Sale & Purchase - all types of main fleet & offshore vessels

Due Diligences & Inspections

Buyers may request copies of the primary certificates and a basic inspection of the vessel before signing the MOA. If the vessel is clearly unsuitable, a potential buyer who is not bound by any contracts and has not paid a deposit may more easily back out of the deal. However, there is redress available for failed inspections after signing the MOA. As shown below, thorough surveys and inspections are typically carried out following the signing of the MOA.

It is also recommended that both parties conduct preliminary due diligence on one another prior to signing. The majority of modern vessels are owned by single ship-owning entities that are registered in offshore jurisdictions with benevolent regulatory environments. The genuine contractual adversary's identity and arrangement may be hidden via opaque frameworks. Similar to inspections, the MOA should include safeguards like proof of vessel ownership, evidence of good standing, etc. Likewise, it is advised to carry out preliminary inspections prior to signing the MOA, as it can be more difficult to stop the sale if an unacceptable position is found after that point.

Before signing the MOA, the parties should also be informed of any financing that is pertinent to the sale. A potential purchaser will want to know how clear title will be obtained if the boat is mortgaged or otherwise burdened. Additionally, a seller must ascertain up front whether the buyer plans to secure financing. Practically speaking, if debt or equity financing is appropriate, there are a number of factors that need to be taken into consideration. For instance, the need to register new mortgages, the necessity to remove existing ones, the acceptance of corporate formations, the lender's specific criteria, etc. Although a detailed discussion of ship finance is outside the purview of this article, parties should be aware that any financing will inevitably impact some aspects of the sale and purchase agreement

Description of the Vessel, Purchase Price, and Deposit

Any contract of sale must include the item being sold (the vessel) and its price as two of its key provisions. Both ought to be expressed explicitly.

It is customary for the buyer to provide a deposit equal to 10% of the buying price. After signing and receiving confirmation from the deposit holder that the appropriate account has been formed, the buyer has three banking days to make this payment to a third party holder, a law firm. When the vessel is delivered, the deposit will eventually be given to the seller, all other things being equal.

Inspection

The necessity to inspect the subject vessel, her records, and acceptance thereof is especially disputed. The many NSF versions have historically adopted—and currently maintain—the default stance of granting the buyer complete discretion to decide whether or not to accept the vessel based only on inspection.

Description of the Vessel, Purchase Price, and Deposit Any contract of sale must include the item being sold (the vessel) and its price as two of its key provisions. Both ought to be expressed explicitly. It is customary for the buyer to provide a deposit equal to 10% of the buying price. After signing and receiving confirmation from the deposit holder that the appropriate account has been formed, the buyer has three banking days to make this payment to a third party holder, a law firm. When the vessel is delivered, the deposit will eventually be given to the seller, all other things being equal. Inspection The necessity to inspect the subject vessel, her records, and acceptance thereof is especially disputed. The many NSF versions have historically adopted—and currently maintain—the default stance of granting the buyer complete discretion to decide whether or not to accept the vessel based only on inspection.

The inspection provision is frequently intensely negotiated in practice. Sellers may ttempt to change the default setting such that the inspection will only render the sale void if flaws are found that are not repairable in a reasonable amount of time. It's likely that buyers will want to keep complete control over their ability to reject the deal completely. For any number of reasons, purchasers who want to back out of the deal often turn to a supposed failed inspection. Parties should also be aware of the buyer's right to undersea or drydocking inspections; even if flaws are discovered, non-acceptance in this case does not automatically invalidate the sale. Parties would be well advised to explicitly state their respective rights and obligations with regard to inspections in all circumstances.

Finalizing the Transaction

The final step in a ship sale and purchase deal is called "closing." Here, the buyer and seller exchange paperwork, pay, and physically deliver and transfer the vessel—usually on the same day. To guarantee the effective closing of the deal, careful coordination between multiple parties working together is necessary. Everybody has a part to play. As a general guide, some important players on the day might be the buyer and seller (or their authorized representatives), attorneys, bankers (for payments as well as financing), flag state representatives, crew (both new and old, if replaced), brokers, class representatives, insurers, and possibly other people. These people are usually not needed in the same place or time zone.

A traditional sale and buy closing consists of three key components: (i) document delivery, (ii) vessel delivery, and (iii) payment. Two concurrent sessions, one onshore in a meeting room and the other onboard the vessel, are typically used for closing. The parties shall set up communication channels with any necessary third parties as well as between the two meetings. Before the final closing, a "pre-closing" meeting could also take place as a practice run.

(i) Document Delivery

Two kinds of documents are often exchanged during documentary exchanges. First, the buyer receives the vessel documentation from the vendor. the delivery of all additional documents listed in the Memorandum of Agreement. Documents directly related to the vessel's continuous operation are known as vessel documents, and they are frequently stored onboard. These could consist of logbooks, technical papers, safety certificates, class certificates, manuals, plans, and blueprints, among other things. At the ship meeting, these documents are frequently exchanged. The buyer's representative on board the ship, usually a designated technical manager, will attest to the onshore meeting that the vessel documentation appear to be in order.

Documents that the Seller will give the Buyer:

Purchase Order

This is a crucial document that officially documents the sale between the parties. It usually takes the form of an official or statutory document required by the flag state. It must be in a form that may be recorded in the buyer's designated flag state, transferring ownership and attesting to the fact that the ship is free of any liens, mortgages, and encumbrances. Additionally, it ought to be legalized, apostilled, or notarized if needed. The parties should account for expenses and allow enough time to finish this process.

Proof that the transaction has been approved. Board and/or shareholder resolution should be provided by corporate entities.
Power of attorney designating agents. Parties who are legally authorized to do so (the buyer and seller) should execute the required

paperwork and transfer the vessel.

Registry certificate verifying present ownership
Proof of instruction. Here, proof of the vessel's good standing with a certain classification body is provided.
Deletion certificate from prior registry
Commercial invoice # Bunkers & Lubes commercial invoice

The buyer is typically responsible for covering the cost of any bunkers that remain on board the vessel as well as any unused hydraulic and lubricating lubricants. In real terms, this is typically taken straight out of the purchase price.

Before Concluding the Memorandum of Agreement

Brokers and Initial Discussions

Prior to the MOA being signed, there are a few crucial steps. Typically, a motivated seller or potential buyer will first contact a ship broker. Typically, brokers receive compensation on a commission basis that is based on the vessel's worth and is contingent upon closure. Traditionally, the seller has the legal obligation to pay the commissions to the brokers. With an effective commission percentage each, the seller's and buyer's brokers often share the entire brokerage charge. This arrangement comes in a variety of forms in real life. It is important for all involved to remember that brokers are never parties to the main sale and buy arrangement under contract.

The primary terms are examined when a potential sale has been found, with the brokers frequently leading the negotiations. Preliminary talks can take many forms, but they usually center on major issues like cost, deposit requirements, delivery schedules, and inspections. It is common for lawyers to become involved only after these initial discussions are finished.

The parties are advised to make sure that they cannot mistakenly create legally binding agreements during these conversations. This could (and has) happened by unintentionally making or accepting an offer that can be accepted through a broker acting as an ostensible agent. By making sure that all correspondences and recaps expressly state that all provisions are contingent upon the execution of the MOA, for example, such dangers can be readily avoided. It is now standard procedure to include terms like "subject to contract" in pertinent discussions.

(ii) The vessel's delivery

There are multiple stages involved in the actual physical delivery of the vessel. The parties first decide on a delivery location. The seller is required to deliver the vessel at this place "safely afloat at a safe and accessible berth or anchorage" in compliance with law.

The lay dates for delivery, or the acceptable window of time for delivery, will also be noted by the parties. This is accomplished by noting a specific date following which the seller may publish a notice of readiness, or "NOR." The vessel is prepared for delivery, according to the NOR. The buyer must accept such delivery after it is issued, or else it will be deemed to be in default. When the seller plans to tender the NOR, it must notify the buyer in advance; notices of twenty, ten, five, and three days are necessary.

A "cancelling date" will also be noted by the parties. The buyer has the right to cancel the contract if the seller does not tender the NOR by the specified deadline.

In conclusion, delivery of the vessel is accomplished through two simultaneous processes. The buyer physically delivering the vessel to the seller is the first action. Depending on the specifics of the sale, there are a number of options in this regard. As stated in the ship's log book, representatives are occasionally dispatched on board to inform the shore meeting that the vessel has been turned over. There can be a crew change in addition to it.

The vessel is delivered in documentary form by signing a Protocol of Delivery and Acceptance, or "PoDA." This is the other activity. The precise delivery time and location are noted by the PoDA. It is commonly believed to demonstrate the precise moment at which risk and title transfer from the seller to the buyer. When payment of the purchase price is confirmed, it is typically signed at the shore meeting by the authorized representatives.

(iii) Remittance

The buyer shall release the deposit and pay the remaining purchase price "on the delivery of the Vessel, but not later than three (3) Banking Days after the Notice of Readiness has been given. Practical difficulties arise when coordinating payment and delivery because international bank transactions can take several business days. Numerous methods have been devised to tackle this dilemma.

A suspense account is among the options. Here, the buyer places the money in advance with the seller's bank for prompt release at its request. The buyer or its bank may provide an irreversible payment instruction, in which case the release may take place. This is often accomplished by the buyer's bank sending a SWIFT message (typically an MT 103) to the seller's bank directing the payment. Frequently, a corresponding SWIFT MT 199 message specifies the requirements (such receiving the PODA) that must be met before making such a payment.

Another choice is to provide letters of confirmation and payment. The buyer's bank may attest that, in the event of any particular action (such as the signature of the PoDA), it will promptly begin payment to the seller's designated account. Consequently, a payment note will be issued at closing to eliminate any scheduling issues. Another choice is to use an escrow agent. Here, it is required of a third party to release money that was obtained (in advance) from the buyer subject to predetermined guidelines.

In summary

There are several obstacles to overcome in the sale and acquisition of a ship, both legal and practical. A lot of issues could be solved with careful preparation and implementation. With this sturdy contract, the buyer and seller would have clear guidance throughout the transaction. When done correctly, a sale and buy will largely go smoothly, just like navigating a ship. If she didn't perform well, she might swiftly go aground. The maritime litigation team at "THEOMNIVOLT" frequently assists customers with legal issues pertaining to the acquisition and sale of ships.