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The buyers journey

Article by ONBOARD Magazine

10.01.23

ZEDRA Andrew Wilson, Head of Aviation and Marine

Andrew Wilson, Head of Aviation and Marine, looks at the financial transaction element of buying a second hand yacht

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. 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 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.

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.

Five things to consider when appointing an Escrow Agent:

1.How experienced they are in handling client funds and documents
It is important to identify the Escrow Agent has experience in cross-border, multi currency 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.

2. 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.

3. 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.

4. 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.

5. 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.

As a regulated Escrow Agent, ZEDRA provides Escrow services alongside Registration, Ownership, EU Importation support, Accounting & VAT Reporting plus Crew Employment and Payroll.

While the face of yachting is changing, some things remain the same. Yacht ownership – regardless of yacht type – is complex. Having the right partners on hand who can support an owner with their structuring needs is key.

For more details Tel: +44 1624 850500
or visit www.zedra.com

ZEDRA

The superyacht buyer’s journey

Article by Chris Clifford

07.10.22

Andrew Wilson Zedra Aviation and Marine

Andrew Wilson, Head of Aviation and Marine, looks at the process for a stress free experience when purchasing a yacht

For decades, wealthy owners have been spotted enjoying yachts just off the coast of luxury resorts in the most desirable destinations, enjoying a lifestyle of which most people can only dream. But how do you actually buy and operate a yacht? What do you need to consider? The simple answer, seek expert advice straight away!

A persuasive broker
There are a plethora of yacht brokers that will claim to be able to match your requirements with available yachts on the market, but sourcing off-market hidden gems or getting the very best deal requires a skilled and persuasive broker.

Choose just one broker and bear in mind that they receive their commission from the seller, so as a buyer, it’s important to maintain their engagement with focused decision making.

Once a suitable vessel is found and a deal agreed upon, the technical work can begin. A good broker will introduce you to valuable experts and can even bring together an entire team to get the deal over the line. It’s also important to have a very clear understanding of the post-sale and ongoing costs, not just the costs that will be incurred before and during the sale process. A typical rule of thumb is to plan for maintenance costs of around 10% of the yacht’s initial price tag on an annual basis.

A team of lawyers that brings an extra set of expertise

It is crucial that maritime lawyers are engaged from the outset to handle the purchase contract. Take the time to choose wisely and the right lawyers will make the experience painless. Contracts are in a relatively standard format these days, but you will still need an expert who knows what they are doing, and the contract will need to be tailored to the specific vessel and any unique circumstances or terms. All lawyers will want to complete the purchase quickly so ask them what extra value they bring to the transaction, such as global knowledge and experience of sales taking place in international waters.

Test sail
As part of the purchase process a survey out of the water and sea trial is standard practice. You will most likely want to see the yacht in action at sea before committing. Make sure you can take an expert on board with you who will uncover any technical issues which need to be rectified as well as those that may cause you problems in the future.

The right ownership and tax-compliant structure
The standard contract will be assignable so buyers can sign for the purchase and form a company or ‘Special Purpose Vehicle’ which can replace the individual buyer in due course. It’s common practice for a Special Purpose Vehicle to be created to own the yacht which will give the owner the benefit of limited liability should
anything go wrong and ring fence it from any other assets. That said, planning and executing an ownership structure takes time and needs extensive knowledge and experience.

Most sales take place in international waters as it removes any confusion regarding local taxes which might be due if the yacht was sold in domestic waters. However, when the yacht sails back into domestic waters this might trigger a tax liability. Furthermore, charters are subject to tax in most EU countries. Ongoing advice and tax compliance is invaluable to avoid the enforcement powers at the disposal of local authorities.

The choice of flag registries now are quite wide and it’s not uncommon to see Cayman, Malta, Marshall Islands, UK, Isle of Man, USA, and many other flags beyond their own waters operating internationally. The flag determines who regulates and inspects the vessel where safety is top priority. The flag state may allow registrations by foreign persons, so it’s best to check before deciding on a flag.

Expert yacht management
It is crucial to hire a yacht manager with a shore based dedicated team who can handle all technical aspects on a daily basis and in an emergency. The yacht manager will also have very close relationships with the crew and arrange the very best insurance coverage. In recent times crewing has become more regulated, with crew only allowed to work aboard the vessel with the correct qualifications. A good crew employer will ensure the HR aspects are carried out in accordance with the flag state and the maritime labour convention, and that payroll is faultless at month end.

Sailing the ocean green

Another long-term consideration, which is driving major change in the industry, is sustainability. Younger generations of yacht owning families are increasingly holding the family accountable for shifting to greener choices.

While the face of yachting is changing, some things remain the same. Yacht ownership – regardless of yacht type – is complex. Having the right partners on hand who can support an owner with their structuring needs is key.

The work we do at ZEDRA is highly technical, and perfection is expected from owners and the parties we work with like lawyers and bankers. Day-to-day, we look at setting up ownership structures, flag registration, VAT considerations and crew employment.

For more details Tel: +44 1624 850505

or visit www.zedra.com

Zedra Aviation and Marine