Half-Finished Superyachts Demand Due Diligence

The starting point is to check the yard’s financial standing. A yard in distress isn’t a dealbreaker (plenty of owners have bought the yard to see their boat finished) but you need to go in with eyes wide open.

Next, commission an independent surveyor to examine the workmanship and see if the vessel has been made by craftspeople or clock-watchers. They’ll need to check contractual conformity and classification society status, which will be of immediate interest to lenders and insurers. Classification societies are experts in the technical aspects of yacht construction and maintenance. Their principal role is to research, establish and apply standards for design, building and maintenance. Overlook classification and it’ll be almost impossible to charter out once it’s launched.

Is A Fresh Start Easier?

The obvious route is to buy what’s in front of you and engage with third parties as required to finish it. But, unless the yard has failed too, this isn’t the best route. The original contract price was negotiated at a point in time. If the yard has since raised prices or costs have risen, a fresh contract exposes you to renegotiation at today's rates.

Yards also sequence builds around production slots, subcontractor bookings and materials orders already placed: A fresh contract can give the yard an opening to push your delivery date back. Liquidated damages for late delivery, warranty scope and performance guarantees—all of this was negotiated once already, sometimes in a buyer-favorable market. Starting over means renegotiating all of it from square one, and the yard has no obligation to offer the same terms twice.

Picking Up Where Others Left Off

An assignment or novation (they’re not the same, although often confused) lets you step into the seller’s shoes, with the existing contract price and payment schedule, paying the outgoing buyer a discounted sum to reflect milestone payments already made.

Assignments typically only transfer the benefit of the contract (the right to receive the yacht), not the burden (the obligation to pay), and so are often prohibited by standard-form build agreements. Novations are tripartite agreements where the builder, outgoing buyer and incoming buyer all agree that the old contract is extinguished and a new one on identical terms arises between builder and incoming buyer — with the original buyer walking away with no residual liability. That's usually what buyers and yards actually want.

A Legal Position As Well As A Boat

And so it is, with novations, that you’re not just buying a boat: You’re buying someone’s legal position. These are wildly different things, and confusing them is how people lose fortunes. You’re inheriting all existing design decisions, quality issues and potential disputes.

Take legal title. Under a typical build contract, ownership of the materials and the partially built hull doesn’t transfer to the buyer piece by piece as they’re bolted on—but at agreed milestones, or perhaps not until delivery. This means that the emerging half-yacht may not, in law, even belong to the person selling it. It might still belong to the yard.

This financial exposure is managed through the issuance, by the yard, of refund guarantees in return for each milestone payment. If the yard folds, the buyer’s installments thus far should be refunded—but they are only as good as their terms.

Do these provide no-quibble refunds—or do they come with complicated conditions? Also, can you be sure that the company providing the guarantee actually has the money to pay if need be? And finally, can these even be transferred to someone else, according to their own rules?

Unknown Unknowns To Be Aware Of

It used to be that mortgages couldn’t be registered with a ship registry. Well, now they often can. If the mortgage provider hasn’t formally released its security, you can pay full price, get a bill of sale and still discover that the mortgage follows the boat irrespective of the sale. It’s obvious that this needs to be checked where there’s a port of registry emblazoned across the stern and an ensign flying proudly above, but not when you’re looking at an empty steel box.

Builds often stop because someone’s run out of money, and when someone’s run out of money, other people are usually queuing up with invoices. Suppliers who furnished exquisite settees. Subcontractors who delivered teak decking that's still shrink-wrapped in a corner. They may have retention-of-title clauses in their supply agreements, allowing them to turn up and repossess items for which they haven’t been paid.

Check The Builder’s Risk Insurance

The passing of risk determines which party, at a given time, bears the loss if the vessel is damaged or destroyed. While risk normally passes as title is transferred, the build agreement may state otherwise. Construction insurance arrangements will have been put in place by and for the benefit of the original buyer and builder, and while co-insurance provisions may protect the new buyer’s interest, there may be gaps in coverage or disputes about the new buyer's rights to insurance proceeds. Fire may be an insured risk, but what about earthquake damage—or war?

And if there’s a “total loss” during construction or sea trials, which may be actual (complete destruction) or constructive (beyond economical repair), what are the options? Reconstruction, or is the contract rescinded, with everyone’s rights and obligations terminated?

Measure Twice, Cut Once

In short, a project purchase done badly will leave you as one more creditor in the line, owning a shedload of unrealized ambition. But done properly, with the right advice, buying a project can save you time and money, and get you afloat while your friends who ordered new builds are still arguing with their designer about door handles.