Escrow for super yacht transactions
06 August 2020
Purchasing a second-hand boat or a superyacht is a very common occurrence. 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.
‘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,’ says Andrew Wilson, ZEDRA’s Head of Marine and Aviation.
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. ZEDRA can act as an Escrow Agent for all your transactions’, says Andrew.
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 delay between deposit paid and completion can be a few weeks in which time physical and documentary surveys are being conducted and documents required under the sale contract are being collated. The Escrow agent plays a vital part of the transaction in holding the funds and documents on behalf of buyer and seller and ultimately releasing them to both parties at completion.
Choosing an Escrow agent can be a difficult choice as typically yacht brokers have taken on this role as a stakeholder.
What should you check when appointing an Escrow agent?
- Is the Escrow agent experienced in handling client funds and documents? It is likely the Escrow agent will have experience in cross border, multi currency transactions of high value and use a reputable bank with strong rating. Yacht transactions take on a unique form which can be complex in nature and time consuming.
- Does the due diligence on the Escrow agent return results that are appropriate to the size and nature of the transaction? The Escrow agent will hold the funds and original documents for a period of time, ensure you are completely comfortable with their credentials.
- Will the Escrow agent draft the Escrow agreement, or will this be part of the sale contract? It is typical to have a separate Escrow agreement which is executed by Seller, Buyer and Escrow agent.
- Is the Escrow agent regulated and if so are the regulations relevant to ensure the security of funds? Which regulator oversees the Escrow agent and to what extent does that make your transaction safe.
- Is the Escrow bank account a dedicated Escrow account which will ring fence funds in the event of a problem? Ask the Escrow Agent if your funds are secure in event of a business failure.
The Escrow Agent, depending on their jurisdiction, will be bound by anti money laundering and the countering the financing of terrorism rules on handling client funds. This will ensure the Escrow Agent has clearly understood, documented, identified and corroborated both buyer and seller and every source of funds in the transaction. This is crucial to all parties as it provides common standards applied 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.
For more information, please contact Andrew Wilson, ZEDRA’s Head of Marine and Aviation.