How to operate a yacht: private versus commercial

There are differences to consider:

I.  on the technical side;
II. on the crew and insurance side;
III. depending upon the areas of operation.

I. Differences to consider on the technical side

The rules and regulations applying to a particular yacht will generally depend on a combination of the following factors: registration, length, tonnage, engine size, usage (i.e. private or charter), area of operation, distance operated from a safe haven.

Commercial yachts or private yachts hosting helicopters need to comply with stricter rules than yachts that are only used privately (used solely for the recreational purposes of their owners and guests / not intended to carry for reward).

Among other matters, commercial yachts must be in Class and comply with the Commercial Yacht Code Regulations in accordance with the chosen registry, the International Maritime Conventions and Regulations and must comply with minimum safe manning requirements if over 24m.

While introducing a stricter set of rules and regulations, commercial registration enables yacht owners to off-set operating costs with funds from 3rd party chartering activity and to take advantage of all other fiscal benefits derived from commercial operations.

The need for yacht owners and crew to adhere to the laws, rules and regulations that apply to their yachts is important for the following reasons:
  • Primarily the health and safety of all onboard;
  • The proper maintenance and upkeep of the yacht, tenders, machinery in good working order;
  • Compliance with any insurance warranty that may invalidate the yacht’s insurance if breached;
  • The avoidance of litigation in the event of an accident or incident involving the yacht and its tenders;
  • The avoidance of detention by Port State Control in the event of non compliance.
The main International regulations applying to commercial yachts are set below:
  • International Load Line Convention (yachts over 24m);
  • International Convention for the Prevention of Pollution from Ships (MARPOL / annex I oil, annex IV sewage, annex VI air for yachts over 400GT, annex V garbage for yachts over 100 GT);
  • Ship Oil Pollution Emergency Plan (SOPEP);
  • International Safety Management Code (ISM) ( for yachts over 500 GT but mini ISM required under Red Ensign flags for yachts over 24m engaged in trade);
  • International Ship and Port Facility Security Code (ISPS) (for yachts over 500 GT);
  • International convention on the control of Harmful Anti-Fouling system on ships;
  • SOLAS Conventions (construction, life saving appliances, radio, navigation, maritime safety / part of the convention is applicable to yachts);
  • Colregs Convention;
  • Maritime Labour Convention (MLC) (for commercial yachts over 500 GT but advised to comply for all commercial yachts on a lighter level);
  • Ship Energy Efficiency Management Plan (SEEMP);
  • STCW 1995 (for commercial yachts / Crew certification);
  • Classification Society Rules and regulations.
II. Dtifferences to consider on the insurance and crew side

On the insurance side:

The yacht, the crew and all passengers must be properly insured in the event of accident, incident or liability issue. Commercial yachts shall be insured for chartering activities and hold a greater third party liability or P&I coverage.

The two most used sets of standard wordings are the Institute Yacht Clauses 1/11/85 (CL328) and the American Yacht Clauses May 1947 (CLA231). Both have exclusions and warranties that may limit cover.
The main insurance policies are:
  • Hull & Machinery;
  • P&I or Third party liability;
  • Crew medical and accident cover;
  • War risks
These policies typically cover the below risks:
  • Hull & Machinery;
  • Machinery breakdown;
  • Total loss;
  • Fixtures and fittings;
  • Personal effects;
  • Tenders and water sport toys;
  • Third party liabilities;
  • Personal Accident;
  • Medical expenses;
  • Charter activities for commercial yachts or private yachts with limited autorisation to charter;
  • Ancillary items (such as art works, helicopters etc);
  • Small pleasure yachts usually have a Hull &Machinery policy which include Third Part liability risk.
On the crew side:

All crew members employed on a commercial yacht will be required to hold STCW 95 Basic Training certificates and provide evidence they hold the necessary Flag State approved qualifications specific to their position on board. Requirements are less constraining. Requirements are less constraining on board pleasure yachts.

• Employment contract
Crew will need to be employed either by the owning company or through an offshore payroll company to remove any employer’s social and tax liability from the owner. The company would employ the crew members and sub-contract them back to the owning company to take instructions on how the yacht should be run etc. The employment contracts between the offshore employment company and each crewmember should state that the Employee will be liable for all applicable taxes, government fees, social security payments or other obligations arising from his citizenship, place of engagement or country of residence if any.

Minimum standard clauses will be compulsory within employment agreements for crew on commercial yachts, in accordance with the Maritime Labour Convention 2006.

• Insurance
If the crew members are not covered by a national social scheme of the flag state, the Employer will have to take a private medical and accident cover for each crew member in addition to the P&I or third party liability cover, as the deductibles are high and not all risks covered. This also became compulsory with the MLC 2006 Convention on board commercial yachts.

• MLC 2006  ConventionMinimum rights  (entered into force in August 2013).
The Convention establishes minimum requirements for almost all aspects of working conditions for seafarers including conditions of employment, hours of work and rest, accommodation, recreational facilities, food and catering, health protection, medical care, welfare and social security protection. 
Certification as well as inspection of on-board working and living conditions is not mandatory for ships under 500 GT that are not on international voyages or voyages between foreign ports. However, we recommend that yacht owners of all commercially registered yachts to apply for a Statement of Compliance to satisfy Port State Control inspectors.

III. Differences to consider depending on the areas of operation of the yacht

There are significant differences in terms of regulations, requirements, taxation and rules for operating pleasure and commercial yachts if we consider the different areas of operation (EU, US, Asia for instance) and even within a specific area of operation (EU for instance) that require careful analysis to determine whether it is more advantageous for the yacht to be registered and operated as a commercial yacht or a yacht for private use. 
At Rosemont Yacht Services our dedicated Yacht Team has the skills and expertise to advise on these matters and take a prospective yacht owner through the various stages with concise clear advice to ensure a trouble free realisation of the dream of yacht ownership.