Tim Schommer advises on all matters relating to shipping, aviation and trade law, contentious and non-contentious. He has significant experience of commercial litigation and arbitration, and represents for more than 15 years clients in relation to all aspects of the yachting industry
When it comes to the purchase of a second-hand yacht, one has to decide which contract to use. Various standard forms exist. They usually contain provisions with regard to the payment of a deposit, a sea trial, and the procedure up until delivery of the yacht. Whilst most parties use some form of a standard contract -for example, the MYBA Memorandum of Agreement- others use individually agreed contracts. What is the best way forward?
Kicking off your contractual negotiations with a standard agreement
Using a standard agreement as a foundation of a purchase agreement has various advantages. The parties are usually familiar with the wording of a common standard agreement, whereas individual agreements might be confusing at first glance. Even if the parties are not familiar with the content in detail, the fact that a standard agreement is deemed to be neutral provides a certain degree of security. This is due to the fact that standard contracts are drafted in a reasonably balanced way – they benefit neither the seller nor the buyer. Apart from reflecting the most common agreements and standard procedures with regard to the sale of a yacht, standard contracts, for instance the MYBA Memorandum of Agreement, also offer further advantages. Throughout the entire sale process, hiccups and unforeseen issues can always appear. One of the parties might even want to abandon the sale process altogether. Standard contracts usually contain clauses and provisions which will guide the parties through most difficulties and provide a resolution of the contractual situation, even if the parties are in conflict. Inexperienced parties, therefore, might prefer to use standard contracts.
Even though standard contracts do usually provide a fairly balanced base for the transaction, it is essential that the parties understand in detail what they are agreeing to. If they do not know their individual rights and obligations under a standard agreement, things can still go terribly wrong; failure to comply with certain deadlines after a sea trial is just one example. It is also important to understand under which circumstances a buyer is in the position to renegotiate the purchase price. Conversely, it is crucial for a seller to know from which moment the buyer is bound by the contract without being able to renegotiate.
It is of the utmost importance that both parties peruse the contract diligently, even if it is a standard contract. In practice, however, many transactions are not carried out one hundred percent in accordance with the procedure as set out in most standard agreements. The reason being that not only are there legal blanks or different alternatives which the parties have to decide upon, but also that a standard contract will usually provide for a set sequence of events. For instance, first a sea trial, and secondly, a condition survey. Also, parties often amend the standard wording by agreeing on Addenda to the contract. Such Addenda are usually drafted to reflect the particularities of the sale.
Even though one might assume that standard contracts are quite straightforward, parties should never underestimate the consequences of a scenario that does not go according to plan. Since the purchase of a yacht usually involves high-value assets, parties should obtain legal advice before signing an agreement.
Getting into detail with individual agreements
As each vessel and each transaction is different, standard contracts sometimes do not fit. If a vessel is to undergo repair works during the purchase procedure or if the parties would like to include different options to allow withdrawal from the sale at different stages, for example, the amendments to a standard contract become substantial. Amending a standard contract can heavily contain the risk of it becoming inconsistent. In such a scenario, the use of a standard contract makes things a lot more complicated than necessary. A much shorter agreement individually agreed upon between the parties might do the trick. If the involved parties are based in the same jurisdiction, they might also feel more comfortable in agreeing upon a particular law and jurisdiction they are both familiar with, instead of the law and jurisdiction in the standard contract.
Conclusion
There are good reasons for both standard agreements as well as individually negotiated contracts. When considering whether to opt for one or the other, multiple factors have to be taken into account; not only the value of the yacht and/or the different particularities of the transaction but also the complexity of the entire project can be of importance when choosing what might be the better contractual option. Although standard contracts are widely used and can save time and money, depending on the particular case, their application can also have the opposite effect.
