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Charter Law

Before you turn over the yacht keys make sure you’ve crossed your Ts. Chartering a yacht isn’t as simple as handing over the keys to a friend who’s paid $1,000 to go cruising during the weekend. This article attempts to shed some light on a few fundamentals of yacht charter in the United States.

Before you turn over the yacht keys make sure you’ve crossed your Ts. Chartering a yacht isn’t as simple as handing over the keys to a friend who’s paid $1,000 to go cruising during the weekend. This article attempts to shed some light on a few fundamentals of yacht charter in the United States.

Story by Danielle J. Butler

Time and time again, yacht buyers and owners find themselves contemplating the same question, “Should we charter the yacht or not?” It isn’t rare for us to hear owners new to charter voice ambitious goals for 20 weeks of charter a year. They may lack a qualified charter captain and maritime legal advice but, having gleaned information from friends who were “successful” in chartering their own yacht, they forge ahead, overlooking in the process the numerous laws regulating charter in US waters. So what is involved in chartering legally and correctly? We don’t have room here for a comprehensive exposé but offer a few pointers.

Back to basics

The very first step should be to learn the difference between charter agreements. In the yachting industry, charter brokers/managers use two common forms of charter agreements: a demise charter agreement (also known as a bareboat charter agreement) and a time and voyage charter agreement (known by most as a commercial charter agreement).

Turning over the yacht to the charter party: the bareboat charter agreement

The demise charter (aka bareboat charter) agreement’s main characteristic is that it places possession of the vessel in the hands of the charter party. Simply put, at the time the charter starts, the owner relinquishes possession of the vessel and the charterer takes over crew selection, vessel operation and management. To use the legal terminology, the owner must relinquish “possession, command and navigation of the vessel” as to be “tantamount to, although just short of, an outright transfer of ownership.” While the charterer is responsible for hiring and maintaining a crew and for the vessel’s operation, he or she assumes responsibility for the vessel and its activities.The obvious advantage is that it limits the owner’s liability. But the owner must have no ties to the crew selection or a company employing the crew (which the law may construe as retaining some control over the vessel, in breach of the basic premise of this agreement). Also on the plus side, the charterer is obligated to maintain the vessel in a good state or repair during the charter and must return it in the same condition it was when it was received, ordinary wear and tear excepted.

Taking charge and assuming responsibility: The time and voyage charter agreement

In the time and voyage charter agreement, by contrast, the owner remains in charge of the vessel operation and selects the crew; the charter party merely rents the space on the vessel for a specified time. The obvious benefit to owners is that they have the comfort of knowing that their selected crew is in charge. They, however, remain liable for the vessel’s activities while it is on charter. This type of agreement leads to another set of important rules. An owner contemplating the use of a time or voyage charter within the United States must have the yacht endorsed for use in coastwise trade. This, in turn, dictates that the yacht be built and documented in the US, be owned by a US citizen or company, and employ US crew. Keep in mind that US-built and US-registered vessels are not automatically endorsed for coastwise trade.

There are, of course, other potential requirements and regulations that must be met in order to legally charter a vessel in US waters.

Keeping up with the Joneses

Broad-reaching federal statutes are a major consideration. Federal cabotage statutes, such as the Jones Act and Passenger Services Act, prohibit foreign-flagged or foreign-built vessels from engaging in US coastwise trade. Generally speaking, the cabotage statutes prohibit the transportation of passengers or merchandise between US ports in any vessel other than a vessel built in and documented under US laws and owned by US citizens.

As per the Jones Act, “a vessel may not provide any part of the transportation of merchandise by water between points in the US, either directly or via a foreign port, unless the vessel: (1) is wholly owned by a US citizen for purposes of engaging in coastwise trade and (2) has been issued a US Certificate of Documentation with a coastwise endorsement.”

The Passenger Service Act restricts the use of foreign-built vessels to carry passengers for hire or trade between US ports. Foreign-flagged, owned and built yachts can operate only non-commercially in the United States. Although the carrying of passengers for hire is considered to be a commercial use, demise charters are not considered to be commercial uses, so long as the charterers are using the vessels non-commercially (again the owner or owner’s representative must not be involved in hiring the crew).

Violations of federal cabotage statutes can result in fines or vessel forfeiture.

Residual issues, taxes and more

Other matters to consider include potential taxes. Use and sales taxes vary from state to state and according to the type of charter. There may also be limits as to the number of passengers allowed on one charter, regardless of the number of berths the yacht has. Finally, the vessel itself may become liable for the torts of its operators, irrespective of whether it is being operated by its owners or charterers.

Clearly there is much more to deciding to charter your yacht than just finding a willing charterer and signing a contract. It may sound complicated, but US laws do not make it impossible to charter; you just need to understand what is at stake. Knowing the law and planning ahead will save you money and legal problems in the long run.

Should you charter or not? You decide. Just make an informed decision. ■