industry is vast, with many areas of law coming together within the world of yachting. But many ask: what value does hiring someone who specialises in what we’re arbitrarily calling ‘superyacht law’ bring to your project?
The general answer is fairly simple. Think of a complex, high-value construction project, but further complicated by the involvement of several different jurisdictions and international treaties. You may begin to understand the reasons why a good lawyer with relevant experience in this industry can bring big advantages to your new-build or refit project.
Not to mention, a superyacht typically:
- Is a very high-value asset, often built overseas and owned by an SPV domiciled in a third jurisdiction
- Is subject to international regulation and control
- Involving substantial fiscal outlay prior to delivery, and therefore credit risk
- VAT and local tax considerations exacerbated if commercially chartered in the EU
- Has an owner totally disinterested in involving himself in legal matters
So, superyacht law is a real deal and there are numerous advantages to engaging with one throughout a project. Let’s take a look at some more specific examples of where a strong, experienced superyacht lawyer can add value to your project.
Choice of flag registration
Every single vessel on the planet has to be flagged (registered) somewhere. Superyacht lawyers know the main candidates for registration when it comes to superyachts, and all the intricacies that come with registering a vessel in a given location.
An owner wanting his new superyacht to be registered in the Cayman Islands, will need to consider things like survey requirements, employment requirements, the flag’s position on the Paris MOU white list, cost, international status and protection, and much more.
Payment schedules and insolvency risk
Signing a build contract without a lawyer is very risky. A standard contract from a shipyard will often be heavily weighted to protect the interests of the builder, if things were to start going wrong.
A lawyer will assist in pushing for changes in these contracts, using their legal knowledge and expert advice. Payment schedules can be swung from front-loaded to a bit more back-loaded (meaning the shipyard gets the majority of their money towards a later point in the project, as opposed to paying a larger-than-necessary percentage upfront).
Lawyers will also agree upon a refund guarantee from the parent company of the yard that covers at least the initial payments in the event that the owner becomes entitled to terminate the contract. This secures repayment of upfront payments at a time where there is little else of tangible value to show for the money paid.
A right to take possession may also be agreed upon with the advice of a lawyer, as well as negotiating title in the uncompleted yacht, once it begins to have value.
Quite understandably, owners often like to have the option of being the first person to lift the veil on their newly delivered yacht, or to determine which of their representatives will be granted the privilege of introducing it to the market.
Incorporating a tightly worded confidentiality provision into the contract is often a key point for owners-to-be. Aside from wanting to be the first to unveil their new yacht, owners often have many other professional reasons for confidentiality to be of utmost priority; and sometimes they just don’t want the outside-attention that would come if their name were to be linked to the build.
Warranty provisions and design rights
It is standard practice for a yard to agree to remedy any defects that arise (usually within a year) in connection with the yacht’s workmanship and materials following delivery.
To counter the potential argument that the cause of a defect is the fault of the yacht’s design team rather than the builder, clauses can be worded in such a way that the builder assumes express responsibility for design risk, as if it had devised the design itself.
Delivery in non-EU waters, and the use-case of the yacht
In order to mitigate the risk of VAT becoming payable on the yacht at delivery, the contract should state the yacht’s first port of call to be a destination outside of the EU.
Also, decisions need to be taken on whether the yacht is to be used commercially or purely for private use. This decision has very significant implications for an owner, ranging from the required qualifications of the captain and crew, through to what—and how much—tax is paid.