Vessel sales are a constant in
the marine industry, even during downturns in the market. In fact, some see
adverse market conditions as an opportunity to find bargains on vessels and
other marine equipment.
Once the buyer has “kicked the tires” on a vessel and
the parties have agreed on a price, there usually is great pressure from all
sides to quickly sign a purchase and sale agreement and close the
deal. However, signing an agreement that fails to or inadequately
addresses a key issue can cause problems down the road.
Based on years of negotiating,
drafting and reviewing vessel purchase and sale agreements for vessels large
and small, here is a checklist of the key business and legal points that should
normally be addressed in a vessel purchase agreement:
Deposit – If there is to be a deposit, the parties
should specify how much it will be and the condition under which it will be
deemed forfeited.
Inspection – These clauses vary widely depending on
the circumstances. If the buyer has already inspected and is satisfied with the
condition of the vessel, the contract may simply provide that the sale is
outright and definite upon execution with no right of inspection.
Usually, and
especially with larger and/or classed vessels with specialized equipment, the
buyer will want the right to inspect the vessel and its class records and have
the ability to get out of the contract and receive back the deposit, or receive
an adjustment in price, if dissatisfied with the condition of the vessel.
If
there is to be an inspection, the contract normally specifies the scope of the
inspection and provides a strict timeline to accomplish it, and may also spell
out the consequences for delaying or impeding inspection, insurance and
indemnity for claims of inspectors, and allocation of inspection costs.
Time and Place of Delivery – These clauses may include consequences, such
as a right of cancellation and/or liability for damages, for failure to timely
deliver the vessel.
Total Loss Before Sale – These provisions normally give the buyer the
right to cancel if the vessel becomes a total loss before delivery.
Drydocking or Underwater
Survey – Similar to inspection
provisions, these clauses should address the circumstances under which the
buyer may require drydocking or divers’ inspection and who pays for these
inspections, which may depend on what is found during the inspection, and
insurance and indemnity for claims arising during drydocking. These provisions
may also address the buyer’s right to have the tail shaft or other vessel
components surveyed during drydocking.
Bunkers, Spares – These clauses typically address how and when
bunkers are quantified and priced and paid for, delivery of spares and other
items of vessel equipment and whether these are included in the price or paid
for separately.
Closing Documentation – The key issue on this point is that the buyer
will want to ensure that the seller’s deliverables include all certificates and
other documents necessary to meet the requirements of the registry the buyer
plans to use.
The contract should provide for these to be delivered as a
condition of payment of the purchase price, so the buyer does not have to chase
the seller after closing for a piece of paper needed to complete registration
of the vessel in the buyer’s name.
Vessel purchase and sale
agreements usually also have other customary provisions, such as those
addressing:
Seller’s obligation to deliver
the vessel free from all charters, encumbrances, mortgages and liens.
Seller’s indemnification for
claims incurred prior to delivery that are asserted after delivery.
Allocation of responsibility
for taxes, fees and expenses.
The required condition of the
vessel and equipment upon delivery.
Default by the buyer or seller
and the consequences of default.
Dispute resolution.
Numerous forms of vessel
purchase and sale agreements are available publicly to use as templates in
drafting agreements and specific clauses.
However, when presented with any
contract, whether based on an established template (e.g. BIMCO, Saleform) or
drafted for the particular deal, you should never hesitate to negotiate what is
important to you and revise the agreement accordingly.
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