Most buyers of superyachts are experienced in yachting, having bought, cruised upon, and sold a few boats in their lifetime. But, building a superyacht, whether she’s semi-custom or fully custom, is quite a different experience than ordering a production yacht. Due to the complexities of build contracts, it’s crucial to have the right advisors around you. Equally important, it’s crucial to understand some of the basics so that all parties, starting with you, understand exactly what’s expected and when. Here are five steps to take to ensure a positive outcome.
EVALUATE THE BUILDER
Building a dream yacht sometimes results in owners letting their hearts decide instead of their heads. They fall in love with a particular brand, for instance, or the looks of the yachts coming from a yard. Yet another common issue is being eager to select one yard over another solely because of a more competitive bid. Looking at the big picture is important. Quite literally, you should look at the shipyard. Are there a lot of yachts under construction? Or, are there too few? Either way, while there could be a reasonable explanation, this could also be a red flag. Rely on your advisors to look into how well financed the yacht builder is.
BRING IN THIRD PARTIES
Building a superyacht involves legal matters, financial matters, engineering decisions, and compliance decisions, among others. Although the attorney you’ve relied upon for your corporate and personal matters may be quite skilled, he or she isn’t versed in admiralty law, a.k.a. maritime law. Admiralty lawyers understand the nuances of yacht contracts, regulatory compliance, marine insurance, and related issues. Similarly, bring in other specialists, like a project manager and an owner’s representative experienced with new builds. As part of your team, they all have certain roles they automatically know how to play. But, you still need to arrange who can make certain decisions on your behalf. Sometimes unexpected situations arise during construction where the shipyard needs to ask questions and get answers. A team member might be able to handle the situation for you.
SPELL IT ALL OUT
While it might strike you as being overkill, ensure that the build agreement clearly specifies what your yacht will be. In other words, every detail down to the specific systems going in the engine room and the woods going on the walls needs spelling out. Maritime attorneys unfortunately are all too familiar with overly generalized contracts that are thin on details. The contract further needs to state not only when the yacht will be delivered, but when the keel will be laid. Furthermore, if you’re building a superyacht to a classification society’s notation, make sure its requirements are noted. The classification society needs to verify and then sign off on what was contracted and whether it was built to that standard. Finally, maritime attorneys often recommend the build agreement stipulating delay penalties if delivery doesn’t occur on time.
SET MILESTONES FOR PROGRESS AND PAYMENTS
Your advisors should already be well versed in the typical construction milestones that a new build marks along the way. Likewise, they can double check that the milestones from the shipyard match up with the scheduled launch date and delivery date. They’ll have a process to confirm when each milestone is achieved. Together, you determine a payment schedule based on when certain milestones get met. Payment schedules are customary in the superyacht sector. There’s no hard-and-fast rule as to the number of payments, though. The schedule depends on what your advisors and the shipyard believe is best.
UNDERSTAND BROKERS’ COMMISSIONS
Just as you need to understand the basics of the build contract, you need to understand when a broker’s commission is due. Essentially, once a broker initiates negotiations to bring a buyer like you together with a builder, they have earned their commission. Lawsuits can be—and do get—filed in situations where the introduction takes place but one party believes the broker didn’t stay involved in every aspect of the ultimate deal. Judges have ruled in favor of brokers who have shown some effort. These rulings have come even without a written commission agreement. The basis has been seeing value delivered by the broker. Yet another important thing to keep in mind is that the brokerage community is tight knit. Burning bridges is never a good thing.
Taking the time to better educate yourself well in advance of building a superyacht can help stem off easily avoided issues. For even more advice, listen to The Yacht Law Podcast episode on the subject.
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