Tim Schommer advises on all matters relating to shipping, aviation and tradelaw, 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.
Second-hand yachts are often sold on an “as is where is” basis. The exact wording is different from contract to contract, and one easily underestimates the potential impact of the clause. Potential buyers of a yacht should therefore not only make sure that they understand the meaning of such a clause but should also take corresponding precautions when buying a yacht on this basis.
- What does the Clause mean in the sale and purchase of a used yacht?
The contract clause “as is where is” is most often used when a yacht owner sells his second-hand yacht. The purpose of the clause is to exclude the buyers from otherwise applying warranty rights. When agreed upon validly, “as is where is” means that the seller is not liable for any defect of the yacht which was present at a certain point in time in the sales process, for instance, at the time of the sea trial.
In other words, “as is where is” clauses have the effect that the yacht is sold in its existing condition, whether good or bad, without allowing the buyer to make recourse against the seller for subsequently discovered defects.
This means that a buyer, who accepts the yacht after the sea trial, accepts the yacht for the negotiated purchase price with all the defects that the yacht has at the time of the sea trial – irrespective of whether the buyer is aware of any defect or not. If the buyer, at a later point in time, becomes aware of a defect that was present at the time of the sea trial, he will not be able to claim any warranty rights or reject the yacht due to this defect – unless, of course, there is another clause in the contract which grants him separate rights in such a scenario. Even though the buyer might have such rights under particular circumstances, for instance, where the seller in bad faith deliberately concealed defects of the yacht, in most cases it is not easy to prove the specific circumstances and the bad faith of the seller.
Taking this into account, one might think that a purchase on an “as is where is” basis is a severe disadvantage for the buyer. In a way, he is contractually asked to buy a pig in a poke. However, most contracts, for instance, the standard wording of the MYBA-MOA, balance out such risk by granting the buyer extensive inspection rights.
- The Condition Survey – the buyer’s chance to take a closer look
Most sale and purchase contracts where a yacht is sold on an “as-is-where-is” basis grant the buyer the option to have the vessel inspected by a professional marine surveyor. The buyer, respectively the surveyor chosen by him, is allowed to view the yacht. Depending on the specific wording of the contract, this right is granted either restrictively or extensively. Provided the buyer has negotiated well, he can thoroughly inspect the yacht and, if defects are found, can reject the vessel or request a reduction of the purchase price. Whether he can do that only with respect to certain defects, or in relation to any and all defects, depends on the exact wording of the contract. For the buyer, it is therefore not only important to choose a diligent surveyor but also to ensure that the wording of the contract meets his requirements. He must also make sure that he knows exactly the applicable timeframes within which he needs to invoke his rights. The MYBO-MOA standard wording, for instance, differentiates with regard to the buyer’s rights after the sea trial and after the condition survey.
- Hidden defects
As mentioned above, the restriction of the buyer’s warranty rights by including an “as-is-where-is” clause in the purchase contract is not unlimited. If a seller is purposefully trying to conceal defects of the yacht in bad faith, the buyer is entitled to ask for compensation from the seller, or might even be entitled to rescind the contract altogether. While this grants the buyer a certain amount of protection, it will usually be quite difficult to prove the seller’s state of mind as well as bad faith in specific circumstances.
Conclusion:
It is important for a buyer, as well as a seller of a second-hand yacht, to understand exactly what the terms of the contract say. Each party should not only know what rights and obligations they have, but they should negotiate the wording, ideally with the help of a specialised lawyer, as best as possible for their respective needs. In addition, investing in a thorough condition survey is almost always a good idea. After all, the condition survey is an essential part of the purchase process.
