Legal Tips for Smooth Sailing After Closing

Jul 10, 2017 CHRIS ANDERSON, Robert Allen Law

As maritime lawyers, we often only deal with a vessel during the closing. We make sure everything is properly set up, and then the new owner sails off into the sunset. We typically only see the boat again when it is being sold, or if something has gone wrong and a lawsuit is being threatened.


However, there are several common issues that vessels run into post-closing where it may make sense to get the input of a maritime lawyer or other qualified maritime professional in advance of any potential trouble. Brokers familiar with these issues can provide added value for their clients, and can use these issues as an excuse to stay involved with the yacht after closing has occurred.

Marina/yard contracts
Many marina and yard contracts (or terms and conditions) include a general release. This release protects the marina/ yard from liability if something happens to the vessel while it is docked or being worked on.The issue is that this release/hold harmless/waiver of subrogation/limitation of liability language can void the owner’s insurance policy on the vessel. This is because if something happens to a boat while docked at a marina that is the marina’s fault, an owner’s insurance company would pay the claim to the owner, and then have the owner subrogate his/ her rights against the marina to the insurance company so the insurer can attempt to recoup what it paid the owner.

If the owner has released the marina or waived subrogation, then the insurance company can’t sue the marina. This release typically voids many insurance policies. Often, these yard/ marina agreements are signed directly by the captain without legal or insurance review.

To fix this, be sure to review any marina/yard contracts with your insurance broker and/or attorney. Typically, the language in yard/marina contracts can be slightly amended or insurance coverage can be extended to fill this gap.

Crew
Employment law is fairly complex. There are 1000+ lawyer firms who only handle employment-related matters. Add in yachtspecific regulations (e.g. MLC, Jones Act), foreign crew issues (visas), and extended international travels for many yachts, and it is very easy to run afoul of the complex web of regulations. This can put both the vessel, and even the beneficial owner of the yacht, in jeopardy if something should ever go wrong.The fix is to develop a comprehensive plan for crew (addressing seafarer employment agreements (SEA), U.S. visa requirements, crew citizenship requirements, IRS withholding requirements, foreign travel, etc.) with a qualified maritime attorney and/or yacht management company.

Charter
Most yacht owners rely on their yacht charter broker to ensure that everything is in place for them to conduct charters. However, most charter marketing agreements typically place the burden of compliance squarely on the shoulders of the owner.

Properly complying with charter regulations can be daunting. Does the vessel’s flag state or registration even allow for the yacht to be chartered? Does the yacht need to be duty-paid or use-tax paid? Is sales tax due on the charter? Is there a separate crew company set up for a proper bareboat charter? Does the vessel have the proper safety equipment and signage? How many guests can be aboard the vessel at any one time?

The list goes on…. The fix again is for the owner to consult with a qualified maritime attorney or yacht management company to ensure that all of the elements are in place for a successful charter of the yacht.

Use tax
Many owners believe that if they have paid Florida sales tax, or are traveling on a valid U.S. cruising license, that they don’t need to worry about use tax. However, if the vessel travels outside of Florida, or if the vessel should be listed for sale or charter, the owner needs to think about use-tax compliance.


For example, if a Florida sales tax-paid yacht should travel to New England for the summer, and the yacht spends more than 60 days in Connecticut waters, then Connecticut could come after the owner for the difference between Connecticut’s 6.35 percent sales and use tax and the $18,000 paid in Florida (on a bigger boat, this could be quite the chunk of change). Also, listing a foreign-flagged vessel on a cruising license for sale or charter while the vessel is in Florida waters can trigger Florida’s use tax - with some exceptions, such as if the vessel is in the care, custody, and control of a Florida yacht broker (Note also that U.S. Customs and Border Protection (CBP) recently has taken the position that listing a yacht for sale or charter makes the vessel ineligible for a cruising license regardless of the yacht’s duty-paid or sales tax-paid status).

To avoid this potential issue, the owner should discuss any prospective cruising plans (particularly extended stays away from the vessel’s home port) or the prospective listing/charter of any yacht with a qualified maritime professional in advance.

These are several issues that arise after closing where it makes sense for an owner to get some solid advice. In these areas, an ounce of prevention really is worth a pound of cure. Failure to properly address these issues in advance could lead to big fines or lawsuits down the road.

* Special thanks to Tom Gresh for his valuable input. This information is provided for informational purposes only and does not constitute legal advice. Please contact your attorney regarding your specific legal concerns.*

Cover Image provided by Denion Yacht Sales