Corporate Insights Podcast | Sink or swim? Vessel sale and purchase top tips

Hello. I'm Mike Burns. I'm a partner in the marine team at Weightmans and sector lead for Weightmans transport and logistics clients. In the marine and transport team at Weightmans, we advise commercial clients on all aspects of marine issues, transactions, and disputes with support from our multidisciplinary teams from across the Weightmans business in the UK, and those teams include environmental, energy, real estate, planning, employment, cyber, and regulatory, which all support our transport logistics and marine offering. And I'm really pleased to have alongside me today my colleague, Sarah Jennings. Thanks, Mike. Hello, everyone. I'm an associate in our transport regulatory team. So as well as focusing on road transport regulation, my work across the transport and logistics sector includes advising clients on maritime regulations amongst other things as well. So thanks, Sarah. So today, Sarah will be asking the questions, and I'll be trying to provide some answers as we shine a light on a topic which concerns a number of our clients, spanning our commercial ship operator and private clients alike. Namely, the contracting process, the risks, best practice tips in buying and selling vessels. And when I talk about vessels, it can mean anything from small dinghies, you might stay over the weekend, to yachts and super yachts, or from commercial seagoing passenger and cargo vessels to barges or any other floating assets. If it involves a sale of such an asset, then our team, gets involved in it on behalf of our clients. So although the price tag might change from tens of thousands of or millions of pounds, dollars, and euros, the general principles in vessel sale and purchase are fairly similar as are the potential pitfalls. And so today, we're hoping to focus on, what a typical sale and purchase transaction might look like and highlighting some of the pitfalls and how we assist clients in in dealing with the issues thrown up, in vessel sale, and and purchase and related transactions. Thanks, Mike. And it's really interesting, isn't it? You know, we have, like, such a vast range of different different vessels that one might might purchase. And I suppose to kick it off, my my first question probably is, what is different about buying a vessel to any other valuable asset like, I I don't know, a luxury car, or something like that? What sort of risks and, you know, are in place and, you know, with the regards to the contracts and the processes, what what are we looking at here? What what's it look like for us as as a client? Well, I suppose most of our clients, are where in terms of buying and selling assets, they're concerned with their money and their investment being being protected. So it's a bit like but as you mentioned, sort of a luxury car or or buying a house. Vessels, if our clients, for example, is a ship owner or it may not be a ship, but a client might be a commercial operator who's deciding to buy a marine asset for a particular reason. So but a bit like buying a house, the or a car, the principles are the same, and the focus, contractually, is about protecting the investment and ensuring, I guess, at most basic level, that the money our clients are investing are using to purchase the the the the vessel or a super yacht, whatever it might be, is secure and that they they're getting ultimately what they're paying for. But also wanted to have in mind that, they purchased an asset that is regulatory compliant and that isn't going to get unstuck due to a regulatory, inconsistency or another issue arising. And they also will want, as is nature of business and, time scales and so and so forth, they want an asset which is delivered on on time scale, and there are guarantees and protections that they have both during the sale process and afterwards if things go wrong. And, so our clients come to us when we, help them in understanding what those what those risks are and how they can be sort of, protected in in terms of potential fallout, but also protected in terms of getting getting the best value for their money in the transaction. I'd say although, a vessel or shares in a vessel because I guess a quirky feature of maritime law, is that vessels are made up of sixty four shares. So the shares can be sold in any number of ways so you can have multi ownership of vessels. But at this at this very basic level, a vessel can simply be legally transferred by the execution and handing over of a bill of sale in exchange for the contract price. So clients but it's rarely as simple as that. And clients need to think about having appropriate contractual protection and process assurance in place to get them a smooth, journey, along the contractual road and also giving them the insurance that wants the contract is complete and concluded, and they sail off into the sunset with their new whether it's a super yacht or or a commercial vessel, that they know that if things go wrong, that they're protected and they have a a a good contract to, to give them to give them that insurance. Now some of our clients are very sophisticated ship owning, and asset owning companies and don't need too much hand holding. And, occasionally, our role there might be to simply oversee, the process and to add a chance to sort of ad hoc queries and inquiries as in their as in when they they arise. And also simply giving, risk, advice and value ads as the process goes along. Other clients, particularly in the private client space, might be less sophisticated, in which case we offer a sort of a cradle to grade service in terms of, taking the reign at a very early stage of a vessel purchase transaction. So different different shapes and sizes. Thanks, Mike. Well, I think, it sounds like my end might be one share in a in a in a super yacht, might in it, one of those sixty four. Small shares than I've got anyway, So so we we've got the we've got the purchase. Right? What considerations would a vessel purchase contract normally cover then? What kind of things are we are we maybe trying to include or not? And and what what would we looking to include in that in that contract? That's a good question, Sarah. I mean, I think what I would say yes, with any commercial contract and vessel sale and purchase is no different. The putting together of a contract is essentially the ingredients that make the contract work and uncovering obvious things like the price and what you're buying and what the remedies are when when things go wrong, what the time scales are, things like that, which I'll touch upon later. But I think at the outset, probably helpful to make this a distinction between three situations where we're trying to touch on, in terms of in terms of, what different transactions might look like. So the first might be a a used vessel sale being sold by its present owner. So let's say a a ship owner or a ferry operator deciding to sell a vessel which has been, sailing around and trading for ten, fifteen years, whatever it might be. So we have to do secondhand vessels. And another market that we act and advise clients on, also production line vessels, particularly in the in the luxury market. For example, oysters and and and sun seekers where, essentially, you're getting a new vessel, but there isn't really a detailed sort of design process that you know from looking online and visiting, yards and and and boat shows and whatnot, what you're what you're gonna get. So you have a new vessel. And the third, I guess, is, the third situation is a new build vessel, which is essentially built to order. So where the shipyard is designing and building a new a new vessel. So they look kind of similar from a distance, but there are overlapping considerations from a buyer's perspective, depending on whether it's sort of secondhand, a, an off production line vessel, or in fact, a a new bid a a new build vessel. So overlapping considerations, but, some more the different emphasis on the different scenarios. Yeah. That's interesting. And it's interesting to hear about those different types, actually. So if we start maybe with that that kind of secondhand vessel that you that you told us about before, if me or or my or my company was looking to buy, say, a used barge or something and and, you know, to to use as a sort of floating cafe or or accommodation for people, you know, on an Airbnb or something, what would be the considerations around buying a secondhand vessel, Mike? Oh, that sounds like you have sent me your plans for opening your floating cafe. That was very nice. Cafe. I will. Or do you say from where we work, in primarily, right, my Liverpool office along the Liverpool waterfront and and in the dock space around Liverpool, you do see a lot of sort of commercial vessels, which once upon a time might have been ferries, but now they're Airbnbs and and so forth. So it's useful to know how, these sort of assets come in different shapes and sizes for our clients. But in terms of, secondhand vessel, sales, what what that looks like in terms of the, contract. First and foremost, it's not just about the contract. Particularly with secondhand vessel sales, due diligence is really critical. As with private and secondhand sales, they are unlikely to be covered by the sales of the the the the sale of goods act. So in terms of fitness for purpose and condition, there aren't really any statutory protections or real statutory protections for a buyer of a secondhand vessel even if you are buying from a business. So it's really a case of buyer beware, a bit like you know, buying a used car, a used luxury car, let's say. So due diligence is is really key doing your doing your homework. So in terms of the main issues, from a buyer's perspective, first and foremost, you know, our advice is, well, have you arranged a condition and evaluation survey, by a professional marine surveyor? Since, essentially, as we tell clients, the contract will typically be sold as seen, and there'll be no comeback if a condition or defect comes to light. So there's no substitute for having, oh, a marine surveyor, bit like a house surveyor, doing a full condition survey, giving you the confidence that what you're buying is is seaworthy, essentially. Yeah. And, if it's not right, again, a bit like a house purchase, if there are things that need repairing, then it may give opportunity to to renegotiate price or talk about, how how lengthy or, troublesome repairs or upgrades might be. If you need to get in a new roof or something, hopefully, not a new roof, but hopefully, you haven't got, like, a leaky bow. That sounds like that sounds that sounds like my house. But yeah. No. Absolutely. And these things do happen, and we've acted for many clients where the survey has really put the stoppers on what what seems on the surface like a nice purchase. If the integrity of the hole, for example, is an issue or the propeller, is, overly used to rusted or corroded, then these can be quite expensive issues. And we've had many clients that walk away, but equally, go on to renegotiate it and work out a solution. Another, I guess, more legal issue as opposed to condition is checking of title and ownership. Now some, but not all, commercial and pleasure vessels will be registered with a ship registry, and so we're talking here about UK ship ship sales. So a search of the UK ship register will tell you who the ownership is, and in any event, the seller would need to produce their ownership certificates, which will enable verification of the ownership. So essentially, that the person you're buying from does actually have good good title and, that you're not going to be, scammed. And, of course, you know, we're all aware, you know, this world of the, of, bad people being out there. So that just checking title and ownership, it it sounds very basic, but it's, again, it's part of the due diligence process. And that would also identify in terms of ship registry searches whether there are any mortgages or other encumbrances against the vessel, which would need to be discharged before you proceed with the sale. And if the vessel isn't registered, I'd say most commercial vessels will be registered. Not all petrograph are are registered, but it gives, a sort of one stop shop into, you know, who owns who owns a vessel. But if that's isn't registered, then in terms of due diligence, you'd want to have production by the seller of the previous chain of, the chains of the bills of sale, previous invoice, previous certificates of delivery so you can verify, I guess, piece together the, chain, which then sort of ultimately lands on your seller owning the vessel. So, again, documentary evidence that that that that that that that who who the seller is, is is, that they are bona fide. And, again, we're all used to you know, every other line of business we're working these days with, AML procedures, so it's a bit like that in ensuring whether the owners are are who they say they are. And, again, with company searches, that's quite easily done. And, commonly, with with with largest sale, commercial vessel sales we're involved in, it's common for sellers and owner and buyers alike to produce evidence of corporate authorities. So corporate board minutes, verifying, the approval of the sale and verifying the identity of of of directors and shareholders. Obviously, as the numbers get higher in terms of the sale process, it's more important to get that right, and that becomes more of a key feature in in, I guess, smaller value sales. It's less so, but, it's really about sort of, just, ensuring that the governance side of of, particularly, particularly commercial sales has has been, followed properly. Just just just jumping back very quickly to a common query which private clients come to us with on pleasure craft sales, and that is ensuring a vessel's VAT paid status is is, is verified because sale of Peugeot Craft attracts VAT. And it's important to be able to verify to customers in excise when they come knocking that VAT has been paid on the vessel. Sometimes there there will be original documentation from the from the, the sales room or the brokerage, wherever it might be, that the VAT is being paid. Sometimes with older vessels, that documentation disappears over time. So we sometimes act for some nervous nervous purchasers who are are wary of buying a vessel whose VAT status can't be, fully fully confirmed. So, again, looking at, asking or or or or requiring whatever documentation there is surrounding VAT, but, ultimately, in the contract asking for indemnities from the buyer, then any tax liabilities, including VAT, would can be reclaimed from the, seller if they, come, if tax liabilities subsequently arise. Yeah. That's so important because that could be such a big burden otherwise, couldn't it? Crazy. No. It could be no. It could could could could could could could could could could could could could could could could could could could ruin the job of your asset. And we have had Yeah. Situations particularly with boats being traded and sailed in Europe of to the Europe certain European ports, taking interest in foreign flagged vessels and, and vessels being detained and causing all sorts of upset and aggravation. So, yeah, it's it's both a a financial and a and a practical, issue to bear in mind. Definitely. Okay. So far so good with my little barge that I'm buying. We've done the due diligence. We've checked the title. We've had our valuation, and there's no holes or or well, there's nothing too big to repair anyway. We check the VAT status, and that's all checked out. We're happy with it. So then we move on now with the sale. And what's the most important feature in the sale contract that that needs to be signed or needs to be considered next? What happens next, Mike? Well, yeah, it it tells what what happens next then. And this is sort of, like, with any contract process, there is a bit of a journey from, like, a survey to negotiating the contract to signing the contract, and then the contract will then provide the road map for what happens next in terms of when is the vessel gonna be delivered and when when is the price gonna be paid. But just taking a step back in terms of, the the contract features, I suppose it's, probably important to say as well that depending on the the transaction, contracts do come in different shapes and sizes. So, typically, in commercial vessel sales, there is, for example, a contract form called the Norwegian sale form, which is, issued or or or produced by, BIMCO, which is an international, shipping organization. That's a very well tried and tested and well understood form of contract dealing with things you would expect like, the price, who the parties are, when inspections can take place, what documentation is to be provided on on delivery, what the delivery window is. And so those are all the essential ingredients of a of a sort of Norwegian sale form, the commercial sale form, which are very widely used in in commercial shipping. Whilst to to that, yacht brokerages and sort of other more sort of, petro crafted markets have their own forms of contract. And they are in the UK, the RYA and other marine organizations, again, produce standard templates that can be adapted and negotiated. So we're not living in a world where, the parties are scratching their heads thinking, you know, how how can we document this transaction? There are there are good templates out there, which are a really useful starting point and and they're well understood in in in containing things that I've just described and including things like warranties and dispute resolution clauses. And but I'd say that they're just a starting point, and so clients sort of can't come to us and say, listen. I've I've been offered this contract. What do you think? And our approach is to look at it. And often, they may have been drafted or adapted from a seller's perspective. So they may have they may have things taken out of them or added to them, which creates an imbalance. So our role in advising, both commercial and private clients is to sort of weed out any sort of imbalances, and and hopefully sort of re readdress those imbalances in favor of our in favor of our client. I think I think the starting point is, there are standard forms of contract out there, but our role sort of working with the clients and working opposite, other other lawyers is to get the contracts to position. They reflect really what our clients need and want and provide the protections, which I've discussed earlier. Yeah. Great. And make it a bit more neutral, I suppose. It's always the case, isn't it? It's always, you know, seller sellers first and then and then buyer second, I suppose, to try and renegotiate something that might feel a bit more fair for all of us. Absolutely. Absolutely. You know, I'm I'm we've had many situations where, the seller or, you know, it might be a yacht brokerage, for example, have have produced a contract. And we said no or maybe on our own or offer our own battle, the client's assistance. We'd like to we we don't think that form you've used is appropriate. And we would suggest this. And so we we have had situations where we don't like that starting point, so we we use it at a different starting point. And it just begins a conversation, and then you get to understand where the negotiating positions lie. So it's a bit of, a bit of give and take as in any process in life. Always. Always. And so you you you started you've told us about the templates then, but when when we're kind of getting through the negotiation and you're adding in what you want to add in, the seller might be adding in what they want to add in if if we're being the buyer in this instance. What are those kind of key provisions and sort of considerations that that you're looking for, Mike? And what what are you sort of really trying to pick out and make sure that that is correct or that is, I don't know, up for negotiation? No. That I'm absolutely right, Sarah. That that that that there's it's it's good to look at what what are what are the sort of key features that that we need to we need to look at. And there is a bit of a sort of a shopping list, I suppose. So we'll just go through, a few of the points which I sort of in in in reviewing a contract or drafting a contract from scratch, kind of thinking, are they headline points? So, again, we've just touched on it, but, identifying who who the seller actually is, and whether you're dealing with an agent or a broker. And sometimes within contracts that that that are provided to us or our clients, there can be some ambiguity. In fact, there was there was a case recently reported, in the English law reports in relation to a, you know, a I think it was a SVB outsell, which had had had, done that badly. And there was an issue over over who, in fact, who who the selling party was. There are various different sort of, parties and companies mentioned throughout the contract in terms of various roles. So in terms of sort of, you know, making it absolutely crystal clear who the selling entity is, and, hopefully, that selling entity will be a company or person of some substance that you could that that should things go wrong, you might be able to go after. So it sounds obvious, but it's kind of doing your due diligence there who the seller is. Now on on on the on the money side, which is obviously all important in these things, again, looking at how what the price is, is the price at all, renegotiatable? Is it is it fixed in all circumstances? Could it be varied? So as as a buyer, you want protection against any sort of, unwanted variations, in in the, in the price or or or the seller trying to insist on a on increased price, particularly on the new build side of, of these transactions. So often and often the price is paid in installments, so you might only need to look at what you know, how the installments could be balanced in in a fair and equitable way, rather than place you at risk. Because because, essentially, the more money you use to buy a payout at an early stage, the more your money is at risk before you get the asset. So clearly, the ideal is only ever to take delivery, only ever to pay with the price once simultaneous with delivery because that at that point, there's obviously no risk. You pay your money, you get your your vessel by by return, whereas the reality is somewhat different. And, for example, in secondhand sales, often a a deposit a ten percent deposit is is payable and held. Now with in in lower value sales, that that that, might seem unreasonable. In in multimillion pound sales, then that could in in itself be a, an outlay of seven hundred thousand pounds. So that's money which is potentially at risk. And so we get into the realms of renegotiating deposits and understanding who's holding the deposit and whether whether the money is safe, whether you're holding it with lawyers or with escrow agents, and just just thinking through, the general risk of paying out money before you actually get your asset and how how how to how to balance that. And I'll touch upon that a bit more when we get on a bit further on with our our discussion. Another another important ingredient as well as going beyond the the money side is having provisions particularly even with used vessels to testing and trial trialing vessels before you actually sail off. And In the sunset? No. Absolutely. Because it's often only with a trial, that you get to know what the, if there are any sort of issues, and it could be any issues from sort of internal internal lights or displays not working properly to navigation equipment, not not not functioning or the actual performance of the vessel being, troublesome in in some way. And so often we've, on on both sides, both in in in in the commercial vessel space and in in the in the yachting and pleasure craft space, having opportunity just before delivery for the buyer to, often with a a professional skipper, with them or an engineer to go on board and take the vessel out, for for a trial run. Did once have a situation just going off on a tangent slightly slightly, anecdotally of a client who was allowed to, trial a vessel and go on board and sleep on it the night before. And Oh. On that occasion, we were we were acting for the seller of the vessel and the broker, and the seller of the break came back to the marina the next day to find the vessel had disappeared. So, whilst so it was recovered several months later, and that's a a a very long story. But but that, again, that the background to that was there's provision in that contract for testing and trialing and, checking out that the that the vessel was generally fit for purpose. And commonly in in the commercial ship sales space, underwater or dry dock inspections, before delivery are a very common feature. And built into that is, an important sort of consideration of having the ability as a buyer to cancel the contract if there is significant, financial or condition issues which come to light. Or if not cancellation, then an opportunity to to to renegotiate the price if, if there are serious, serious issues that that that come to light, some kind of damage which which wasn't discoverable when the vessel was first surveyed. And does that go right right up then, Mike? Are you often, you know, you're often maybe having the right to cancel, and and you might actually be canceling right up until day of purchase if this sort of inspection is not done until quite later on in the in the process? Or Yeah. Absolutely right. I mean, we've we've had we've had situations. I mean, it had to be said that the the vast majority of transactions passed smoothly and all the the the contracts are negotiated, delivery takes place, and, both buyer and seller are are, happy with the deal the deal that's done. But, occasionally, there there there are there are issues, you know, whether it's conditional issues or buyers or sellers. We've had to choice the sellers at the eleventh hour being unable to provide bank guarantees or, warranties and that kind of thing. And sometimes, and, equally, it it it works on the on the seller side as well. For example, a a deposit may be payable by a particular date, and if it's not payable, then there'll be a cancellation right on the seller so that buyers can't keep sellers hanging around forever. And, equally, as we get on get on to the moment, delivery time scales are really important. So if for example it it might be a condition a condition issue which comes at the last minute, which then kind of causes causes issues for both parties and could could potentially lead to a contract termination depending on what the, or or cancellation depending on what the contract terms say. Or there may be another scenario which which we encounter is that the vessel is there's a delivery window, let's say, of of the month of June. And there are delays perhaps in the whether it's the fabrication of the vessel or the vessel's current trading pattern, which means that the vessel's gonna be delayed. And that might not suit the might not suit the buyer because the buyer might want that vessel for a particular a new contract starting in July. So telling the buyer that the vessel will be ready till till September might actually be a really fundamental issue as far as the the transaction is concerned. So, again, if that is sort of built into the, contractual framework, that could be a port a very important protection Yeah. For the buyer. So a a number of these things, might sort of crop up. Just on other perhaps more prosaic issues. On delivery, again, it's you'll find in the contract a list of, what the seller's delivery documents are. You know, if, for example, verifying, that the vessel's sort of current certificates, its classification certificates, and its work boat certificates are are fully up to date. Basically saying, you know, that it's got its its MOT sort of in in in, ship ship parlance, and that there's an inventory onboard of of of of contents and equipment. Again, we've had had, occasional situations of, parts, spares, bits and pieces being removed from the vessel, and our client in the buyer, well, actually, wasn't that supposed weren't we supposed to have the spare, you know, the spare outboard motor or or, spare propeller or or whatever it might be? So to nail the it's not just the vessel, but to the nailing down what what is gonna come with the vessel and leave leaving no room for doubt, as well as well as the documentary side in terms of on delivery, making sure that the the buyer sorry, the seller is kind of essentially evidence of the vessel's certificates, and it's particularly on the regulatory side, as you well know, Sarah, with your work, that that in terms of documenting that, your operational compliance, whether it's whether it's to do with, emissions or to do with the safety of the vessel and the certification of the crew. It's all it's all part and parcel of of of operating the the asset. So, again, that's an important feature of something that that that that Yeah. Could be could be overlooked. Those deliverables are so important, and aren't they really? It's that post post Absolutely. And and contract bit. Yeah. Yeah. Absolutely. And so and and sometimes it's it's not something which parties give immediate attention to, or it's stuck at the back of the contract. There's only sort of just before delivery that you're looking at. Hang on. How how how how are the are the sellers gonna produce this this inventory, and are they gonna produce is there is the classification society, certification gonna be up to date, and when is it gonna be produced? So these things often happen at a in a last minute rush because, obviously, you you you don't want the the seller to produce a six month old certificate. So, again, so, again, you have provision in the contract to to to ensure that these certificates sort of have been issued by the relevant, association or or or or or class or the MCA, whoever it might be, you know, within the last sort of seventy two seventy two hours. So it's all all all fresh and up to date. So one final, so I guess, headline in ingredient, as I mentioned, with secondhand vessel sales, there generally won't be any quality or condition guarantees on offer. It's sort of sold as seen, and you've done your survey as we've just discussed, and you're comfortable with going ahead. And there might be trials and tests beforehand. But I guess a standard sort of warranty that that that that the buyer will want and which is actually normally included in any bill of sale, which is is the legal document that that that that, affects the transfer is an is a warranty that the, vessel is sold free from mortgages, liens, and and other encumbrances encumbrances. Clearly, you don't want to buy a vessel to find out you sell off, and then it's been detained in the next spot by a bank, which hasn't been, paid the outstanding on the mortgage, or there's a or there's a third party claim against the vessel, which has resulted in the vessel being arrested. So it's clear it's clear and so that sort of comfort and protection come back against the buyer is something, that you want to be aware of. That's great, Mike. And thank you everyone for listening to part one of our sink or swim vessel sale and purchase top tips episode one. Hello. I'm Mike Burns. I'm a partner in the marine team at Weightmans and sector lead for Weightmans transport and logistics clients. In the marine and transport team at Weightmans, we advise commercial clients on all aspects of marine issues, transactions, and disputes with support from our multidisciplinary teams from across the Weightmans business in the UK, and those teams include environmental, energy, real estate, planning, employment, cyber, and regulatory, which all support our transport logistics and marine offering. And I'm really pleased to have alongside me today my colleague, Sarah Jennings. Thanks, Mike. Hello, everyone. I'm an associate in our transport regulatory team. So as well as focusing on road transport regulation, my work across the transport and logistics sector includes advising clients on maritime regulations amongst other things as well. So thanks, Sarah. So today, Sarah will be asking the questions, and I'll be trying to provide some answers as we shine a light on a topic which concerns a number of our clients, spanning our commercial ship operator and private clients alike. Namely, the contracting process, the risks, best practice tips in buying and selling vessels. And when I talk about vessels, it can mean anything from small dinghies, you might stay over the weekend, to yachts and super yachts, or from commercial seagoing passenger and cargo vessels to barges or any other floating assets. If it involves a sale of such an asset, then our team, gets involved in it on behalf of our clients. So although the price tag might change from tens of thousands of or millions of pounds, dollars, and euros, the general principles in vessel sale and purchase are fairly similar as are the potential pitfalls. And so today, we're hoping to focus on, what a typical sale and purchase transaction might look like and highlighting some of the pitfalls and how we assist clients in in dealing with the issues thrown up, in vessel sale, and and purchase and related transactions. Thanks, Mike. And it's really interesting, isn't it? You know, we have, like, such a vast range of different different vessels that one might might purchase. And I suppose to kick it off, my my first question probably is, what is different about buying a vessel to any other valuable asset like, I I don't know, a luxury car, or something like that? What sort of risks and, you know, are in place and, you know, with the regards to the contracts and the processes, what what are we looking at here? What what's it look like for us as as a client? Well, I suppose most of our clients, are where in terms of buying and selling assets, they're concerned with their money and their investment being being protected. So it's a bit like but as you mentioned, sort of a luxury car or or buying a house. Vessels, if our clients, for example, is a ship owner or it may not be a ship, but a client might be a commercial operator who's deciding to buy a marine asset for a particular reason. So but a bit like buying a house, the or a car, the principles are the same, and the focus, contractually, is about protecting the investment and ensuring, I guess, at most basic level, that the money our clients are investing are using to purchase the the the the vessel or a super yacht, whatever it might be, is secure and that they they're getting ultimately what they're paying for. But also wanted to have in mind that, they purchased an asset that is regulatory compliant and that isn't going to get unstuck due to a regulatory, inconsistency or another issue arising. And they also will want, as is nature of business and, time scales and so and so forth, they want an asset which is delivered on on time scale, and there are guarantees and protections that they have both during the sale process and afterwards if things go wrong. And, so our clients come to us when we, help them in understanding what those what those risks are and how they can be sort of, protected in in terms of potential fallout, but also protected in terms of getting getting the best value for their money in the transaction. I'd say although, a vessel or shares in a vessel because I guess a quirky feature of maritime law, is that vessels are made up of sixty four shares. So the shares can be sold in any number of ways so you can have multi ownership of vessels. But at this at this very basic level, a vessel can simply be legally transferred by the execution and handing over of a bill of sale in exchange for the contract price. So clients but it's rarely as simple as that. And clients need to think about having appropriate contractual protection and process assurance in place to get them a smooth, journey, along the contractual road and also giving them the insurance that wants the contract is complete and concluded, and they sail off into the sunset with their new whether it's a super yacht or or a commercial vessel, that they know that if things go wrong, that they're protected and they have a a a good contract to, to give them to give them that insurance. Now some of our clients are very sophisticated ship owning, and asset owning companies and don't need too much hand holding. And, occasionally, our role there might be to simply oversee, the process and to add a chance to sort of ad hoc queries and inquiries as in their as in when they they arise. And also simply giving, risk, advice and value ads as the process goes along. Other clients, particularly in the private client space, might be less sophisticated, in which case we offer a sort of a cradle to grade service in terms of, taking the reign at a very early stage of a vessel purchase transaction. So different different shapes and sizes. Thanks, Mike. Well, I think, it sounds like my end might be one share in a in a in a super yacht, might in it, one of those sixty four. Small shares than I've got anyway, So so we we've got the we've got the purchase. Right? What considerations would a vessel purchase contract normally cover then? What kind of things are we are we maybe trying to include or not? And and what what would we looking to include in that in that contract? That's a good question, Sarah. I mean, I think what I would say yes, with any commercial contract and vessel sale and purchase is no different. The putting together of a contract is essentially the ingredients that make the contract work and uncovering obvious things like the price and what you're buying and what the remedies are when when things go wrong, what the time scales are, things like that, which I'll touch upon later. But I think at the outset, probably helpful to make this a distinction between three situations where we're trying to touch on, in terms of in terms of, what different transactions might look like. So the first might be a a used vessel sale being sold by its present owner. So let's say a a ship owner or a ferry operator deciding to sell a vessel which has been, sailing around and trading for ten, fifteen years, whatever it might be. So we have to do secondhand vessels. And another market that we act and advise clients on, also production line vessels, particularly in the in the luxury market. For example, oysters and and and sun seekers where, essentially, you're getting a new vessel, but there isn't really a detailed sort of design process that you know from looking online and visiting, yards and and and boat shows and whatnot, what you're what you're gonna get. So you have a new vessel. And the third, I guess, is, the third situation is a new build vessel, which is essentially built to order. So where the shipyard is designing and building a new a new vessel. So they look kind of similar from a distance, but there are overlapping considerations from a buyer's perspective, depending on whether it's sort of secondhand, a, an off production line vessel, or in fact, a a new bid a a new build vessel. So overlapping considerations, but, some more the different emphasis on the different scenarios. Yeah. That's interesting. And it's interesting to hear about those different types, actually. So if we start maybe with that that kind of secondhand vessel that you that you told us about before, if me or or my or my company was looking to buy, say, a used barge or something and and, you know, to to use as a sort of floating cafe or or accommodation for people, you know, on an Airbnb or something, what would be the considerations around buying a secondhand vessel, Mike? Oh, that sounds like you have sent me your plans for opening your floating cafe. That was very nice. Cafe. I will. Or do you say from where we work, in primarily, right, my Liverpool office along the Liverpool waterfront and and in the dock space around Liverpool, you do see a lot of sort of commercial vessels, which once upon a time might have been ferries, but now they're Airbnbs and and so forth. So it's useful to know how, these sort of assets come in different shapes and sizes for our clients. But in terms of, secondhand vessel, sales, what what that looks like in terms of the, contract. First and foremost, it's not just about the contract. Particularly with secondhand vessel sales, due diligence is really critical. As with private and secondhand sales, they are unlikely to be covered by the sales of the the the the sale of goods act. So in terms of fitness for purpose and condition, there aren't really any statutory protections or real statutory protections for a buyer of a secondhand vessel even if you are buying from a business. So it's really a case of buyer beware, a bit like you know, buying a used car, a used luxury car, let's say. So due diligence is is really key doing your doing your homework. So in terms of the main issues, from a buyer's perspective, first and foremost, you know, our advice is, well, have you arranged a condition and evaluation survey, by a professional marine surveyor? Since, essentially, as we tell clients, the contract will typically be sold as seen, and there'll be no comeback if a condition or defect comes to light. So there's no substitute for having, oh, a marine surveyor, bit like a house surveyor, doing a full condition survey, giving you the confidence that what you're buying is is seaworthy, essentially. Yeah. And, if it's not right, again, a bit like a house purchase, if there are things that need repairing, then it may give opportunity to to renegotiate price or talk about, how how lengthy or, troublesome repairs or upgrades might be. If you need to get in a new roof or something, hopefully, not a new roof, but hopefully, you haven't got, like, a leaky bow. That sounds like that sounds that sounds like my house. But yeah. No. Absolutely. And these things do happen, and we've acted for many clients where the survey has really put the stoppers on what what seems on the surface like a nice purchase. If the integrity of the hole, for example, is an issue or the propeller, is, overly used to rusted or corroded, then these can be quite expensive issues. And we've had many clients that walk away, but equally, go on to renegotiate it and work out a solution. Another, I guess, more legal issue as opposed to condition is checking of title and ownership. Now some, but not all, commercial and pleasure vessels will be registered with a ship registry, and so we're talking here about UK ship ship sales. So a search of the UK ship register will tell you who the ownership is, and in any event, the seller would need to produce their ownership certificates, which will enable verification of the ownership. So essentially, that the person you're buying from does actually have good good title and, that you're not going to be, scammed. And, of course, you know, we're all aware, you know, this world of the, of, bad people being out there. So that just checking title and ownership, it it sounds very basic, but it's, again, it's part of the due diligence process. And that would also identify in terms of ship registry searches whether there are any mortgages or other encumbrances against the vessel, which would need to be discharged before you proceed with the sale. And if the vessel isn't registered, I'd say most commercial vessels will be registered. Not all petrograph are are registered, but it gives, a sort of one stop shop into, you know, who owns who owns a vessel. But if that's isn't registered, then in terms of due diligence, you'd want to have production by the seller of the previous chain of, the chains of the bills of sale, previous invoice, previous certificates of delivery so you can verify, I guess, piece together the, chain, which then sort of ultimately lands on your seller owning the vessel. So, again, documentary evidence that that that that that that that who who the seller is, is is, that they are bona fide. And, again, we're all used to you know, every other line of business we're working these days with, AML procedures, so it's a bit like that in ensuring whether the owners are are who they say they are. And, again, with company searches, that's quite easily done. And, commonly, with with with largest sale, commercial vessel sales we're involved in, it's common for sellers and owner and buyers alike to produce evidence of corporate authorities. So corporate board minutes, verifying, the approval of the sale and verifying the identity of of of directors and shareholders. Obviously, as the numbers get higher in terms of the sale process, it's more important to get that right, and that becomes more of a key feature in in, I guess, smaller value sales. It's less so, but, it's really about sort of, just, ensuring that the governance side of of, particularly, particularly commercial sales has has been, followed properly. Just just just jumping back very quickly to a common query which private clients come to us with on pleasure craft sales, and that is ensuring a vessel's VAT paid status is is, is verified because sale of Peugeot Craft attracts VAT. And it's important to be able to verify to customers in excise when they come knocking that VAT has been paid on the vessel. Sometimes there there will be original documentation from the from the, the sales room or the brokerage, wherever it might be, that the VAT is being paid. Sometimes with older vessels, that documentation disappears over time. So we sometimes act for some nervous nervous purchasers who are are wary of buying a vessel whose VAT status can't be, fully fully confirmed. So, again, looking at, asking or or or or requiring whatever documentation there is surrounding VAT, but, ultimately, in the contract asking for indemnities from the buyer, then any tax liabilities, including VAT, would can be reclaimed from the, seller if they, come, if tax liabilities subsequently arise. Yeah. That's so important because that could be such a big burden otherwise, couldn't it? Crazy. No. It could be no. It could could could could could could could could could could could could could could could could could could could ruin the job of your asset. And we have had Yeah. Situations particularly with boats being traded and sailed in Europe of to the Europe certain European ports, taking interest in foreign flagged vessels and, and vessels being detained and causing all sorts of upset and aggravation. So, yeah, it's it's both a a financial and a and a practical, issue to bear in mind. Definitely. Okay. So far so good with my little barge that I'm buying. We've done the due diligence. We've checked the title. We've had our valuation, and there's no holes or or well, there's nothing too big to repair anyway. We check the VAT status, and that's all checked out. We're happy with it. So then we move on now with the sale. And what's the most important feature in the sale contract that that needs to be signed or needs to be considered next? What happens next, Mike? Well, yeah, it it tells what what happens next then. And this is sort of, like, with any contract process, there is a bit of a journey from, like, a survey to negotiating the contract to signing the contract, and then the contract will then provide the road map for what happens next in terms of when is the vessel gonna be delivered and when when is the price gonna be paid. But just taking a step back in terms of, the the contract features, I suppose it's, probably important to say as well that depending on the the transaction, contracts do come in different shapes and sizes. So, typically, in commercial vessel sales, there is, for example, a contract form called the Norwegian sale form, which is, issued or or or produced by, BIMCO, which is an international, shipping organization. That's a very well tried and tested and well understood form of contract dealing with things you would expect like, the price, who the parties are, when inspections can take place, what documentation is to be provided on on delivery, what the delivery window is. And so those are all the essential ingredients of a of a sort of Norwegian sale form, the commercial sale form, which are very widely used in in commercial shipping. Whilst to to that, yacht brokerages and sort of other more sort of, petro crafted markets have their own forms of contract. And they are in the UK, the RYA and other marine organizations, again, produce standard templates that can be adapted and negotiated. So we're not living in a world where, the parties are scratching their heads thinking, you know, how how can we document this transaction? There are there are good templates out there, which are a really useful starting point and and they're well understood in in in containing things that I've just described and including things like warranties and dispute resolution clauses. And but I'd say that they're just a starting point, and so clients sort of can't come to us and say, listen. I've I've been offered this contract. What do you think? And our approach is to look at it. And often, they may have been drafted or adapted from a seller's perspective. So they may have they may have things taken out of them or added to them, which creates an imbalance. So our role in advising, both commercial and private clients is to sort of weed out any sort of imbalances, and and hopefully sort of re readdress those imbalances in favor of our in favor of our client. I think I think the starting point is, there are standard forms of contract out there, but our role sort of working with the clients and working opposite, other other lawyers is to get the contracts to position. They reflect really what our clients need and want and provide the protections, which I've discussed earlier. Yeah. Great. And make it a bit more neutral, I suppose. It's always the case, isn't it? It's always, you know, seller sellers first and then and then buyer second, I suppose, to try and renegotiate something that might feel a bit more fair for all of us. Absolutely. Absolutely. You know, I'm I'm we've had many situations where, the seller or, you know, it might be a yacht brokerage, for example, have have produced a contract. And we said no or maybe on our own or offer our own battle, the client's assistance. We'd like to we we don't think that form you've used is appropriate. And we would suggest this. And so we we have had situations where we don't like that starting point, so we we use it at a different starting point. And it just begins a conversation, and then you get to understand where the negotiating positions lie. So it's a bit of, a bit of give and take as in any process in life. Always. Always. And so you you you started you've told us about the templates then, but when when we're kind of getting through the negotiation and you're adding in what you want to add in, the seller might be adding in what they want to add in if if we're being the buyer in this instance. What are those kind of key provisions and sort of considerations that that you're looking for, Mike? And what what are you sort of really trying to pick out and make sure that that is correct or that is, I don't know, up for negotiation? No. That I'm absolutely right, Sarah. That that that that there's it's it's good to look at what what are what are the sort of key features that that we need to we need to look at. And there is a bit of a sort of a shopping list, I suppose. So we'll just go through, a few of the points which I sort of in in in reviewing a contract or drafting a contract from scratch, kind of thinking, are they headline points? So, again, we've just touched on it, but, identifying who who the seller actually is, and whether you're dealing with an agent or a broker. And sometimes within contracts that that that are provided to us or our clients, there can be some ambiguity. In fact, there was there was a case recently reported, in the English law reports in relation to a, you know, a I think it was a SVB outsell, which had had had, done that badly. And there was an issue over over who, in fact, who who the selling party was. There are various different sort of, parties and companies mentioned throughout the contract in terms of various roles. So in terms of sort of, you know, making it absolutely crystal clear who the selling entity is, and, hopefully, that selling entity will be a company or person of some substance that you could that that should things go wrong, you might be able to go after. So it sounds obvious, but it's kind of doing your due diligence there who the seller is. Now on on on the on the money side, which is obviously all important in these things, again, looking at how what the price is, is the price at all, renegotiatable? Is it is it fixed in all circumstances? Could it be varied? So as as a buyer, you want protection against any sort of, unwanted variations, in in the, in the price or or or the seller trying to insist on a on increased price, particularly on the new build side of, of these transactions. So often and often the price is paid in installments, so you might only need to look at what you know, how the installments could be balanced in in a fair and equitable way, rather than place you at risk. Because because, essentially, the more money you use to buy a payout at an early stage, the more your money is at risk before you get the asset. So clearly, the ideal is only ever to take delivery, only ever to pay with the price once simultaneous with delivery because that at that point, there's obviously no risk. You pay your money, you get your your vessel by by return, whereas the reality is somewhat different. And, for example, in secondhand sales, often a a deposit a ten percent deposit is is payable and held. Now with in in lower value sales, that that that, might seem unreasonable. In in multimillion pound sales, then that could in in itself be a, an outlay of seven hundred thousand pounds. So that's money which is potentially at risk. And so we get into the realms of renegotiating deposits and understanding who's holding the deposit and whether whether the money is safe, whether you're holding it with lawyers or with escrow agents, and just just thinking through, the general risk of paying out money before you actually get your asset and how how how to how to balance that. And I'll touch upon that a bit more when we get on a bit further on with our our discussion. Another another important ingredient as well as going beyond the the money side is having provisions particularly even with used vessels to testing and trial trialing vessels before you actually sail off. And In the sunset? No. Absolutely. Because it's often only with a trial, that you get to know what the, if there are any sort of issues, and it could be any issues from sort of internal internal lights or displays not working properly to navigation equipment, not not not functioning or the actual performance of the vessel being, troublesome in in some way. And so often we've, on on both sides, both in in in in the commercial vessel space and in in the in the yachting and pleasure craft space, having opportunity just before delivery for the buyer to, often with a a professional skipper, with them or an engineer to go on board and take the vessel out, for for a trial run. Did once have a situation just going off on a tangent slightly slightly, anecdotally of a client who was allowed to, trial a vessel and go on board and sleep on it the night before. And Oh. On that occasion, we were we were acting for the seller of the vessel and the broker, and the seller of the break came back to the marina the next day to find the vessel had disappeared. So, whilst so it was recovered several months later, and that's a a a very long story. But but that, again, that the background to that was there's provision in that contract for testing and trialing and, checking out that the that the vessel was generally fit for purpose. And commonly in in the commercial ship sales space, underwater or dry dock inspections, before delivery are a very common feature. And built into that is, an important sort of consideration of having the ability as a buyer to cancel the contract if there is significant, financial or condition issues which come to light. Or if not cancellation, then an opportunity to to to renegotiate the price if, if there are serious, serious issues that that that come to light, some kind of damage which which wasn't discoverable when the vessel was first surveyed. And does that go right right up then, Mike? Are you often, you know, you're often maybe having the right to cancel, and and you might actually be canceling right up until day of purchase if this sort of inspection is not done until quite later on in the in the process? Or Yeah. Absolutely right. I mean, we've we've had we've had situations. I mean, it had to be said that the the vast majority of transactions passed smoothly and all the the the contracts are negotiated, delivery takes place, and, both buyer and seller are are, happy with the deal the deal that's done. But, occasionally, there there there are there are issues, you know, whether it's conditional issues or buyers or sellers. We've had to choice the sellers at the eleventh hour being unable to provide bank guarantees or, warranties and that kind of thing. And sometimes, and, equally, it it it works on the on the seller side as well. For example, a a deposit may be payable by a particular date, and if it's not payable, then there'll be a cancellation right on the seller so that buyers can't keep sellers hanging around forever. And, equally, as we get on get on to the moment, delivery time scales are really important. So if for example it it might be a condition a condition issue which comes at the last minute, which then kind of causes causes issues for both parties and could could potentially lead to a contract termination depending on what the, or or cancellation depending on what the contract terms say. Or there may be another scenario which which we encounter is that the vessel is there's a delivery window, let's say, of of the month of June. And there are delays perhaps in the whether it's the fabrication of the vessel or the vessel's current trading pattern, which means that the vessel's gonna be delayed. And that might not suit the might not suit the buyer because the buyer might want that vessel for a particular a new contract starting in July. So telling the buyer that the vessel will be ready till till September might actually be a really fundamental issue as far as the the transaction is concerned. So, again, if that is sort of built into the, contractual framework, that could be a port a very important protection Yeah. For the buyer. So a a number of these things, might sort of crop up. Just on other perhaps more prosaic issues. On delivery, again, it's you'll find in the contract a list of, what the seller's delivery documents are. You know, if, for example, verifying, that the vessel's sort of current certificates, its classification certificates, and its work boat certificates are are fully up to date. Basically saying, you know, that it's got its its MOT sort of in in in, ship ship parlance, and that there's an inventory onboard of of of of contents and equipment. Again, we've had had, occasional situations of, parts, spares, bits and pieces being removed from the vessel, and our client in the buyer, well, actually, wasn't that supposed weren't we supposed to have the spare, you know, the spare outboard motor or or, spare propeller or or whatever it might be? So to nail the it's not just the vessel, but to the nailing down what what is gonna come with the vessel and leave leaving no room for doubt, as well as well as the documentary side in terms of on delivery, making sure that the the buyer sorry, the seller is kind of essentially evidence of the vessel's certificates, and it's particularly on the regulatory side, as you well know, Sarah, with your work, that that in terms of documenting that, your operational compliance, whether it's whether it's to do with, emissions or to do with the safety of the vessel and the certification of the crew. It's all it's all part and parcel of of of operating the the asset. So, again, that's an important feature of something that that that that Yeah. Could be could be overlooked. Those deliverables are so important, and aren't they really? It's that post post Absolutely. And and contract bit. Yeah. Yeah. Absolutely. And so and and sometimes it's it's not something which parties give immediate attention to, or it's stuck at the back of the contract. There's only sort of just before delivery that you're looking at. Hang on. How how how how are the are the sellers gonna produce this this inventory, and are they gonna produce is there is the classification society, certification gonna be up to date, and when is it gonna be produced? So these things often happen at a in a last minute rush because, obviously, you you you don't want the the seller to produce a six month old certificate. So, again, so, again, you have provision in the contract to to to ensure that these certificates sort of have been issued by the relevant, association or or or or or class or the MCA, whoever it might be, you know, within the last sort of seventy two seventy two hours. So it's all all all fresh and up to date. So one final, so I guess, headline in ingredient, as I mentioned, with secondhand vessel sales, there generally won't be any quality or condition guarantees on offer. It's sort of sold as seen, and you've done your survey as we've just discussed, and you're comfortable with going ahead. And there might be trials and tests beforehand. But I guess a standard sort of warranty that that that that the buyer will want and which is actually normally included in any bill of sale, which is is the legal document that that that that, affects the transfer is an is a warranty that the, vessel is sold free from mortgages, liens, and and other encumbrances encumbrances. Clearly, you don't want to buy a vessel to find out you sell off, and then it's been detained in the next spot by a bank, which hasn't been, paid the outstanding on the mortgage, or there's a or there's a third party claim against the vessel, which has resulted in the vessel being arrested. So it's clear it's clear and so that sort of comfort and protection come back against the buyer is something, that you want to be aware of. That's great, Mike. And thank you everyone for listening to part one of our sink or swim vessel sale and purchase top tips episode one.