BUILD CONTRACT
• Regulations: Will the yacht be built to comply with commercial regulations
throughout the construction process and remains responsible for any partial or total loss occurring prior to delivery. Should buyer’s supplies be insured under the builder’s policy? Builders should check with their insurers what is insurable and whether object d’art or valuables should instead be insured by the buyer. Does the contract provide for an assignment of the builder’s insurance proceeds to the buyer or should the buyer be named as co-assured in respect of the value of buyer’s supplies? It is important to consider the credit rating of the insurers and also what risks are excluded under the policy. • Protecting the buyer’s pre-delivery instalments: Progressive title transfer (getting ownership in the superyacht as she is built), bank refund guarantees - or a combination of both. Where title is being transferred, check with the relevant jurisdiction what requirements may impact title registration to ensure that it is validly transferred to the buyer and that such title registration can be opposed to third party creditors. Similarly, if the buyer receives bank refund guarantees consider the terms and conditions for enforcement and events allowing the buyer to make a payment demand to the issuing bank. How best to protect your pre-delivery instalments and how effective is that bank refund guarantee?
applying to yachts carrying out chartering or for private use? Is there a difference in the construction cost to achieve commercial notation? How many passengers and crew members will the yacht accommodate? What are the applicable Classification Rules and what Flag will survey the construction? Construction Flag and Flag for final registration on delivery do not necessarily need to be the same, but both parties should check before the construction commences that if the Flag for final registration is different such Flag State will accept registration. Will the yacht be built to comply with the REG Code which came into force on 1 January 2019 and consolidated the Large Yacht Code (LYC) (as published by the United Kingdom Maritime and Coastguard Agency “MCA” and the Passenger Yacht Code (PYC) SOLAS) or to comply with regulations issued by United States Coast Guard? What are the new regulations on low emissions and does the yacht have to comply with the International Maritime Organisation (IMO) Tier III of the IMO Nox or are there any exemption applying to certain yachts based on their size and year of construction?
There is no industry-wide standard form superyacht construction contract. Each builder will have their own standard contract which reflects how they work. It is however common for builders to use provisions or even amended versions of commercial ship building contracts, such as the Shipbuilders Association of Japan (SAJ) form.
basis; be monthly stage payments or on a percentage of completion of the superyacht. Careful consideration should be given to timings and events triggering payments and the value of the superyacht as constructed. • Specification: A marine surveyor, or an experienced yacht construction project manager can help to negotiate this. The specification will include details of what is going to be built and the materials, as far as they can be defined on contract signing day. The specification will detail in every respect how the superyacht will perform, how the quality of the superyacht will be measured and will set out the regulatory requirements issued by the Classification Society and Flag State and the Class notation to which the yacht must comply.
A good contract will appear fairly balanced, while a poor contract, a contract heavily balanced in favour of one party, is likely to generate disputes during the construction process and undermine the parties’ commercial relationship at a later stage. A superyacht construction contract will usually consist of the main contract, the technical specification, the general arrangement plan, and any other elements such as a construction schedule, and the form of delivery documents.
Never sign a contract without seeking legal advice.
There are some basics you should expect to see in a build contract:
• Payment terms: Stage payments to fund the build of a superyacht are defined by the economics of the builder. They can be linked to construction milestones; be on a cost plus
• Insurance: The builder is responsible for placing the builder’s all risk insurance
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