Charter Yacht Management Contract Issues

avoid contract issues with charter yacht ownership

Charter yacht management contract issues are frequent because the average yacht buyer is not an expert in running a yacht as a business. That is one of the areas the Catamaran Guru can help you avoid stress and making serious errors. Our experience as charter boat owners in charter fleets has shown some areas in the management of your yacht that are important, regardless of the charter company we choose.

Address these 6 major contractual issues before you make any decisions:

  • level of maintenance,
  • builder / manufacturer warranty issues,
  • insurance,
  • hurricane plan,
  • the sale of owner time,
  • and yacht phase-out procedure.

Discuss your options and know the consequences of your decisions.

1. Maintenance

Typical management contracts state that your yacht will be maintained to the "highest industry standard" or some similar wording. Here is our most important single piece of advice: Get involved! Good maintenance on your yacht also depends on yourself. You will get better or best results if you do the following:

Get communication, at least yearly, of your boat's maintenance log, with all the records, etc.

  • When cruising on your boat, take time to: check her thoroughly>
  •  make a list of everything that, in your best judgment is wrong.
  • Document everything and take abundant notes to be kept.
  • Give the result of your work to the maintenance crew/base manager, with a checklist
  • Charterers do not always mention malfunctioning items at the end of the charter and the crews are often under pressure and cannot check all systems and maintenance issues as thoroughly as they would like to. So feel free to mention any outstanding items.

Charter companies are constantly walking a fine line between:

  • Maintaining their fleets in constant good condition to project a good-quality image to the charterers (the income generators).
  • And keeping the boats working with the minimum interruptions possible.

As you can easily understand, a boat that has to be put aside for unscheduled maintenance does not generate income, and incidentally throws a wrench in the bookings schedule. In all fairness, this is not an easily resolved equation, but that's what charter companies have to deal with. So you can have some level of understanding, but overall, your yacht should be maintained properly to retains its value and to avoid unscheduled maintenance. Remember, you play a big part in this.

2. Warranty

When they sell a boat into their fleets, charter companies act as brokers or dealers for the builder. Therefore, the warranty on the yacht is not carried by them, but by the boat builder. In turn, the builder carries the warranty for the suppliers he used (engine, windlass, sails, etc.). However, during the course of the management contract, your charter company will—or should—act as your representative to enforce the warranty in case of a defect on the boat or one of its major components.

Defects

In case of a significant structural defect —like hull osmosis for example— you want the charter company to deal with the builder on your behalf. The builder will recommend specific procedures for structural repairs with an authorized yard to do the repair. If those rules are not complied with, the warranty may become void. Get involved in, and approve, all the steps that are taken to fix a major defect. You want to make sure proper action is taken and agree to it. You may want to employ your own independent surveyor to vet the work that was done.

Accidents

In case of an accident, follow the same procedures as above. However, in case of grounding, you or the charter company might find out only long after the fact (at the annual haul-out) that your boat went aground, a fact that a charter guest may have omitted to disclose to the charter company. Unless the base is able to send a diver to inspect each boat returning from charter, which is not always possible, the charter company will probably not know about it until the next haul-out. Nothing you can do about it.

Racing

Your yacht might be chartered for racing purposes. You will not necessarily be asked or told about it. But racing accidents do happen. Charter companies have special insurance coverage for this and even if fixed properly, damage has to be disclosed when you resell the boat. If you feel uncomfortable with this, try asking the charter company to restrict your yacht from being raced.

3. Insurance

Charter companies have large blanket liability coverage. Your management contract states how your company covers your yacht. Some companies cover 100%, but some only up to 80% of the yacht's total hull value, and it is your decision to pay the difference to 100% or not. Our personal experience makes us strongly suggest paying the small extra fee at least for the first 2 years of your contract. After that, your yacht will be worth less than 80% of the original value anyway. Another thing to check: You want to be named as an additional insured on the policy. The reasoning: Any negligence of the charter company cannot be imputed to the owner (you) and used against you as an escape clause by the insurance company. Therefore, the insurance company is required to pay you for damages to your boat regardless of the level of negligence of the charter company.

4. Hurricane Season and Furloughs

If your yacht is stationed in a hurricane-prone region, like the Caribbean, Bahamas or Florida, you want to know what the hurricane plan and procedures are.

  • Will your boat stay at the marina or be moved to a hurricane shelter?
  • What is the standard preparation procedure?
  • How quickly will your boat be back in service?

Some companies will simply furlough part of their fleet during the height of hurricane season (August and September), meaning that your boat will not be available to you, nor can it generate any income, which is only an issue if you have a variable income. In that case, you should know what the plan is for your yacht.

5. Sale of Unused Owner's Time

Most charter companies are reluctant for owners to resell their owner time and thus competing with them with deep discounts. If, however your company is agreeable, it could be a good source of extra income paid towards the mortgage principal, but do not abuse this privilege. Many owners also use their unused weeks as a bartering tool, either against sailing time in another area of the world, or against the use of another asset or service. An example: I give you a week of my boat and you give me a week in your ski resort condo.

6. Yacht Phase-Out

This covers what happens to your prized possession when the management contract ends and she is handed back to you. Needless to say, this is of crucial importance. Your contract likely states something like: ”…the yacht should be returned to you in good condition, all systems working, no defects or maintenance issues except for fair wear and tear…” Your contract will describe all the major items that the charter company will fix if problems are discovered, as well as the actions taken to take care of those (replacement, overhaul, rebuilding, etc.). Reputable companies will supply a comprehensive "Phase-out Manual" describing all this in great details. The concept of "fair wear and tear" comes into play here. It means that you cannot reasonably expect to receive a boat that is rebuilt to new condition. That would be unfair as your boat has chartered for 4 or 5 years and although everything should be in properly inspected working condition, you will not receive new upholstery, new sails, a new engine, unless it's all destroyed. And that's only fair.

Now, torn sails, non-working electronics, thick black smoke out of the exhaust, cracks in the rigging, blisters in the hull, etc., are not fair wear and tear. Reputable charter companies know this and will provide all the necessary cooperation for a successful phase-out. Start the phase-out well before the end of your contract with the charter company so that all aspects of the phase-out survey / checklist can be dealt with before your contract ends. If not, you may have difficulty getting things done. Check your inventory list that you receive at your yacht delivery and make sure everything on the list is on board. Take this opportunity to “upgrade” or add the things that you would like for your cruising yacht at a possibly preferred cost.

The time to resolve these contract issues is before you sign a contract with a charter company. Let us represent you to help you prevent these and other issues. 

 

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