Yacht sale &  purchase agreement Legal  column

Legal column
IN THIS SECTION
• Beginning negotiations
• Sea trial and condition survey
• Defect accountability
Yacht sale & purchase agreement
THE MAIN PROVISIONS OF A MEMORANDUM OF AGREEMENT WILL HELP
PROTECT THE BUYER AND SELLER AGAINST UNFAIR ACCOUNTABILITY
SAYS ELLEN SOFIE LØKHOLM
MYBA forms are easy to use yet adequately address most of the issues likely to arise during a transaction
THE SALE AND purchase
agreement for a yacht is
most commonly based on
the Mediterranean Yacht
Brokers Association (MYBA)
Memorandum of Agreement
form (MOA), which was issued in
its current form in 2005 and has
since become the established
industry standard.
The MYBA form is an easy
document to use, and it
addresses most of the issues
likely to arise during the course
of the transaction and which
should be considered from
the outset. However, it should
2 be seen as the starting point
for the negotiations between
the seller and the buyer,
who would ordinarily want to
supplement and amend some
of the provisions to suit their
particular requirements.
This is the first of two
articles, which together will
outline the main provisions of
the MYBA form of MOA.
General provisions
The first two pages of an MYBA
Memorandum of Agreement set
out the particulars of the seller,
buyer, the yacht, shipbroker
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and the stakeholder who will
be nominated by the parties
to keep the deposit payable
by the buyer shortly after the
execution of the MOA.
The stakeholder is usually a
bank or a law firm willing to act
for both parties in this capacity.
The sale price and deposit
is specified, the latter being
typically 10 per cent of the
former, but again, this is subject
to negotiation in each case.
The time line for the
transaction is agreed, and
in particular, the dates of
the sea trial and condition
survey, the time and place of
the completion meeting and
physical delivery of the yacht.
All of these practical details
will usually be agreed when
the agreement is signed,
and will have to be carefully
considered at the outset, as
failure to comply or respond
can ultimately lead to the
termination of the MOA or
unintentional acceptance of
the yacht by the buyer.
This is an exclusive sales
contract, as the seller agrees
to sell the yacht to the buyer
on the agreed terms, and not
The MYBA form should be seen as the
starting point for the negotiations
between the seller and the buyer
to enter into any other sales
agreement for the yacht until
the MOA has been terminated
in accordance with its terms.
This is an obvious
advantage to the buyer, who
will need to spend time and
money in preparation for
the purchase, inspection,
registration and operation of
the yacht post-delivery.
Inventory list
Following the signing of the
MOA, the seller will need
to arrange for a full list of
inventory within seven days,
which will, when agreed with
the buyer, be signed and
form an integral part of the
contract, so that all items
(onboard and ashore) that are
included in the sale are agreed
in advance of completion.
The seller will often remove
items of personal value, and
the buyer should make no
assumptions regarding
particular items being
included. If the buyer neither
accepts nor rejects the list by
the agreed time, it will be
deemed as acceptance of the
inventory, so again, the buyer
needs to be aware of the time
frame and to act accordingly.
Sea trial and survey
Importantly for the buyer,
the MOA is signed subject
to final acceptance of the
yacht following sea trials and
an optional condition survey,
which should take place by the
time agreed by the parties.
The seller is obliged to
make the yacht available for
sea trial at their own expense,
and the sea trial could last up
to four hours, unless otherwise
agreed. This is the buyer’s
chance to see the yacht’s
performance, but if the buyer
does not turn up or use this
opportunity to inspect the
yacht, then they would be
deemed to have accepted
the yacht subject only to the
condition survey.
If the buyer is not satisfied
with the yacht’s performance
following the sea trial and does
SELLER’S WARRANTIES
THE SELLER’S WARRANTIES
are an important aspect of
the contract from the buyer’s
point of view.
They include a warranty
that (i) the yacht is at the
time of delivery free and clear
of all debts, claims, liens and
encumbrances of any kind,
and (ii) that the seller is the
legal registered owner of the
yacht, has title to it, and the
right to sell it.
The MOA further provides
that if there is in fact any
existing debt, claim, lien or
encumbrance against the
yacht incurred prior to the
time of delivery, then the
seller shall arrange to pay it as
a pre-condition to completion.
not wish to proceed with the
purchase, they should notify
the seller in writing within the
earlier of 24 hours of the sea
trial ending, and the time of
placing the yacht ashore for
the condition survey. In such
an event, the buyer’s expenses
are payable from the deposit,
the balance of which is then
returned to the buyer.
Importantly, if any notice
of rejection is not given, the
sea trial will be deemed to
have been to the buyer’s
satisfaction, so it’s important
that the buyer is fully aware of
this at the time of signing the
sale and purchase agreement.
If the buyer chooses to
undertake a condition survey
of the yacht, it should be
carried out no later than the
agreed date, but the expenses
of placing the yacht ashore are
in this case borne by the buyer.
If any new defects are
discovered during such a
survey, other than any already
disclosed by the seller, the
buyer has two options.
They can either (i) give
written notice asking the
seller to repair the defects
within an agreed time frame,
or reduce the purchase price
However, if any such debt,
claim, lien or encumbrance
only comes to light after the
time of completion when the
ownership of the yacht has
been transferred to the buyer,
then the seller indemnifies the
buyer against all losses and
expenses arising from it.
Unless otherwise agreed,
the MYBA MOA form provides
that the above warranties
are the only warranties made
by the seller in relation to
the yacht, and that all other
representations, warranties
and rights which the buyer
may otherwise have under
general law regarding any such
statements or representations,
are expressly excluded.
It is therefore very
important that the buyer is
aware that they cannot rely
on any other statements
made in relation to the yacht’s
description, quality or fitness
for any particular purpose in
the negotiations leading up
to the signing of the MOA, or
afterwards prior to the
yacht’s delivery.
It is up to the buyer to
satisfy himself during the sea
trial and condition survey that
the yacht complies with the
description of it in the MOA
and is worth the purchase
price, and an independent
technical report is therefore
commonly obtained from a
marine surveyor.
by the amount of money it
would cost the buyer to repair
the defect; or (ii) reject the
yacht by giving written notice
specifying the defects to the
seller, which will terminate the
Memorandum of Agreement.
In the event that a notice
is served by the buyer under
(i) above, but an agreement
is not then reached within
seven days in relation to the
seller making good the defect,
a reduction of the purchase
price, or the period within
which any repairs would have
to be carried out by the seller,
then the MOA would also be
terminated.
A defect in relation to the
condition survey is considered
to be any defect which is
certified in writing by an
officially appointed marine
surveyor who has experience
of surveying similar yachts,
to affect the operational
integrity of the yacht, her
machinery, systems, or
which renders the yacht
unseaworthy.
cathodic protection anodes
replaced while the yacht is out
of the water for the condition
survey, then the associated
costs will be for the buyer’s
account if the buyer purchases
the yacht. If they do not, then
the costs will be for the seller’s
account. Anti-fouling
If it is agreed that the bottom
of the yacht is to be painted
with anti-fouling paint and the
• This article will be continued
in the next issue of SB, when
we will consider the most
significant of the remaining
provisions of the MYBA MOA,
including risks and insurance,
default and cancellation.
ELLEN SOFIE
LØKHOLM
ELLEN SOFIE LØKHOLM is
a partner in the specialist
shipping and
energy law firm
Curtis Davis
Garrard LLP,
and is a
member of
the firm’s
superyacht
practice.
w Contact:
[email protected]
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