Baylaw Boat Closing and Settlement Services

Boat closing and settlement servicesBoat Closing and Settlement Services

You can save thousands of dollars over what a broker will charge with complete confidence that your purchase and sale documents and funds will be handled professionally and honestly.  Baylaw will close the deal for 2.5% of the purchase price ($1000 minimum).  Funds will be held in our attorney trust account; purchase documents will be reviewed by a lawyer; and no money will be released until all parties are fully satisfied that the deal is ready to close.

Baylaw, LLC will finalize your boat purchase or sale.  We:

1. Collect purchase funds in an attorney trust account in preparation for closing.

2. Obtain and review ownership documents for completeness and accuracy.

3. Verify ownership status and publicly filed liens on the boat, yacht or ship.

4. Obtain lien pay-off information.

5. Prepare a settlement statement showing who is to be paid what funds from closing.

6. Pay off all known liens and mortgages.

7. Deliver closing funds to seller and lienholders.

8. Delivering good title to purchasers
In addition, we can also provide the following.

Documentation and registration services for all boats, yachts and ships.

Set up and transfer LLC and corporations and/or conduct asset sales for vessels held in LLCs or corporations.

Provide tax advice related to sales and use tax in any state in the United States.

Provide advice on related legal issues such as recommendations for where and how to title the boat; corporate ownership; chartering; maintaining anonymity, etc.

 

Vessel Documentation, Registration and Flagging

Vessel documentation (also known as Flagging) is a national form of registration, which essentially registers the ownership of your vessel with the shipping agency of the country of choice. In the United States, this is a Coast Guard responsibility, and it is that agency that accepts applications for documentation and also files liens against federally documented vessels. The “Certificate of Documentation” essentially replaces a title and registration that you would receive from state authorities. All maritime countries have similar agencies, with large yachts often flying the flag of the Cayman Islands, British Virgin Islands, Jamaica, as well the flags of the home countries of the owners.

Baylaw, LLC can provide documentation and flagging services for your vessel at a very competitive fixed rate, assuring that you have a lawyer that is looking out for your interests in the closing process.

Documentation or flagging provides conclusive evidence of nationality for international purposes, provides for unhindered commerce between the states, and admits vessels to certain restricted trades, such as coastwise trade and the fisheries.  Vessel documentation also allows for greater flexibility in obtaining financing. Certain types of mortgages, specifically a “Preferred Ships Mortgage”, are only available to documented vessels and are only available from FDIC approved banks or other lending institutions that have received federal approval.

Baylaw, LLC provides documentation and flagging services including, as needed, setting up corporations in the United States or abroad, submitting applications for documentation or registration, perfecting liens and generally problem solving to assure the best experience possible for the vessel owner. We differ from most documentation companies in two ways. First, in addition to getting the proper papers filed, our attorneys are available to consult on complex issues such as avoidance of unnecessary tax, dealing with customs bonds and import duties, as well as review of purchase contracts, crew contracts and charter arrangements. Second, we bill for what needs to be done, instead of setting a price in advance. For simple transactions this will almost always result in savings for the vessel owner. For transactions that become complex, any additional money will go to assuring that you have the best possible maritime advice to solve the problem.

We look forward to working with you.

Real Estate Law, Riparian Rights and the View

Waterfront Property and the Elephant In the Room: What About the View?

Imagine a waterfront house with a large privacy fence that blocks all view of the water — its a strange image.  If there is no view, the property loses most of its “waterfront” essence and most of its value, so somehow, somewhere, the law must protect a waterfront owner’s view.  But I regularly hear other attorneys and government officials recite the old saw: “there is no right to a view.”  They are wrong in some ways, but they do have good reason to say that.  Maryland law (and the law in most coastal states) is silent about the water view.  Concerning riparian rights, Maryland’s court says:

The term “riparian rights” indicates a bundle of rights that turn on the physical relationship of a body of water to the land abutting it….  This bundle includes at least the following rights: (i) of access to the water; (ii) to build a wharf or pier into the water; (iii) to use the water without transforming it; (iv) to consume the water; (v) to accretions (alluvium); and (vi) to own the subsoil of nonnavigable streams and other “private” waters. To be sure, access to the water is a primary asset of riparian rights.  Gunby v. Olde Severna Park Improvement Ass’n, Inc., 174 Md. App. 189, 239-40, 921 A.2d 292, 322 aff’d, 402 Md. 317, 936 A.2d 365 (2007).

The view wasn’t an issue in the Gunby case, but this is an accurate summary.  Florida law, for example is much different: “Upland owners hold several special or exclusive common law littoral rights: (1) the right to have access to the water; (2) the right to reasonably use the water; (3) the right to accretion and reliction; and (4) the right to the unobstructed view of the water.” Walton Cnty. v. Stop Beach Renourishment, Inc., 998 So. 2d 1102, 1111 (Fla. 2008).

Are Maryland property owners without protection then?  The answer is no, the view is protected, but getting to that can be a bit convoluted.  First and foremost, “access to water is a primary asset of riparian rights.”  Most things that obscure the view, such as a fence or wall or, to a lesser degree plantings, also obstruct access and therefore can and should be challenged.   (Need more on potential issues and solutions for waterfront purchases?  Look here.

A pier typically obscures the view and water access to a lesser degree than a fence — but it seems clear that someone else should not be able to build one in front of a lot owned by someone else.  This brings up the riparian owners’ right “to build a wharf or pier into the water.”  When it comes to someone else other than the owner putting in a pier, this is what I consider a negative right.  If the riparian owner as the affirmative right to build a pier, it follows that they also have the negative right to prevent a non-owner from building a pier.  This right is also captured in the Maryland Code (and most County and City zoning provisions) insofar as it is only the owner that has the right to build a pier in front of waterfront property.  The owner “may make improvements into the water in front of the land to preserve that person’s access to the navigable water …. After an improvement has been constructed, the improvement is the property of the owner of the land to which the improvement is attached.” Md. Code Ann., Envir. § 16-201.

And so, there are ways to protect a riparian owner’s view of the water, even if that right is not specifically laid out in Maryland’s cases or statutes.   If you are not an owner, however, the options to protect a view are drastically more limited — that will need to be a topic for another article.

If you are in a situation where you are concerned about a neighbor infringing on your view — send me an email at dschwenk@baylawllc.com or give me a call at the number to the right.

J. Dirk Schwenk is a Maryland Real Estate, Waterfront Property, Civil Litigation and Maritime Lawyer from Annapolis, Maryland.  He provides civil litigation services in contract disputes, environmental and zoning issues, adverse possession and boundary disputes.  He graduated cum laude (with honors) from the University of Maryland School of Law and has been in private practice in Maryland ever since.

 

 

The End is Near — Settlement and Dispute Resolution

As a lawyer it sometimes feels as though you work and work but nothing is ever fully resolved.  This month has been different for me – I have actually put the final signatures on settlements of four different kinds of cases — all central to the kind of work that I do.  The cases included:

1. a dispute on the location of a boundary as it pertained to riparian rights and a pier location;

2. a dispute on insurance coverage on damages to a boat;

3. a dispute between a purchaser and broker on a boat purchase; and

4. a dispute over erosion control efforts on community property.

Resolution of a case is always a team effort that includes dedicated clients that are willing to do the hard work of obtaining facts and facing the risk that a case does not go their way.  Patience and appropriate strategy a must.  If the opportunity presents itself to obtain results through negotiation and settlement, the entire team must have a clear idea of the achievable goals and be ready to compromise as needed.

Dispute on Boundaries, Riparian Rights and Pier Location

In Calvert County, Maryland, our client owned a property with a house at the end of a street in an incorporated town.  When the town was designed, his lots did not reach the water and the town owned a strip of land which included the entire waterfront.  Over time, however, erosion ate through the land between his property in the water, so that some lots in the subdivision were entirely submerged, and my client had a small cove that provided access to the bay.  The town took ownership of the submerged lots and a small remaining parcel that was still above water, leading my clients to worry that the town intended to put a walkway around his property which would isolate his property from the bay and decrease his privacy.

We filed a declaratory judgment action stating that he had obtained riparian rights when the water reached his property and asserting adverse possession over the land next to his lot.  After discussions with the Town stemming from the suit, it came to light that the town was willing to forego putting in a walkway if it could get an easement along the water to install a flood control berm.  Although the negotiations were difficult, we eventually reached an agreement that allowed for my client to have a location that allowed him to install a pier for access to the Chesapeake Bay; maintained my client’s privacy; and met the town’s needs for installation of flood control.

Dispute on Insurance Coverage on Boat Insurance

In Anne Arundel County, Maryland, we had a client whose boat had water enter into the core of his boat hull and eventually cause rot and damage.  When the boat was on jackstands at the marina, the hull partially crushed and required significant fiberglass and core repairs.  The client filed a claim under his hull insurance policy but surveys were inconclusive as to how the water entered the hull.  We filed suit asserting coverage under the all-risks policy of marine insurance, arguing that if the source of the water was not known, then none of the exclusions to the policy supported the denial of coverage.  We were unable to resolve the dispute through discussions with the adjuster, so we filed suit seeking a declaration of coverage.  Resolution was difficult and lengthy, but the client obtained money for repairs that he would not have had if he accepted the denial of coverage.

Dispute on failed erosion control project

Controlling erosion is a major issue for waterfront owners and waterfront communities, and the quality of contractors and erosion control projects is highly variable.  With new requirements preventing bulkheads and restricting hard shorelines, poor work can increase erosion or worse, leave large loose stones that can injure or even kill unsuspecting community members.  We recently obtained an insurance settlement to allow for reconstruction of a failed erosion control project on community land — the project was so bad that it required installation of “keep off” signs on the community’s main beach area as well as environmental citations against the contractor and a community board member.  Resolution required changing the way that the community’s erosion control funds were managed and contracts awarded, as well identifying appropriate experts to testify on the deficits with the project.  The Court’s intervention was required to determine significant related issues about the nature of the community’s land and covenants as well.  Perseverance was required — luckily it was a community that had leaders and community members that were willing to carry through with a difficult job to the end.

Dispute with Buyer and Broker in Boat Purchase Contract

One of the most interesting aspects of boat purchase/boat broker and boat tax cases is that they often involve many different states.  This case was no different.  The contract called for arbitration in New Jersey, where my client was located.  The boat was located and seat rialed in Tennessee.  The listing broker broker was in Alabama and the buyer was located (and the boat was delivered to) Illinois.  The buyer alleged that there were undisclosed problems with the boat and filed suit in Illinois (where he signed the contract).  Right away, the case involved the tension between arbitration and litigation; maritime and State common law; and the substantive law of multiple states — and all of that before getting to the question of whether the purchase contract’s terms protected my broker-client.  My client’s first questions to me concerned whether I was comfortable working across so many jurisdictional lines and areas of law.  Luckily those issues come up in most significant boat purchase disputes, and I had an idea of how to mitigate the issues of the Plaintiff having filed in Illinois.

This was a rare case in which there was an intense week of work preparing motions to dismiss or stay the action in Illinois.  We argued that the contract called for Arbitration in New Jersey, and that therefore the suit in Illinois could not go forward there.  Since there was some question about whether the arbitration clause would be enforced, we also argued that since boat was delivered to the purchaser in Tennessee, that was the appropriate State if the case was not going to be in New Jersey.  Ultimately we were able to reach a rapid resolution prior to the Court ruling on the motions.

Riparian Rights and Oyster Aquaculture

“No one can so use the navigable waters in front of the riparian owner’s property as to interfere with his rights, and when the owner wants to make improvements he can do so, even if they absolutely destroy any structure or other thing in the way of the improvements not there by the consent of the owner of the shore.”

This was the holding of Hodson v. Nelson, a decision of the Court of Appeals of Maryland in January 1914, almost exactly 100 years ago as I write.   In the case, Mr. Hodson was a riparian owner of land surrounding a cove in the Chesapeake Bay.  Mr. Nelson was a waterman operating a crab business in the cove, including erecting a “crab shanty” on piles not connected to the shore.  The riparian owner sought to prevent the waterman from maintaining structures in the cove, but was not directly impacted by the crab shanty, and did not have a pier in the cove.  Despite the strong language quoted above, the Court held that the landowner did not have the right to force the removal of the crab shanty.

In 1942, however, the Court of Appeals considered Culley v. Hollis, in which I riparian owner was built a pier that extended into an underwater oyster lease area.  The waterman filed suit to stop the pier, but the Court of Appeals confirmed the fact that the riparian owner was allowed to build a pier, and that an oyster lease on the bottoms could not prevent the construction.

With the tremendous loss of oysters and crabs in the Chesapeake over the past 100 years, the tension between riparian owners and watermen diminished greatly, and has not been the topic of an important decision in decades.  According to studies, the oyster population in the Chesapeake dropped to about 1% of historic levels by 1994, and has remained very low.  In 2009, Maryland began a significant initiative to increase oyster populations — this effort included the streamlining and expansion of oyster aquaculture in Maryland.  It should be no surprise that the expansion of oyster aquaculture has also created new tensions with riparian owners.

In recent months, I have represented two groups of landowners who were concerned about oyster leases being granted in front of their properties.  In one instance, the primary concern was oyster floats anchored just off their property.  The second involved oyster cages being placed in shallow water immediately in front of the groups’ properties and piers.

There are two types of oyster leases in Maryland.  There are “submerged land leases” which allow a waterman to put shell on the bottom and exclusively harvest the oysters.  There are also “water column leases” which allow the waterman to place floating baskets on the surface or cages on the bottom and grow oysters in that manner.  There are a variety of restrictions and limitations on where a lease can be located, including leases may not be within 50 feet of a shoreline or pier without permission; leases cannot be in a submerged aquatic vegetation protection zone; and they cannot be in a public oyster fishery (typically a natural bar).  My groups’ primary concern in both cases were with the water column leases, which placed equipment at or near the surface.

If you are faced with a lease being placed in front of your waterfront property, there are steps that you can take.  If the proposed lease meets the statutory requirements, the DNR is required to provide notice to owners of property that will be directly affected.  Riparian owners can file a petition with the Department of Natural Resources challenging the issuance of the lease.  In all likelihood, there will be efforts to reach a compromise, but if not, a hearing will be held before the Office of Administrative Hearings.  In that hearing, the DNR will present the case for the lease; the owners must be prepared to present concerns and arguments against it.

J. Dirk Schwenk is a Maryland Real Estate, Waterfront Property, Civil Litigation and Maritime Lawyer from Annapolis, Maryland.  He provides civil litigation services in contract disputes, environmental and zoning issues, adverse possession and boundary disputes.  He graduated cum laude (with honors) from the University of Maryland School of Law and has been in private practice in Maryland ever since.

Maryland Adverse Possession

Adverse Possession, sometimes known as squatter’s rights, is the legal concept by which a person can come to own real estate by taking possession of it and holding it for a certain period of years.  In Maryland, the land must be held for a period of 20 years — many other states require shorter periods.  Under Maryland law, “to obtain title to property, the person claiming adverse possession must prove actual, open, notorious and visible, exclusive, hostile and continuous possession of the claimed property for at least 20 years.”  The classic case of adverse possession is, as between two neighbors, one fences in or builds on a part of the property that belongs to the other.  After 20 years, the property is deemed owned by the person that fenced it in or built on it.   The relationship between the parties may be friendly, but the acts of one must clearly against the legal interests of the other.

Most cases where adverse possession becomes an issue are far more complicated, however.   When trying to prove adverse possession, it is common that there have been multiple owners during the period and it can also be difficult to know who first built a structure or when it was built.   Many times a fence has been built, rebuilt and moved over the course of time.  Other times one party has used and maintained the property, by mowing the grass, raking leaves, etc., but has not fenced it in.  All of these sorts of issues present opportunities for counsel to dig up and present helpful facts from the past.   The burden of proof will be on the Plaintiff to show possession for twenty years — they can also “tack on” years in which their predecessor owners used and maintained the property.   The nature of possession that needs to be shown may be different, depending on what kind of property is at issue: “acts sufficient to demonstrate possession of wild, undeveloped forest may fall short of the activity needed to establish possession of developed property.”

If the Plaintiff can demonstrate exclusive possession for 20 years, the burden shifts to the Defendant (the person that has a deed for the property) to show that the use was not adverse.  There are two primary ways to show this: 1) show that the possession was with permission from the landowner; or 2) show that the deeded owners of the land took back possession by acts at least as dramatic as those that were used to obtain possession by the adverse possession claimant.  The “mere act of going upon the land is not enough. The owner must assert his claim to the land or perform some act that would reinstate him in possession, before he can regain what he has lost.”

All of these issues require historical evidence to be amassed and presented; historical imagery to reviewed; and more than likely “I remember when” testimony from people who have been around for 20 years or more.  It is also likely to require the expertise of a good land surveyor.

Dirk Schwenk is real estate attorney from Annapolis, Maryland.  He can be reached at dschwenk@baylawllc.com.  

 

 

Maryland Riparian Rights

Owning waterfront property can be a fantastic experience — the comforts of home with an exceptional view.  But there can be issues, and it important to know the relative rights and responsibilities that go with such property.

To secure riparian rights, one must have a deed that reaches the water (such as the a lake, stream or Chesapeake Bay) and does not contain an express reservation of rights.  Direct and unfettered access to the water (and from the water) is the central right that makes riparian property, and also secures the other crucial issue — the ability to keep anyone from blocking ones view of the water.

Such rights, however, can be encroached upon by a neighbor’s pier, or transferred to a community association for the rights of the community, or otherwise impeded. These situations can create great conflict within a community, and have grave and permanent implications to the economic and personal interests of property owners. The text below provides a general overview of riparian rights, based on Maryland law.  Riparian rights in the Eastern United States are very different from those in the West (where consuming the water is key), so this is most applicable on the East Coast.  For specific questions, please contact us directly.

Maryland’s Court of Appeals has described riparian rights as follows:

“It is well established that the title to land under navigable water is in the State of Maryland, subject to the paramount right of the United States to protect navigation in the navigable waters.

The owner of the fast land, however, has a common law right to land formed by accretion adjacent to the fast land and has the right of access to the navigable part of the river in front of his fast land, with the right to make a landing, wharf or pier in front of his fast land, subject, however, to general rules and regulations imposed by the public authorities necessary to protect the rights of the public.

When the statutory law grants the right to a riparian owner to extend his lot or to improve out to the limits prescribed by the public authorities, the riparian owner receives a ‘franchise-a vested right, peculiar in its nature but a quasi property of which the lot owner cannot not be lawfully deprived without his consent.’

When the lot owner makes improvements in front of his lot, complete title then vests in him in the improvements provided it is in front of his lot and does not appropriate the riparian rights of his neighbors.”

Parsing the language, one finds the following principles.

1. The State owns the land under the water, and the United States has an overriding interest in preserving public navigation.

2. The waterfront property owner has the right to accretion (such as a beach deposited by currents) and access, but a government may regulate access such as piers and wharves to assure that public rights are protected.

3. The right to extend and improve, where granted, transfers with the property.

4. The right to extend and improve does not allow a landowner to intrude on his neighbor’s rights.

5. The riparian owner has the “right of access” to and from the waters.

Other Maryland decisions focus on the “right of access” as the most important issue — and it is.  Access is what is improved when building a pier; access is what is denied if someone else tries to build in front of ones’ waterfront property.

Since everyone has neighbors, the relative rights of one’s neighbors can become an issue, as can the extent of the government’s right to regulate. And such issues can and do evolve into open disputes. If you find yourself in conflict, issues are complicated, and delay may be fatal.  In particular, if a neighbor seeks a permit that you believe interferes with your rights, action should be taken as early as possible.  There are issues on which the local zoning board has a large amount of discretion, and even a reviewing Court may have difficulty unwinding a local decision.

Latent Defects v. Manufacturer’s Defects in Marine Insurance

There are lots of potentially hidden issues in a boat.  I have seen engines destroyed by the use of aluminium and iron together.  I have seen stringers with saturated, rotten plywood cores; hulls full of soaked balsa coring and massive delamination caused by improper foam cores or improper installation of foam cores.   These sorts of issues lead to severe losses and sleepless nights.  For new boats under warranty, these losses will first be the responsibility of the builder.  For the rest, the main question will be whether there is any coverage from the marine insurance.

When a boat owner reports a loss that is not obviously due to a collision, the adjuster and surveyor will certainly be looking for evidence of an excluded manufacturer’s defect.  In the case of core problems, the insurer is very likely to deny coverage on that basis unless there is clear evidence of a collision that punctured the outer hull.

Most marine insurance covers all losses unless there is a specific exclusion that applies (this is known as an “all risks” policy), so losses are considered covered absent an exclusion.  Most policies exclude all losses that are caused by manufacturer’s defects by excluding coverage for damages caused by “manufacturer’s defect(s) or manufacturer’s defect(s) in design. “  At the same time, most policies exclude latent defects, but cover damage that result from a latent defect with language that excludes “the cost of replacing or repairing any item having a latent defect that causes damage to your insured property, however, resulting damage would be covered.”  A latent defect is usually defined to mean a hidden defect that existed from the time of manufacture.

In many cases, a hidden defect can be viewed as both a manufacturer’s defect, in the sense that it was due to a mistake of the manufacturer, and a latent defect, in that it was hidden and existed from the time of manufacture.  Insurance adjusters may deny coverage if it is a close call or if the cause is actually unknown, but seems like a manufacturer’s defect.  The courts that have reviewed such cases have reached very different decisions.

For example, in French Cuff v. Markel, a case out of Florida, the court considered 64 foot catamaran in which the bulkheads failed because the coring was “too thin or friable.”  The court concluded that this was both a manufacturer’s defect and a latent defect.  Under Florida law, an insurance policy is read to favor the insured, and therefore coverage existed for the loss.  However, the case Carrier v. RLI (applying New York law) considered the loss of a large catamaran due to a bad safety hatch.  In that instance, the Court again considered the problem to be both a manufacturer’s defect and a latent defect.  Under New York law, however, exclusions are applied in the order that they are listed in the policy.  The manufacturer’s defect exclusion was listed first, and therefore there was no coverage.

Since the cases, facts and policy language are all inconsistent, here are some things to keep in mind if the issue arises:

1. Choice of Law: Generally the state’s law that applies to an insurance contract is the state where the policy was issued or the state where the policy was delivered.  These may be different, and state chosen may lead to a completely different result.  Analyze this issue early and choose carefully.

2. Policy Details: The specific language of the policy will be very important.  The surveyor for the insurance company will know how to look for facts that will cause an exclusion of coverage.  A boat owner seeking coverage should be aware of the specific language of the policy and be sure to advocate for a determination that the cause is covered.

3. No Known Cause: One likely scenario is that the actual cause of the loss cannot be determined.  In that instance, the all risks nature of marine insurance should force coverage.  It is not uncommon to have coverage denied in that instance, however, so care should be taken to advocate with the adjuster to ensure coverage.

Good luck and let me know if I can be of assistance.

Dirk Schwenk

Boat Purchase and Sale – Risk of Loss

One of the things that we are all taught in Law School, is that when considering a purchase/sale contract, one should think about when the risk that the goods are destroyed transfers from the seller to the buyer.  Usually this also implicates the moment at which the insurance of the buyer and seller comes into play.  Most boat transactions either have no contract (so the default rules apply) or they are governed by a contract prepared by the broker.  Usually this leads to the same result — the seller must cover the boat until the sale is completed — then its on the buyer if the thing burns up or sinks.   With the broker contract there is one other factor — the broker’s liability is usually waived and attorneys’ fees imposed for bringing him or her into a case.

I recently received a call from a purchaser with an incredibly hard-luck story.   He paid cash for a (luckily!) relatively modest Luhrs so his family could enjoy the summer.   The contract was prepared by the broker -and protected the broker especially.  At the time of the transfer of the money (the boat was to be physically delivered 5 days later) the buyer executed the insurance application which was immediately faxed by the boat broker to an insurance broker referred by the boat broker.  This took place on a Friday afternoon, with the boat to be picked up on the following Wednesday.

On Tuesday, things began to happen rapidly.  First, the insurance broker called to say that the application was not correctly filled out, and that it needed to be resubmitted.  Second, the marina called to say that the boat had sunk half way up the engines overnight (they’d called the seller first).  Third, the buyer resubmitted the insurance application (rejected, sunk!); tried to stop the broker from paying out the funds (rejected – paid to lienholding bank); and the seller and the seller’s insurance refused to have anything to do with the boat.  Uh oh.  The buyer wisely had the boat secured and the engines pickled.

I wish I could say that I had a magic answer for this family.  But I didn’t.  The total purchase price was about $26,000.  The repairs would probably cost $5-10,000.   For me to become seriously involved would immediately eat into any money available for the repair, with no realistic promise that I could put the family in a better situation than if they simply put the money into the repair.  Their issues were exceptionally complicated — including 1) whether they were the owners of the boat (probably not, as physical delivery had not occurred – see Purchase); 2) whether the seller and the seller’s insurance remained responsible (probably so, but forcing the issue would be costly); 3) whether the submitted application for insurance was sufficient to bind coverage, even if there were technical issues (probably enough to put the insurance broker on the hook – but again, expensive to enforce); and 4) whether the boat broker was liable for releasing the money, preparing a faulty insurance application, or on some other theory (probably yes, but with the risk of paying attorneys’ fees if unsuccessful).

These events served to highlight several issues for me.  First and always — evaluate the question of risk of loss and look for avoidable issues should things go wrong.  Second — many boat cases have papers transferred by mail in one manner; funds held in trust and delivered in a different way; and the physical boat transferring in yet a third location or time.   In cases like this, planning for insurance to be bound and clarifying the parties’ obligations in the gray areas are crucial elements of a purchase and sale.

 

Boat Purchase and Sale – Tax Planning

Most people contact us about boat tax after they receive a letter (or worse, an assessment) from a tax authority looking for payment.  That is a good time to get in touch — but that is not the best time.  The best time to act on boat tax is during the planning stage for the purchase — either before a contract is signed, or at least at the point that an addendum can be used to establish the taxable jurisdiction for the initial purchase, and so that experienced maritime counsel can assess any other issues that might arise.

A good plan for boat tax should always start with being sure that the initial transfer takes place in a favorable location.  This analysis is often complicated by the fact that the owner may live in one state, the seller in another, and boat and broker may be in a yet a third (or fourth) jurisdiction.  So how does one go about answering this question?  The crucial fact to determine is when and where the contract of sale is complete.  For planning purposes, this is also a fact within the control of the buyer and seller.

In most states, laws concerning the sale of goods (including boats) are guided by the Uniform Commercial Code (UCC), which is a model code that seeks to make laws on the sale of goods as uniform as possible in all 50 states.  All fifty states have incorporated at least some parts of the UCC into their commercial code.  While the UCC does not address or control sales tax, in many states it will define the “sale” and that will give a strong indication about where the sale takes place.  In those states which have adopted the UCC’s definition of when a sale occurs, the buyer and seller have several ways in which they can dictate where the sale takes place, and thus where taxes must be paid.

Rule 1: The location called for in the contract controls.

The UCC provides “Title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.”  Md. Code Ann., Com. Law § 2-401.  The most important thing in working out the logistics of anything having to do with a contract for the sale of goods — including where it takes place– is the language of the contract itself.

If the parties specify where and when the sale will take place, that usually determines where the boat is taxable.  Obviously, there are limits to this, one can’t say the transaction takes place on the moon, if the boat and everyone associated with it is in New Jersey.  Simply stating that a contract will be completed somewhere does not automatically make it so.  However, if the seller is in Pennsylvania and the buyer is in Maryland, and the contract states that the sale is to be completed in Pennsylvania upon the seller sending the boat or title documents to the buyer, then the sale took place in Pennsylvania.  Likewise, if the contract says that the sale will be complete upon the buyer receiving the boat or title documents  in Maryland, then the sale will be deemed to have occurred in Maryland.  If the boat is moved to Delaware for the closing, the sale takes place in Delaware.   This rule is the one that can be best used by counsel to assure an orderly result.

Rule 2: If there isn’t an express agreement, the sale happens where the boat is delivered.  


“Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place.” Md. Code Ann., Com. Law § 2-401.

If the contract does not specify where the sale is going to happen, then the location of the sale is generally determined by whether the location where the boat is delivered, nothwithstanding the delivery of title documents elsewhere.  If the seller is responsible for delivery, then the sale occurs wherever the boat is delivered to the buyer.  If the buyer is responsible for delivery, then the sale happens where the boat is transferred to the buyer or to a shipping company at the direction of the buyer.  So, if the boat is built in North Carolina for a buyer located in Maryland, and the buyer goes to North Carolina to get the boat — the sale takes place in North Carolina.  If the contract calls for the dealer to deliver the boat to Maryland, however — the sale probably takes place in Maryland.

Rule 3: If the boat is staying put, the sale happens where the last key paper is delivered.

Unless otherwise explicitly agreed where delivery is to be made without moving the goods, (a) If the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or (b) If the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the time and place of contracting.  Md. Code Ann., Com. Law § 2-401 (West)

If the boat is not being moved as part of the purchase contract, then the sale will happen when the seller gives the buyer the title documents — which generally does not happen until after payment is made (there are exceptions!).  The location is easy to determine if the seller and buyer are in the same location, and the buyer physically hands the seller the title documents.  If the seller is either mailing or electronically transferring the title documents, the law is a bit less clear.  The parties can still stipulate in the contract whether the sale is complete upon sending or receiving of the title documents, and the contract will control the location.  If the parties have not stipulated when the sale is complete, then it is like the sale happens where the buyer receives the contract, but Maryland has not addressed that directly.

It is also noteworthy that a Coast Guard Document (and the Bill of Sale that must be filed to transfer a documented vessel) are not considered to be title documents, at least by most Courts.  This means that a boat that has a state title may be treated differently from a boat that is Coast Guard Documented.

Final Thoughts

For most boats, the State of transfer will be plain the exact timing of the sale will not matter too much.  For a high value boat, however, selecting the State of transfer may be an easy way to avoid or defer a payment that can reach hundreds of thousands of dollars.  To be sure that things are done right, the contract should call for a specific state and for the sale to take place only at a specified moment, and the contract language should reflect the real-world actions of the parties.  If the contract does not specify, then care must be taken to have the boat (or the documents) change hands in the correct jurisdiction.  On a final note — I have never done a formal poll, but I imagine that most boat tax administrators believe that the boat’s location at the time of sale is the most important (or only!) fact concerning taxability.  For this reason, notwithstanding what the law says, I always pay close attention to where the boat is at time of closing.  Good luck, and feel free to shoot us an email if you have a question.