I am considering the purchase of a boat through a yacht broker, and he has advised me that I must submit the offer with a 10 percent deposit. This is a fairly significant purchase, so a 10 percent deposit will amount to quite a lot of money. In light of this, I have two questions. First, does the deposit need to be 10 percent — or can I submit the offer with a smaller deposit, or even no deposit at all? Second, will I lose my deposit if I withdraw from the transaction?
Yacht purchase transactions usually require a deposit, but there is no rule that requires the deposit to amount to 10 percent of the purchase price or any other amount.
Like any other contract, a yacht purchase agreement requires the parties to exchange valuable “consideration.” If there is no exchange of consideration the contract is not enforceable. The courts will not evaluate whether the exchange of consideration provides equal value for each side, but the parties must exchange something of value.
If a purchase agreement simply calls for the buyer to pay money and the seller to turn over the boat, no deposit is required. Consideration is exchanged when the money and the boat are exchanged.
However, most yacht purchase agreements call for the vessel to be removed from the market for some period of time to allow for inspection by the buyer. The seller is giving up something of value by removing the boat from the market, and he or she must receive some form of consideration in exchange.
When a buyer presents an offer with a deposit check, he or she places those funds at risk during the inspection period. The buyer thereby gives up something of value and consideration has therefore been exchanged.
Since the courts will not rule on whether the value of the consideration is sufficient, a purchase agreement with a deposit of $1 would be enforceable. Sellers, however, want to know that a prospective buyer is serious, and we therefore see a deposit of around 10 percent on most transactions.
Our reader’s second question concerned the return of his deposit in the event that he withdraws from the transaction. This is a complicated question that can only be answered by reviewing the language of the purchase agreement.
In California, the most common purchase agreement used in yachting transactions is the document published by the California Yacht Brokers Association (CYBA). Under the CYBA purchase agreement, the vessel is “deemed rejected” unless the buyer signs a final acceptance prior to a certain date. And, when a vessel is rejected, the contract requires the return of the buyer’s deposit, net of any unpaid costs relating to the transaction (such as the cost of a haulout and survey).
The rules may be different if the broker does not use the CYBA contract or a contract drafted by an experienced attorney. Some agreements call for the buyer to provide written notice of rejection prior to a cutoff date, and the vessel is “deemed accepted” unless notice is provided by that date. These contracts are viewed by most of the industry as being too onerous, since a simple calendar oversight may force a buyer to accept a boat that would otherwise have been rejected.
Regardless of the language of the contract, a buyer’s deposit will not be at risk unless the buyer breaches the purchase contract. This most commonly occurs when a buyer has accepted the vessel, whether by signing the final acceptance provision or missing the rejection deadline, but then refuses to actually purchase the vessel.
Even in the event of a breach, the contract must include some language that ties the deposit into the seller’s remedy for a buyer’s breach of the contract (typically, a “liquidated damages” clause). If the language of the contract is so ambiguous that it is impossible for the parties to determine whether a breach has occurred or whether the deposit should be returned, the entire mess will end up in court.
The best advice that I can offer a buyer regarding the purchase deposit is to read the contract carefully, and be sure that all of the buyer’s obligations in the contract are clearly spelled out.
Don’t be afraid of “legalese.” If the language of a contract is so convoluted that it is impossible to understand, a jury won’t understand it either. Ask the broker to explain your rights and obligations in plain English or — better yet — talk to an attorney experienced in yacht purchase and sale transactions.
David Weil is licensed to practice law in the state of California and, as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.
David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, is a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. He is also one of a small group of attorneys to be certified as an Admiralty and Maritime Law Specialist by the State Bar of California. If you have a maritime law question for Weil, he can be contacted at (562) 438-8149 or at email@example.com.
David Weil, Esq.