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Buying a New Yacht

17-buying-a-new-yacht

– some of the pitfalls, along with the fun

It really is the ultimate prize. A brand new yacht, built to your specification, with the kit of your choice, your colours, layout and unused by anyone else. There is the opportunity to visit the shipyard, pour over the plans, and involve the whole family in the creation of this special new member of the family that will provide fun and be your magic carpet for regattas, crossing oceans, or for lazy yachting holidays wherever in the world she is positioned.

Not for you the myriad of compromises of a second hand yacht, built for someone else, that may have dodgy systems and full of the ideas and dreams of another family, and which needs restoring, updating and remodelling to fit your needs.

Of course buying a new yacht is not the cheapest option; it requires masses of input to get her as you wish, and you have to wait whilst she grows and develops in the womb of her build yard. The birth is sometimes a difficult one, as things come together more slowly than expected, and often more expensively than you would wish, but then – the launching party, the trials and the satisfaction of taking delivery of your yacht, to your specific wish, a new, shiny and beautiful creature ready to realise whatever your yachting dreams may be.

Buying a new yacht is a joy. The heavy depreciation and nay sayers who will tell you that you won’t say goodbye to the gremlins for the first season may be reality, but despite these, what could be nicer, if you are prepared to pay?

We understand this totally, and at Berthon we have a thriving new yacht division selling Windy, Pearl, Iguana, Solaris, Moody, Rustler and McConnaghy and we appreciate that for many of our clients the joy and pride of ownership in buying a new yacht makes this the only way to go.

Given the costs and time periods involved, with stage payments and build contracts, and with the stuff that can go wrong, it is surprising that so many yachtsmen are so trusting when embarking on the purchase of a yacht, which is a serious investment of time, emotion and of course money.

When buying a brokerage yacht, these risks are mitigated.

If buying from a professional broker with escrow accounts, industry contracts, lawyers in many cases and importantly, a thing that exists and which you can touch and feel, a purchaser can be at least 99.99% satisfied that they can exchange their cash for their chosen yacht with good title and in a known condition. Brokerage sales normally take around 8 weeks to complete (although the trend is that this can take longer as funds become available, yachts are positioned and due diligence is carried out), and therefore the period of risk is small and is capped at 10% being the deposit payment made.

When selling a brokerage yacht belonging to a company, it is routine to obtain a credit check on the company, insure that the articles of association are correct, to minute the sale and to check that the authorised signatories are indeed, just that. If the transaction requires company ownership for the purchaser, a new company is typically formed and all the same due diligence carried out. At the same time, the yacht is surveyed, prodded and poked. Her inventory is checked and she is checked for RCD, VAT and good title.

Of course none of these measures are fool proof, but it does lower the risks significantly.

When buying a new yacht, the same levels of diligence are required. It is surprising to us in many cases, how so much is taken on trust. Buying a new yacht is a glorious and emotional experience. It is not a good idea to add to the stress levels by not taking some simple precautions when buying in order to secure your positon and to make sure that a lovely new yacht appears at the end of the process and not bits of one.

On a corporate level, you would always expect to check out a major supplier and to ensure that their accounts are in order, how the ownership of the company works and how their accounts look. At Berthon we are always happy to supply a copy of our full accounts and ensure that we have audited accounts within nine weeks of our year-end, available well before Christmas each year with our financial year ending on the 30th September.

So if you are buying a new yacht, ask for the full accounts and do not hesitate to ask difficult questions. The company that you are contracting with will have your hard earned cash in their account whilst your yacht is just a twinkle in the laminators’ eyes and onward as your stage payments will allow her to develop and grow.

Of course there are some amazing shipyards with great skills and total integrity who have accounts that do little to replicate those of long respected FTSE100 companies, but you should understand their limitations and take a view on whether you trust them to build you a yacht.

There is no point asking smaller yards to hold your money in escrow – they need it to build your yacht and so you need to be sensitive to the fact that the yacht building industry is not a massively profitable one, particularly where the volumes are low. Normally the shipyard is full of committed craftsmen who are focused on doing the best job possible and accounts and financial spreadsheets are not always what they do best.

However, a bank guarantee can be a smart idea although you may need to help them with the fees to set one up. You may find that this only covers the payment that you have in hand and not the full cost of the yacht.

The British Marine new build contract is a good document and covers most of the areas of concern. It works on the basis that you pay as you go. There are milestones which have to be achieved before the next payment is made. Therefore the amount of money that you have paid to the shipyard should be roughly equivalent to the value in the unfinished yacht. You should be aware that the contract must to a great extent be front loaded because of the cost of the initial structural build and the need to order expensive parts to have them ready as construction progresses – engines, generators, rig and so on.

This system is tried and tested and works very well. However, do be aware
that if the worst was to happen, your uncompleted yacht and those bits of her that you own like maybe a rig, or generator, or batteries yet uninstalled, will be available to take away and finish elsewhere or by creditors chasing their collateral. This situation is far from ideal.

If there is another local boat yard with the skills and capacity to finish your yacht then it is an easy matter and that would be luck indeed….so, if a yard fails in mid-build in practice it normally means that one of the following occurs –

  1. The receiver/new owner is prepared to finish the yacht in some form but that they wish to renegotiate the price as the original contract price did not allow for sufficient margin to make money. Hence the reason that the receiver is there in the first place.
  2. You take over the rental of the premises, very often in partnership with other owners who are in a similar position, employ the staff and finish your yacht, involving you in a lot of work, aggravation and normally extra expense.
  3. The yard shuts and you leave with your yacht and finish her with subcontract labour, and when complete, the process will have been long, expensive and also you own a yacht which is partially home built.

There are also pitfalls in relation to the removal of your asset in as much as you will almost undoubtedly be between milestones and may well have paid for equipment that is on site but which is not owned by you as the suppliers have not been paid. These normally disappear and so it is worth ensuring that there is a clause in the build contract that gives you the option to pay up to date and have ownership of the whole asset (including the bits unfitted and lying on the ground) prior to deciding what to do next.

The other option is only to part with your hard earned cash once the yacht is completed. The snag here is that there are very few yards that have the financial muscle to agree to this and given the high value and low volume of what they produce, this is completely understandable.

It is always worth employing a marine solicitor (only use someone who is familiar with this part of the law, your family solicitor will not be able to help), just to have a look at the contract before you sign and be sure to do the proper due diligence before you start so that if there are risks you are fully aware of them.

The other thing to think about is whether you need a project manager or surveyor to help you during the build. If you are buying a series yacht from an experienced yard, with RCD, normal quality control and a good track record, then this is less necessary. However, if you are building a one off, or from a yard that produces under say, 10 yachts a year, it is a risk to allow them to build as they think and hope that it will be alright on the night. A good surveyor or project manager will also be able to help you with the myriad of decisions. It is also not a bad idea with a larger yacht where there are milestone payments, to have a surveyor to sign these off. You can then be sure that the milestones have been hit and that the equipment with your name on it is in that store.

If the yard that is building your magic carpet does falter and fail and you finish her in one of the ways described, please do bear in mind that there are no cuddly warranty terms to fall back on and you will be very much on your own. The suppliers whose kit is onboard may not have been paid, and whilst they are normally very good, you will certainly not be first in the queue if there is a claim or a failure.

Of course most new yacht purchasers sail through the experience as they are working with well funded shipyards that have lots of experience and the will, cash flow and order book to ensure that the yacht is built, finished and handed over according to the contract. However, if you consider some of the potential pitfalls and tiger traps, you are less likely to fall in.

If you are buying via an agent or a dealer, be aware of the difference. With an agent your contract is with the shipyard. With a dealer you buy from them and you should carry out normal due diligence on them as well as on the shipyard and be sure that you are happy. If the dealer, agent or shipyard is not familiar with the contract that they are asking you to sign, do not be afraid to be trigger happy with your marine lawyer’s phone number and have them check everything through before attaching your moniker to the agreement.

As we said in the beginning, a new yacht is a thing of beauty, a joy and we totally understand why so many people choose to go this route and so thoroughly enjoy the journey. That said, a little passage planning is most definitely in order when contemplating such a step to be sure that the process is everything that you imagine and bears no resemblance to our gloom leaden words.

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