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 WWW.SUPERYACHTBUSINESS.NET | JUNE 2012 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] JUNE 2012 | WWW.SUPERYACHTBUSINESS.NET 3
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