In general, contracts for the sale of a vessel do not fall within the federal court’s admiralty jurisdiction. Acting in accordance with contracts for the sale of a vessel – contracts for the construction of a vessel (or, shipbuilding) do not fall within the federal court’s admiralty jurisdiction either. However, contracts to repair vessels are maritime contracts. Did you catch all of that?
So, what does that all mean? Well, simply put, there may be jurisdictional issues that present themselves as to whether you would be operating within the federal court’s admiralty jurisdiction or state law. This can be important depending upon the need or usage of, let’s say for example, the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”) in context of the transactional nature of your situation.
Furthermore, whether you are buying a commercial vessel or a yacht, can have a distinct difference in how you will treat the transaction. While there are some overlapping features, as with the complexity of maritime law there are involved forms have been established to be used, a broker plays a large role, where and how to register the vessel (flag state), surveying the vessel, and the like.
In a typical transaction, the broker will assist the buyer in locating a vessel and hire a marine surveyor to perform the preliminary inspection. A buyer’s surveyor inspects the vessel determining whether the vessel meets the buyer’s criteria and assesses the vessel’s market value for negotiation purposes. The surveyor’s responsibilities include not only a physical inspection of the vessel, but also a review of technical documents and certificates issued by the vessel’s flag state and classification society. “Classification societies” are independent organizations and maintain technical standards for vessel design, construction, and operation and employ surveyor to certify compliance with those standards. See Goldrein, Hannaford & Turner, Ship Sale and Purchase, 41-42 (Routledge 6th ed. 2012).
Consider a broker acting as your realtor for a residential purchase and the marine surveyor acting as a home inspector, appraiser and title check for the vessel you are purchasing.
If the buyer decides to purchase, then parties exchange essential terms which eventually becomes a “recap message” that includes price, delivery location, and the scope of any further inspections. Once the terms are agreed upon, then a Memorandum of Agreement (“MOA”) is drafted – usually, by form and prepared with the assistance of an attorney.
Once this is completed, the buyer pays a deposit and organizes any more predelivery inspections while preparing to register the vessel with its chosen flag. There may be addendums to the MOA. If the form of the delivery documents is agreed between the parties then the seller transfers the vessel to the place of delivery and submits a Notice of Readiness (“NOR”).
At closing, the deposit is released, and the buyer pays the balance of the purchase price against delivery of the vessel and the required seller’s documents.
Of course, this is a simplistic breakdown of the process and it is generally advisable to retain an attorney. If you need assistance with a vessel sale, memorandum of agreement or have questions about maritime law or transactions, feel free to contact attorney John Frazier.