Part Two
In the July issue of the Islander Magazine I wrote part 1 of this article in which I question the benefits of placing your 15m – 24m crewed luxury yacht on the charter market. While last month I focused on the setup phase of such commercial operation, in this article I focus on the ongoing operations of private vs commercial yachts.
While the rules and regulations of a <24m LWL yacht are still less convoluted than those of bigger yachts, they create considerable added hoops to jump.
VAT.
On more than one occasion we found our clients to be surprised once they discover that most countries don’t make a distinction between the UBO (Ultimate Beneficial Owner) and any 3rd party charter guest when it comes to paying VAT over the value of the usage of the yacht. The owner, who has already invested in the acquisition and maintenance of the yacht will be invoiced for their time on board. Not a problem really since that money is going from their private funds to the yacht’s account and will be used towards running costs. The 19%-21% VAT however will sting a bit, as that is money that they will hardly see back. I say “hardly” because, the VAT on parts and services invoiced to the yacht can be deducted.
Of course – perhaps the number one reason why we see owners registering their yachts commercially – the VAT on the capital purchase of the yacht is exempted.
My conclusion on the above: money-wise, there is enough benefit there as 21% over 2, 3,… 6 million (depending on the size and brand of Pocket Superyacht) is of course a considerable amount!
Making money.
When we meet potential clients who dream of making money with their Pocket Superyacht, we know we have a long way to go aligning their expectations with reality. However, a while back we worked with a client who was building a Leopard 58. Well spec’d, this yacht costs just under 1 million Euros.
Charter rates are as high as 30.000€ per week.
A Lagoon 620 with the same amount of cabins costs only 20% – 30% more per week while the purchase price of the Lagoon is a 100% more than the Leopard.
This owner also planned to keep the Leopard in the Bahamas, for the majority of the season. A charter license in the Bahamas is inexpensive and it’s a popular destination with a long season.
Perhaps there was money to be made!
I don’t know because the client was asked if he wanted to sell the yacht he was building for 20% more than he paid for it!!
He decided he could charter a yacht a couple of weeks for that money!
The liabilities.
The liabilities and the scrutiny you are subjected to as the owner of a commercial yacht vs private are also an important consideration in my opinion. Of course insurances can help protect an owner from most, but not all, liabilities.
In a some cases (depending on nationality and residency of the crew) a medical insurance as part of the contractual package, are not a real benefit for the crew as they may already have substantial cover of their own. Medical insurance is mandatory for crew on commercial yachts. As is the Employers Liability Insurance. Which all have a pricetag. Nothing exubarant in my opinion but, eroding the potential financial reward.
One interesting liability in particular is associated to the charter contract. In case the yacht is not operational for tge charter-due to anything other reason than force majeur- and the trip has to be cancelled, the owner will have to reimburse the charter fee + 50% (FIFTY!) of the charter fee!
About 12 years ago I was freelancing as captain for the owner of a 72ft monohull. In order to safeguard the tight charter program they had going, he had gone through the expense of shipping the yacht, which was perfectly fit to sail back on its own keel, back to Europe.
The shipping company incurred delays and the yacht did not show up in time for the first Mediterranean charter. Cost: Shipping fee (back then) about 35K€ + Charter Fee, about 25k€ + 50% of charter fee, about 12,5k€ = 72.500€ that they would have never incurred if they solely used the yacht privately.
It wasn’t force majeur because it can be argued to be poor planning. The contracts of shipping companies fully cover them for delays in delivery which are not uncommon either.
Likewise, technical failures aren’t force majeur as they can be construed as poor maintenance, which isn’t always the case.
Finally there is the additional wear and tear associated to the increase of the yacht’s sea time as well as interior usage. I hear clients argue that the crew may become bored if they don’t use the yacht more than 8 weeks a year. But if you have good crew, these other 44 weeks will be partly used for deliveries and will result in a very well maintained yacht with well rested crew, ready to give you that 5 star experience that you invested in.
Conclusion.Â
In my opinion, it becomes very difficult to financially justify commercially exploiting a yacht over 2 million Euro that can sleep less than 10 guests. Especially if the cruising plan is not geared towards the charter operations. With that in mind the owner has to make up their mind wether the cushioning of the costs is worth the hassle, liability and strangers sitting on their loo…
Jens Oomes
CEO (Creative Encouraging Organiser)
+34 674 83 83 68
