For the first time in over 15 years - and with the benefit of experience from various contacts across the maritime industry – MYBA, the worldwide yachting association, has made material amendments to some of the key terms in its internationally recognised sale and purchase contract.
These changes seek to address and clarify many of the issues which frequently crop up during the negotiation of a yacht or superyacht sale. They also seek to reflect common practices in the industry that have developed over the years including, most recently, those relating to the Covid-19 pandemic.
With MYBA’s sale contract being the most frequently used agreement for second-hand yachts and superyachts sales worldwide, these changes are likely to have a significant impact on the way the majority of yacht sales are now conducted in the industry.
In practice, once the parties have agreed to adopt MYBA’s terms, they are rarely amended significantly. A good knowledge of those standard terms and the recent amendments is therefore essential for market participants across the industry including shipyards, brokers, stakeholders, owners and lawyers.
Some of those key changes are set out below.
Inventory: Instead of being agreed after the contract has been signed (which left the buyer with uncertainty as to what items were to be included on delivery), the inventory must now be agreed and attached to the contract before it is signed by the parties.
Force Majeure: Most likely as a result of the issues arising out of the pandemic, the Force Majeure provision has been amended to allow the parties to terminate the contract if delays caused by the force majeure event exceed 30 days. This provides an end date for the non-faulting party and means that these delays cannot continue for an indefinite period.
Most importantly, the change also requires the party intending to rely on the Force Majeure provision to notify the other party of that claim within two days of a triggering event. This is a process that yards will be accustomed to from similar provisions in build contracts.
VAT/tax: The seller is now expressly required to warrant that no undischarged tax/VAT liability has been incurred in relation to the yacht up to the date of its delivery. Depending on the market’s reaction to the change, there may be a concern that, as the seller has to provide an express warranty (and assuming liability) for the prior VAT position, this may lead to greater pressure on a buyer to accept incomplete or poor evidence of the past VAT position. In turn, after the seller has completed the sale and moved on, this may leave the buyer with difficulties in proving the position to any tax authorities and/or a subsequent buyer.
The broker’s commission: This clause has been extended to catch any direct arrangements between the parties’ sister entities, instead of merely between the parties themselves, and to ensure that parties cannot avoid the commission fee obligation by transacting a sale through sister companies.
Post condition survey damage: There are now express provisions that provide the seller with an opportunity to fix any post condition survey damage, however caused. Such damage can now be rectified by the seller to the standard of the buyer’s approval within 30 days. This is in contrast to the previous terms where no such opportunity was provided for, giving rise to a greater likelihood that the buyer might immediately or unfairly repudiate the contract.
No sea trial/condition survey until deposit paid: It is now clear that no sea trial or condition survey can take place until the buyer has received the deposit. It should also be noted that the new requirement is that the deposit must be “received by” the stakeholder as opposed to “paid to” the stakeholder.
KYC due diligence: KYC and due diligence requirements are now set out in greater detail and depth, with the parties having to meet the requirements set out in both Schedule A (setting out various due diligence documents) in addition to Addendum 1, which relates to the yacht’s certificates etc. The changes also now expressly require information to be provided on the ultimate beneficial owners.
The stakeholder obligations: There are now more detailed obligations and time limits imposed on the stakeholder. The stakeholder must now confirm that the KYC information discussed above is in order within the relatively short time period of eight days. Failure to do this will result in the contract being automatically cancelled.
In turn, however, under the amended terms, the stakeholder has greater legal protection when acting in accordance with the contract, including indemnities and an express waiver of liability from the seller and buyer for loss caused by its actions, unless that loss was a direct result of the stakeholder’s negligence.
The amendments help address some of the issues regularly arising in a yacht sale or purchase. For example, they clarify the use of the Force Majeure provision and give the buyer the right to rectify damage caused to the yacht post condition survey. The changes also go some way to addressing the perceived imbalance that the MYBA agreement is generally considered to be “seller friendly”.
Except for larger superyacht transactions where the Norwegian Sale Form (NSF) can sometimes be adopted, the MYBA MoA has historically been the “go to” text for yacht and superyacht sales. This is primarily because the MYBA MoA provides for early signature before the sea trial and condition survey.
The additional obligations placed on the stakeholder and the tight initial eight-day time limit (following signature) to satisfy KYC/due diligence may erode that advantage slightly. However, on balance, it seems likely that the 2021 amendments to the MYBA MoA will further build on this pre-eminence as the yacht and superyacht sale/purchase contract of choice – particularly now it is available in the MYBA-E electronic format.
If you have any questions in relation to these amendments, please do not hesitate to get in touch with Grant Eldred or Remie Grice.
+44 (0)20 7390 2210