Vessel Purchase – Closing and Settlement

Vessel Purchase Closing and SettlementOnce the contract is signed, the most exciting and harrowing part of the purchase of a yacht or ship is the final magic moment when money and ownership change hands — that is the moment we call closing or settlement. It is truly one of the magic moments in the law: in an instant money is transformed into a living ship and a living ship is transformed into money. There is a great deal of work that must be done, however, before that moment can safely occur.

For a lawyer, representing the buyer is the most complicated transaction because everything must be verified — the identity of the ship, the identify of the owner, the authority of the owner to possess and sell the ship, the title documents offered in the sale. In addition, attention must be paid to the buyer/client — if they are buying through a company, is that company established and in good standing; are the funds going to be available to close; can the use the ship for the purpose that they expect; can it be registered in the location of their choice; is insurance in place? The worries are endless, and inevitably they all come to a last minute peak 24 hours before the scheduled close.
When closing finally occurs, it is the lawyer’s job to be sure that the title documents are legally sufficient to transfer title, that funds are properly allocated, and that possession is given to the new owner.

For small domestic boats, Baylaw, LLC will conduct settlement for a flat rate of $800, to include verifying and holding the documents necessary to transfer title; holding the purchase funds in trust; and ensuring that buyer receives title and seller receives ready funds. This resolves the problems giving a boat or a check to a thief.

Every closing is different, but here are some of the questions that we try to answer before any closing becomes final.

1. Can the owner deliver title to the boat free and clear of any liens or mortgages? Answering this requires checking with the registry of the flag nation and in some circumstances doing investigation to be sure that there are no hidden liens. Verifying the identify of the owner is also recommended.

2. Is the boat eligible for sale in the United States? A ship or yacht that has not been properly imported (and paid import duty) cannot be sold in the United States to a US Citizen without paying import duty. The consequences of violating customs law can be significant.

3. What documents will be required by the vessel registry in which the vessel will be placed? All registries will require that the boat be deleted from any prior registry and that properly executed Bill of Sale be executed. Different jurisdictions have many different and specific requirements as well, including the United States, which requires that vessels be primarily owned by US citizens. .

4. Are there factors that require that the closing be conducted in international waters or a different state of the United States than where the boat presently lies? Usually the reasons to conduct an international settlement involve state sales and use tax or the application of duty.

Closing and settlement can feel overwhelming — that’s pretty normal. There are a lot of moving parts and there are always surprises. With good representation, however, the important issues will be resolved: you will either get your boat or your money and be ready to move on to your next projects.

Dirk Schwenk is a maritime attorney in Annapolis, Maryland. He is a member of the Yacht Broker’s Association of America, the Maryland Marine Trades Association and the bar of Maryland. He has been practicing in admiralty and maritime since 1997.