The amount of the selling price is a specific amount of money. It must be fair and real. If it is unfair or fictitious, the sale could be considered as a donation. In the case of offers, the amount is usually really determined after all clauses of the offer have been resolved.
The official vessel registration systems accept a sale for “$1.00 and other valuable considerations”. However, for the parties, a sale of this kind is usually supported by other documents which detail the expression “…. other considerations”.
If the sale or part of its value is paid by the transmission by the buyer to the seller, of another vessel, it’s a sale with a trade-in.
Any registered vessel must have its own contract and its own official documents even for a vessel in trade-in.
DEPOSIT IN RELATION WITH A PURCHASE OFFER
The deposit is a partial payment of the selling price, possibly refundable in most cases. The text of the offer may bring constraints to this refund. For safety, the deposit is kept in a trust account and not directly handed to the seller. It will be the smallest possible amount but must demonstrate that the buyer is serious.
For the seller
The deposit makes the seller more comfortable. If the purchaser is not fulfilling his obligations such as: inspecting the vessel, having a survey completed, pay the balance of the sale, etc. at a specific date, the deposit could become the property of the seller as damage and interests.
For the buyer
It is as security for the buyer. Following the acceptance of the offer by the seller, no other offer may be accepted by the seller, even though another potential buyer offers a higher price, this as long as the agreements of the accepted offer will not have been completed in the specified time limit.
US brokers often insist to collect an amount of 10% of the selling price before they present the offer to the seller. If a broker in Florida is too insistent saying Florida law requires the 10%, it is perhaps because he has not recently consulted the “Florida Yacht and Ship Brokers’ Act” or another law on the subject. American brokers are accustomed to work a certain way, with their own forms but this does not mean that Canadians have to automatically adhere to their habits.
MAIN CLAUSES IN A PURCHASE OFFER
The INSPECTION AND EVALUATION clause of an offer clause covers the quality and the condition of the vessel and of her equipment following a survey in and out of the water, a mechanic verification, a sea trial (water test), etc. The results must be at the full satisfaction of the buyer. This subject is covered in more details in Marine Capsule no8, Survey and inspection
Description of the equipment sold with the vessel. This is a check list used at the taking of possession and a good help is a claim has to be filled at an insurer if needed
Credit approval. This will be discussed in Marine Capsule no. 9, Marine credit
Mechanic of payment and money transfers. Is there any creditor to pay, bank, marinas, repairers ?
Acceptance to furnish additional requested documents as operating and maintenance manuals, past maintenance and repair invoices, etc.
Place of taking of possession, in or out of the water, truck transportation, etc.
PAYMENT OF THE VESSEL
When the purchase conditions will have been met, the payment balance shall be provided to the Marine Advisor who will deposit it in a trust account. This money will be used to pay debts and claims and the remaining to the seller as soon as:
All sale documents will have been signed
A sufficient insurance coverage will have been issued for the buyer
In the case of Canadian registered vessels, after the sale will have been registered in the Canadian Register book
Debt due on the vessel
Debts will be paid directly to the creditors by the Marine Advisor upon receipt of a letter issued by them confirming the amounts due and the way they want to be paid. These payments are not handed to the seller or to the buyer, except in very rare cases.
The mortgage release process, in Canada and in other countries is detailed in the Maritime Capsule no. 9, Marine credit
We have seen cases where a buyer had given his seller a draft for the amount of the sale. The debt due to the bank was higher than the selling price; the bank was refusing to release the vessel.
In another case, a buyer went directly to pay his seller’s Bank debt before the sale has been completed. This is dangerous. Should the seller become unable to sign (accident, death, no more time, etc.), what happens? The vessel is not yet officially sold to the buyer and the seller now has a “free and clear” vessel plus the money.
As per the contract writing, the balance of final payment will be delivered either to the seller or to the broker. The foreign brokers, American or other countries, like to receive directly the selling price balance. It is a protection for their commission. However, the writing of the contract may differ from one transaction to another. Each word is important.
Method of payment
Payments are made by way of a Marine Advisor checks but, when the amounts are sizable, they are completed by bank drafts or by wire transfer (electronic funds transfers).
It’s fast, effective and safe. Also, a confirmation of completed transfer (date, hour, minute) is issued by the system in the few seconds following the arrival of the money at the other end.
If your Marine Advisor processes many marine transactions, his bank will have provided him the required tools allowing the electronic wire transfers from his own office. Hebert & Associates is equipped with such a system since year 2004.
The broker's or seller’s bank will receives the money within two (2) to four (4) hours after the initiation of the transfer. (The cutoff time is 14:00 hour for transfers in Canada, the working days and 13:00 hour between Canada and USA, working days in both countries). Transfers in Europe sometimes take at least 24 hours.
Certified checks or drafts in United States
In USA, money transfer system between banks is slower than in Canada. If you pay with a certified check or draft, although the draft is drawn on a US Bank, it is very likely that the vendor bank will “freeze” the check or draft for 10 days or more, delaying the taking of the vessel and the delivery of necessary original documents.
Documents before the final payment
Relevant documents are already in possession of the Marine Advisor.
A copy of all documents signed by the seller has already been received by the Marine Advisor. On some documents, the signature of the seller will have been witnessed by a lawyer, a notary, a notary public or a commissary for oaths authorized in the country where the documents are signed.
The seller has also confirmed, in writing, that following after the receipt of his money, he will immediately forward the original of the requested documents to the Marine Advisor, by courier, FEDEX, DHL or other. The use of this type of sending allows a closer follow up.
Transactions completed in winter are the source of some concern to buyers unless the vessel is seating under a warm sky. The vessel has not been tested in water. It could have been recently surveyed but the most of the surveyors are reluctant to issue an opinion when the hull is too cold; there is a danger. They may not detect potential problems.
In many holdback situations, the sale is completed in short delays but, often in the cold season, a certain amount of money is kept in trust until the launching in the water in presence of the seller and the buyer. A deadline date is specified in the contract.
If problems arise at that time, the buyer will have a certain number of days (ex. 10 days) to forward to the Marine Advisor, invoices or estimates for repairs prepared by an know marine expert. The Marine Advisor will directly pay these invoices. The rest will be rendered to the seller without further delay.
In holdback situations, when everything is in order, the buyer faxes to the Marine Advisor the "Authorization for Disbursement" form and the seller gets his due immediately.
This writing is a short summary of some of the topics to consider in relation with a vessel purchase, sale or credit.