Marine Capsule

6. Quality of title: capacity, credit, privileges, etc

LOOKING CLOSER

Too often buyers believe that only a bank loan secured by the boat can interfere with the conclusion of their transactions. That's important but sometimes we have to look a bit closer.

ABILITY TO SELL

The vendor may be an individual, a company or a legal entity (registered name, family trust, etc.).

However, if the boat is already registered according to Canada Shipping Act, only individuals or corporations are accepted. The persons signing for a company must present a Resolution proving their authorization to sell.

The signature will be valueless if he is a minor (not of age), signs under a threat or has not the required mental ability.

It is prudent that a copy of the sale contract or purchase offer be provided to both parties at least 24 hours BEFORE the signatures are completed.

Conventional and legal guarantees will soon be detailed in the Marine Capsule no. 11, Marine Guarantees

MAIN CREDIT THAT COULD AFFECT THE VESSEL

Personal loan or line of credit

Personal loan and the personal line of credit do not directly affect the boat. But it happens that subsequently the lender, registers a security against the vessel for having a better protection. Should the amount of the loan not be very high and, if the boat is not registered, the security will be a chattel mortgage. This mortgage is registered according to the provincial laws using the RDPRM system for Quebec or the PPSA system (for Ontario and some other provinces).

  • If the amount is high, the security will have great chances of being a marine mortgage
  • If the boat is already registered at the time the loan is granted, the security against the boat will ALWAYS be a marine mortgage

Instalment or conditional sales contract

This type of credit is primarily characterized by two folds:

  • The lender is the real owner of the vessel
    The registered owner (the buyer) will effectively become the owner of the vessel only after the last payment will have been completed
  • Security is registered in the provincial security system
    In addition, this contract allows the lender  to repossess the vessel immediately if the boat is sold without his written permission.

Marine mortgage

This loan security can exist only for a vessel registered according to Canada Shipping Act.  For more details, see the Marine Capsule no. 3, Registration, Canada and other countries

In consideration of the lower rate and greater repayment flexibility granted by the lender, this one enjoys greater possibilities to assert its rights:

  • The repossession notice period can be very short.  This is related to the possibility of difficulties to locate the vessel
  • The lender can sell the vessel as if he owns it, without court order. He may not become owner himself unless he has the approval of the borrower

Most lenders register a maritime mortgage as “blanket mortgage” (umbrella) in order to provide greater flexibility of use of all their credit types. This mortgage is not necessarily related to the purchase of a vessel.

One has to be careful with a seller showing his contract with a proof of payment to his seller. Maybe the payment was made by a lending bank for him.

Mortgage endorsement security

A vessel can be used to support the responsibility of a guarantor. The owner of the vessel has not borrowed money himself but he gave the vessel as security for the payment of debts due by another person or by a company.

Marina and repair expenses

A marina owner or a repairer may interfere with the taking of possession of a boat by a new buyer if money is due to him.

PRIVILEGES AND PRIORITIES (A few possible examples)

Privilege

Sometimes privileges exist on commercial vessels, small or large. One of these could be, for a period of, lets say, 5 years, the vessel builder and his wife have the right to be passenger on the vessel without having to pay their passage.

Lien for salvage

The salvage is the help granted to a vessel in distress. The rescuer who, during a storm or another moment of danger, imminent, real and exceptional, has acted “as a good citizen” to prevent a loss (vessel, passengers or cargo), could take legal action against the vessel itself to compensate for his damages.

These actions called Claims for Salvage, are usually heard in priority by some courts (Federal Court of Canada, etc.). This priority is a response to the principle which says that a person who is acting “in good citizen” should be highly considered.

These claims have a higher priority rank than the mortgage claimants. The courts will take into account the resulting success, efforts and merit of those who have provided help.

If the “salvaged” vessel was insured, insurers will be happy to discuss with the claimant. They prefer studying the possibility of payment for such claims then the one for a much more serious loss.

Collision

The damaged vessel and the owner thereof could claim for damages. One should ask: “Has the vessel been involved in an accident since the seller owns her ?”  Alternatively, “Has the owner bought it recently…?”

Taxes

Foreign vessels must be involved in an import process. If a vessel navigates in Canada, the taxes in relation with the import must have been paid when the vessel entered in the country. Have they been paid ?

Since a few years, a great number of used boats are purchases in the United States. It has been encountered, several times that for a boat having a Vessel Licence “QC” Quebec, “ON” Ontario, etc. the taxes in relation with the importation at time of arrival in the country have not paid all. There is a potential danger. The boat could be, at any moment, “verified” for not having paid the import taxes.

A Pleasure Craft Vessel Licence is issued only for boats “…principally maintained and operated in Canada…”. For the issuance for boats purchased foreign, the import process must have been previously completed.

In Canada, for not imported vessel, according to the rules, the only registration document issued is the “Certificate of Registry” (Blue Book).

FOREIGN TRANSACTIONS

Buyer

According to NAFTA (North America Free Trade Agreement), it is possible that Canada Customs Agency requires a NAFTA certificate of origin for an imported boat. If your seller cannot provide it when required, you may have to pay not expected custom duties fees.

Seller

A boat built in Canada and sold in the United States can be subject to not expected US custom duties fees to be paid by the US buyer. Get the information before selling.

Details are provided in the Marine Capsule no. 10, Taxes and duties fees

To avoid headaches, when a boat is sold to a foreign citizen, it would be a good idea to check if the documents signed by the Canadian seller will allow the buyer to easily register the boat in his country. Some countries will not accept a vessel on their territory if it does not meet certain criterias. The United States have the Jones Act which contains some constraints for passenger vessels.


This writing is a short summary of some of the topics to consider in relation with a vessel purchase, sale or credit.

Each transaction is a special case. 

 
    
© 2017 Hébert et Associés Conseillers Maritime
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