By Marcel Vaarzon-Morel & Troy Martin
International Boat Shows provide a one-stop-shop for the boating enthusiasts and an entry point for new comers with the Sydney Show being the biggest in the southern hemisphere. Boat lovers will no doubt be salivating at the possibility of an up-grade, with new comers considering their dream purchase that may become a reality either way a well-written contract should be central to the negotiation.
Regular readers of Ocean would already be familiar with the reasons why you need a (well-drafted) contract to secure a boat purchase. For those who need a quick refresher on the importance of a written contract, it simply comes down to two things: certainty and risk-minimisation for everybody involved.
The importance of a written contract seems to be gaining traction within the marine industry, as once upon a time a contract was viewed as an over-the-top-hindrance. At Vaarzon-Morel Solicitors we are not only seeing an increase in requests for written boat sales contracts, but also an increase in the additional services that form part of the overall purchase process.
In light of the feel good atmosphere that a boat show presents, for some purchases, the prospect of having to review and consider a possible lengthy written contract may take the fun and excitement out of the purchase. But I cannot stress the importance of reading a contract or getting advice on the contract before you sign and commit to that purchase. If any one benefit is to be gained, a preliminary advice could have the effect strengthening your overall bargaining position if sought before signing. And while the boat show may have specials specific to the show a pre-contractual agreement can be easily drafted by the parties being subject to a final agreed contract.
So what should you expect when you want to purchase a boat?
Let’s say you find your dreamboat, the one that you have been dreaming about (and in some cases actively searching for years). Now what?
Ideally, the boat broker or builder will provide you with a written contract. These contracts are typically template standard form contracts given to all their prospective purchasers. It may not even have your details or boat details on it yet.
You should never sign this contract straight away. A boat purchase can be a very significant purchase and it is important that you get advice on that contract or at the very least, take time to review that contract. The contract typically is divided into certain parts, the Contract/Agreement (terms of the contract), Schedules (details specific to the actual purchase, for example the price, instalment payment table, due date, names etc.), and Annexures (added details relating to the purchase, or example forms, notices etc).
What can you do with that contract?
One word; negotiate.
The negotiation of a purchase of a boat does not stop at the price nor does not stop when that unsigned contract is provided to you.
At this stage, it is important to note that the terms of the contract can be biased towards the party that drafted them. Do not be mislead, just because it is a standard form contract does not mean the terms are not negotiable, almost all terms of a contracts are up negotiation with some exceptions that are fixed.
Then, become familiar with the contract and ideally get legal advice from an expert in the field. If there are any clauses that do not reflect what you want or think is actually going to happen or was agreed, make sure you make note of it. Negotiations can then proceed either through your lawyer or by yourself approaching the Seller with your proposed changes to the contract.
What clauses do I need to pay close attention to?
Sea-trial or survey clauses
Many boat purchase contracts are conditional upon a successful survey, or sea-trial of the boat. While many of us are boat lovers, most of us are not; shipwrights, surveyors, mechanical experts or engineers and to the untrained eye what may look like a sea-worthy boat may be a contender for a subject of a future James Cameron movie.
This is why it is important to check to see that the contract allows for a sea-trial or at least allows the contract to be conditional upon an in-water and ideally, an out of water survey of the boat. The contract should allow ample time to arrange for an appropriate surveyor (mechanical engineer for the engines) and also allow access to the boat prior to completion to conduct the survey. Ensure that the contract specifies who is responsible for the costs of the survey or sea-trial, and the procedure afterwards to allow you to either accept or refuse the boat – and what happens to the monies you have already paid in the event that the boat did not live up to your dreams.
Broker/Agent Clauses and the Indemnity Clauses
It is very common in the Australian Marine Industry to purchase a boat from a broker rather than the actual owner of the boat. The Broker typically includes a clause that excludes liability from a breach of the contract. This is standard practice, and more often than not is not negotiable with the Broker. However, surprisingly many purchasers are not actually aware of who they are buying from. I have even seen contracts where the seller’s name/contact details are not even on the contract. It is therefore, important that you as a purchaser actually know of all the parties to the contract (the purchaser, seller, agent, broker) and how they all work together.
Additionally, ensure you do due diligence on all the parties. ASIC searches, Shipping Register Searches, PPSR searches, and Fair Trading Licensing searches are all essential to minimising risk when purchasing a boat. In essence, you want to know, who you are dealing with, whether or not they are who they say they are, whether they are appropriately licensed, and most importantly whether the seller actually owns the boat free from encumbrances. This should be done prior to signing any contract and if there are any issues you should discuss with the appropriate parties before signing.
Progress Payments/Passing of Title/Risk Clauses
For new boats or boats that are to be imported from overseas, it is very common to have instalment payments (also known as Progress Payments) between signing of the contract and the settlement date (also known as completion date).
It is also common to have the title of the boat when the last payment is made (and cleared funds are received in the Brokers/Sellers bank account).
You need to be aware of where is the money going; is it held in trust or going to be used to build or import the boat? In these cases, it is important to be aware that you are giving money away before receiving Good Title to the Boat. This can have grave ramifications, should something happen to the boat such as the Owner or the Broker enters bankruptcy or liquidation.
To minimise this risk, you can request title of the boat earlier, ensure that the Seller has adequate insurance on the boat, and that you are listed as an interested party on the certificate of insurance, or ensure that the money is held in a Trust Account (ideally a Statutory Trust Account) and only released. It may also be beneficial to register your interest in the Boat on the PPSR.
For new Boats that are already here in Australia or are made in Australia these clauses are not too troublesome. Needless to say, you should double triple check whether the price includes or excludes GST.
For those buying used boats, or boats being imported from overseas. It is extremely important that you are aware of what the true cost of the boat will be and who bears responsibility for paying taxes and duties. This area can be very complex and it is essential that you get expert advice in this area. It is not uncommon for a tax liability from a boat purchase to be in the hundreds of thousands of dollars.
These are just some of the issues that you need to be aware of when you receive that all-important contract to buy your dreamboat. Of course, every contract and every purchase is different and it is essential that you get expert legal advice from a maritime lawyer for your specific purchase. A contract for a new yacht will be different from a used one. Additionally, if you plan on using your boat commercially, your requirements under the contract will be different and you may want added protections, warranties ensuring that the boat meets survey requirements. A new boat-build contract is a different beast altogether and worthy of its own article.