What is in a Boat Purchase Agreement?
A boat purchase agreement is a legal contract between the seller and buyer of a vessel. The purpose of the agreement is to protect both the seller and the buyer in the course of a transaction. When buyers and sellers sign a case specific purchase agreement neither party will be left in the dark as to what they can expect from the other. A good purchase agreement also includes miscellaneous provisions and contingencies that can be pre-negotiated and can easily prevent future conflict. It can also save the parties money by limiting the scope of due diligence.
Before a purchase agreement is entered into it is always a good idea for the buyer to get a marine survey. The surveyor will conduct a thorough walkthrough and examination of the vessel. A good surveyor will look for everything from soft spots in the hull, corrosion on the engine and generator, how fast the sails are ripping , to the age of the fire extinguishers and flares. The buyer negotiates an inspection period into the purchase agreement which will be the time when the surveyor conducts the inspection. Most sellers will allow anywhere from 4-10 days for the inspection.
There are generally two things to be concerned about when entering into a purchase agreement. The first is whether a ship is being sold or a vessel. A "vessel" includes any watercraft or other artificial contrivance used or capable of being used as a means of transportation on water. Vessels are generally the smaller "recreational boats." Ships, on the other hand, are larger vessels that are involved in commercial navigation. Trust me, there is a large difference under federal law and regulations. The answer is not always intuitive but rather it is a question of "which agency is more likely to have jurisdiction?"
The second thing to know about boat purchase agreements is that they are governed by maritime law. In the U.S., maritime law concepts have traditionally governed admiralty and maritime cases. Remember that most states have their own admiralty and maritime statutes. Under admiralty and maritime statutes the law varies greatly from state to state. For example, in California breach of warranty, breach of duty and other narrow causes of action may be available to a buyer of a boat but in a state like Florida those same causes of action do not exist.
Ingredients of a Boat Purchase Agreement
The key elements of a boat purchase agreement include the names of the parties (buyer and seller), purchase price (a sales price that will be acceptable to both the buyer and seller), name and physical location of the boat, appointment of escrow for closing, broker’s commission, survey and sea trial contingency, financing contingency, closing (or possession) and representations and warranties of the seller. The parties should include an insurance requirement to protect themselves.
Legal Aspects When Buying a Boat
The legal considerations involved in the purchase of an acquired vessel range from the contents of the boat purchase agreement to sufficient title transfer and registration. Issues to be considered include, but are not limited to: whether the acquired vessel title is clear and without liens, the originating country’s title laws, U.S. Coast Guard registration, possible state sales tax upon transfer of ownership, and checking for security interests against the vessel.
A vessel title should have a bill of sale and a properly executed title that is free from liens. If the purchased vessel is a brokerage vessel, a broker is needed to obtain the vessel’s title from the owner and to pass that title to you from the owner. It is best to use a reputable broker that deals with such matters on a frequent basis. Once you have this documentation, it can be transferred to the buyer as the seller of the vessel in its entirety. If this is not possible, then a U.S. Coast Guard preferred ship mortgage or a U.S. Coast Guard satisfaction of mortgage must be sought from the prior lien holder. If the purchased vessel comes from an out-of-country source, the laws of the country that covers the vessel’s title should be checked to determine how rights of lien or ownership are transferred.
An Example of a Boat Purchase Agreement
*Note: this is a sample template; it is suggested that you see an attorney to ensure your boat purchase agreement is customized for your specific needs and complies with any applicable laws of your state or country.
PURCHASE AGREEMENT
BETWEEN
Seller hereinafter referred to as "Seller"
AND
Buyer hereinafter referred to as "Buyer"
This Agreement dated this ______________ day of _______________, 20__.
Parties
Buyer: Seller:
1. Object of Agreement. Seller agrees to sell and Buyer agrees to buy the following boat for the total purchase price set forth in Paragraph 2 below:
Named_______________________, USCG Number________________________, Manufacturer___________________. Model___________________________. Year_________________________. Type: Yatch Cruiser, Fishing, Sail, Other__________________.
Size_____________________________ ft. Powered by_______________________________________.
Said purchase is complete without trailer, with trailer, or pending trailer.
- Purchase Price. The total purchase price for said boat is $________________________.
- Deposit. A deposit of $________________________ can be submitted to seller for reservation for 14 days.
- Payment. The total purchase price, less the deposit, is due at closing. 5. Closing Date. Closing shall be on or before the ________ day of _______________, 20______.
- Representations of Buyer. Buyer represents, warrants, and agrees that:
- Representations of Seller. Seller represents, warrants, and agrees that:
- Title. Title to the boat shall be delivered to Buyer free and clear of all encumbrances. The current owner of the boat is____________________________.
- Miscellaneous Provisions.
A. Counterparts. This instrument may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute the same instrument.
B. Ownership. All persons signing this purchase agreement shall be deemed co-owners with respect to their respective percentage interests in the boat.
C. Governing Law. This Agreement shall be governed by and construed under the laws of the State of ________________ and in the event of a suit in equity or other proceedings shall be brought only in a court situated in ______________ County, _________________.
D. Amendments. This Agreement may be amended only in writing signed by all parties hereto.
The remainder of this form has been intentionally left blank.
Negotiation and Closing the Deal
Negotiating the Terms and Finalizing the Contract
After you’ve written a rough draft, you will want to negotiate the terms. You want the agreement to be as clear and comprehensive as possible, because a boat purchase agreement is a legal contract. Depending on the parties, this might involve lawyers and perhaps even a broker, but it doesn’t have to. Either way, both parties need to reach a consensus on what the agreement states.
Once you’ve agreed on the terms, you will want to sign multiple copies of the contract. State and federal agencies as well as other parties could each benefit from having a copy of the agreement. Each party should write "Received" or "Duplicate for" on the top of its copy. If you sold the boat, for example, you would write "Duplicate for Buyer." Placing the same language on all signatures can give the impression that you signed one document – an appearance you might want for recordkeeping.
When you sign the document, sign in blue ink, because color copies look different from regular copies. That way, there is no confusion later about who signed which part of the agreement.
If you use a broker, it’s important to completely fill in all blanks on the contract that the broker failed to fill in. For example, if your broker left it blank where it says how much the buyer will be paying you for the boat, you need to write it in . Otherwise, if the buyer were to decide not to buy the boat for any reason, the broker could say the boat is still available, so it would technically be selling for the wrong amount.
After you’ve signed the agreement, the broker needs to send both parties a copy with each signature and stamp initialed for each page. This can mean asking the broker to overnight or messenger a copy. If you don’t get a copy of the contract with the signatures prepared in this way within days, follow up with the broker to make sure the agreement isn’t sitting on his or her desk somewhere.
It’s important that the agreement be properly executed, because it can help avoid future litigation. For example, if you’re experiencing a boat defect and aren’t getting help from the dealer, or if the dealer is withholding a portion of the down payment, you might have to pursue claims against the dealer. A proper, fully executed contract already lays out the terms the dealer must follow. If the dealer doesn’t follow these terms, it is breaching the agreement.
Remember also that even if the agreement states that you intend to seek arbitration instead of going into federal court to resolve a lawsuit, you will want to be familiar with what happens in federal court. Make sure you understand how to properly sue for any claim you might have, what damages you might be entitled to recover, how to get evidence included or excluded, what type of discovery rights you have and any statute of limitations you could face.
Common Pitfalls in the Process
In an ideal world, a boat purchase agreement is always according to Hoyle. In reality, however, even the most experienced and meticulous buyer or seller make mistakes when dealing with purchase agreements. Here are three common pitfalls to watch out for and how to avoid them.
- Not stating sailboat or motorboat. This seems so basic that it shouldn’t even need mentioning; however, it is very important that the buyer and seller both know what type of boat is being sold. An unmarked purchase agreement could be the difference between a deal getting done or not finishing sailing, or scrambling to remove a boat that moves under its own power legally.
- Failing to state who pays the sales tax. Boat sales tax is generally credited to the state of residency of the individual or individuals who are purchasing the boat. However, if a boat is being purchased in one state and the purchasers are from yet another state, who is responsible for the sales tax? The general rule is that the sales tax must be paid in the state where the transaction is taking place. If you want to avoid paying sales tax on both purchases, then you will need to clearly designate who is responsible for sales tax at the time of the sale.
- Leaving out warranty disclaimer language. Even if a boat broker or dealer provides a warranty on a boat, the contract must contain specific language in order to be enforceable. Essentially, the language must disclaim any and all other warranties with regards to the condition of the vessel. This is presumptively the case anyways, but leaving out this disclaimer language could put the warranty in jeopardy.
What Questions are People Asking
We answer the questions you ask most frequently about boat purchase agreements.
What if there are liens on the vessel?
There should be a paragraph in the purchase agreement that the seller represents and warrants that there is no lien on the vessel. It is common for the broker or agent to hold a portion of the purchase price in escrow at closing to clear any liens. Our form includes a suggested paragraph that addresses this concern.
How does the survey process work?
The survey is a process by which the vessel is inspected prior to closing. The intention is to provide the buyer with an understanding of the condition of the vessel. The purchase agreement will contain a provision that permits the buyer, at the buyers expense, to have the vessel inspected by a marine surveyor of the buyer’s choosing prior to the closing date. The inspection typically involves lifting the vessel out of the water and inspecting the hull and running gear. The lift usually has to be reserved well in advance for this process to occur. The inspection also usually requires a dry dock or land space to place the vessel for a few days while the vessel is inspected. Once the surveyor has completed the inspection, they will provide a written survey report, which is just a general overview of the vessel’s condition. A more detailed survey report will usually include photographs of the vessel and general details of the vessel identified in the details section of the survey. The buyer will often prepare a list of items that need to be repaired or serviced, which may be referred to as a ‘punch list’ . The seller will usually agree to repair or service most items on the punch list except for items the boat yard indicates are pertaining to safety or compliance. The purchase agreement will contain a provision requiring the seller to cooperate with the buyer in getting items addressed on the punch list. The proceeds from the sale are usually held in escrow until the items on the punch list are complete.
Do I need a survey?
A survey is not mandatory, however, it is recommended for a wide variety of reasons. Not only does the survey help identify issues affecting the vessel, it also provides valuable information concerning proper maintenance of the vessel. Furthermore, a survey on file indicating the normal condition of the vessel with a title transfer is a great defense against any potential fraud claims filed by the buyer after the sale. In the event the buyer later makes claims of misrepresentation following the sale, the surveyor’s report will be considered by the Courts as part of the reasonable due diligence the seller was required to exercise with respect to the sale.
What do I need to do to get the title transferred after closing?
Assuming the closing proceeds without issue, there is some additional documentation needed after the date of closing to transfer the vessel’s title. Each state has its own requirements so it is important to review the requirements in the state where the vessel is being registered. Many states, including Florida, will require a bill of sale. The purchaser of the vessel will then take the bill of sale together with a few other documents (depending on the state) and submit an application with the department of motor vehicles in order to have the title transferred.