Buying a second-hand superyacht
13 October 2022
With the significant impact on the environment and the time it takes to build a brand new vessel, purchasing a second-hand superyacht is an increasingly common choice for wealthy individuals wanting more options for recreational enjoyment.
While a yacht may be customised for the owner who commissioned it, when the owner wants to trade up to a new model or doesn’t want to own the vessel any longer, it’s unlikely that the boat needs to be retired, which means it’s likely to be sold on to a new proprietor.
Despite the fact that the true value of a yacht cannot be measured in financial terms, the superyacht industry saw record sales in 2021 with surging stock markets attracting new interest with second-hand boats making up a significant number of new purchases.
Purchasing a superyacht
A second-hand yacht is typically a beautifully maintained vessel that comes at a significant price for both the buyer and the seller. When it comes to the handover of a second-hand yacht, it’s important to both parties that the transaction takes place smoothly and that there is security in place for the vendor and purchaser.
An Escrow facility by an independent party is commonly used in such transactions to handle the funds and certain documents that give both buyer and seller significant peace of mind, which is welcome for a transaction that can run to millions of pounds. Escrow is a legal term which means money, goods or a written document, held by a trusted third party, pending the fulfilment of some condition. Given superyacht litigation can be so complex, involving several jurisdictions and multiple parties, Escrow Agreements are key in such transactions because the stakes are so high if something goes wrong.
Escrow Agreements are particularly important in the sale and purchase of second-hand superyachts for several reasons. It is common practice for buyers to pay a deposit in accordance with the sale contract at the beginning of the sale and purchase process. The deposit provides both buyer and seller with comfort that both parties have the best intentions to fulfil the contract subject to certain conditions.
The time between deposit paid and completion can be a few weeks in which time physical and documentary surveys should be conducted and documents required under the sale contract should be collated.
Choosing an Escrow Agent
An Escrow Agent plays a vital role in the transaction by holding the funds and documents on behalf of both the buyer and seller, and ultimately releasing them to both parties at completion.
Choosing an Escrow Agent can be a difficult decision, as typically Yacht Brokers have taken on this role as a stakeholder.
When appointing an Escrow Agent it is important to consider:
- How experienced they are in handling client funds and documents. It is important to identify the Escrow Agent has experience in cross-border, multicurrency transactions of high value who uses a reputable bank with strong rating. Yacht transactions take on a unique form which can be complex in nature and time consuming so it’s important to have an agent who has significant experience with a variety of transactions.
- Whether the due diligence you carry out on the Escrow Agent returns results that are appropriate to the size and nature of the transaction. Your Escrow Agent will hold the funds and original documents for a period of time so you will need to ensure you are completely comfortable with their credentials.
- Whether the Escrow Agent will draft the Escrow Agreement or if it will be part of the sale contract. It is typical and often beneficial to have a separate Escrow Agreement which is executed by you the purchaser, the seller and the Escrow Agent.
- Any regulatory factors. You will need to know if the Escrow Agent is regulated and if so, are the regulations relevant to ensure the security of funds? Knowing which regulator oversees the Escrow Agent, what the requirements of them are, and to what extent that makes your transaction safe is all important information to obtain at the outset.
- Is the bank account a dedicated Escrow account which will ringfence funds in the event of a problem? Ask the Escrow Agent if your funds are secure in the event of a business failure.
Depending on their jurisdiction, your Escrow Agent should be bound by anti-money laundering and countering the financing of terrorism rules in respect of handling client funds. This will ensure the Escrow Agent has clearly identified, understood, documented and corroborated both the buyer and seller and every source of funds in the transaction. This is crucial to all parties as it provides common standards to all parties of the transaction and will dramatically reduce the chance of being caught up in money laundering.
In summary Escrow Agreements protect the buyer and seller from passing over the yacht to the purchaser before they’ve been paid in full and that all documents to the contract are complete and handed over at completion.
How ZEDRA Can Help
As a regulated Escrow Agent, ZEDRA provides Escrow services alongside Registration, Ownership, EU Importation support, Accounting & VAT Reporting as well as Crew Employment and Payroll.
For more information, please contact Andrew Wilson.