Buying • Selling • Building
Part 10
In this 12-part series Rosemont Yacht Services looks at key transaction issues in Superyacht Acquisitions, Superyacht Sales and Superyacht New Builds, and considers how we can assist owners in the process.
Before Signing a Yacht Building Contract: The Decisions That Matter Most
Specification and document hierarchy
The contract must define what the yard is actually obliged to deliver. The technical specification should cover systems, materials, equipment, performance, class and statutory standards. The contract should state which document prevails if the agreement, specification, drawings, general arrangement or makers’ list conflict. Vague language is difficult to enforce and often becomes the source of later disagreement.
Price, allowances and provisional sums
Distinguish fixed-price items from allowances and provisional sums. If the owner later selects equipment or finishes above an allowance, the difference becomes an additional cost. The headline contract price may therefore conceal significant future expenditure, and a realistic contingency should sit outside it.
Milestones and payment protection
Instalments should be tied to objectively verifiable contractual milestones rather than merely invoice dates. The owner also needs to understand what protects the money if the builder fails. Depending on the project, this may involve refund guarantees, bank security, escrow, progressive title to work and materials or a combination.
Delay, long-stop and termination
The contract should define the delivery date, permissible delay, force majeure, owner-caused delay, liquidated damages, long-stop date, notice requirements and termination rights. Approved variations should also make clear any effect on the delivery date.
Control changes
Changes are inevitable on a custom yacht. A disciplined change-order procedure should identify the technical, cost, weight and programme consequences before the owner approves a variation. Informal decisions should not bypass the contractual process.
Inspection rights need to work in practice
Contractual access should allow the owner’s technical representatives to inspect important construction stages before work is concealed and, where appropriate, access subcontracted work. Inspection does not transfer responsibility for construction from the yard to the owner.
Performance and warranty
Performance criteria such as speed, range, noise, vibration and stability should be objective and linked to the contractual remedies. Warranty provisions should define scope, duration, notice procedure, repair responsibility, supplier warranties and treatment of repaired items.
Builder insolvency risk deserves attention
Because the owner may have paid substantial instalments before delivery, the contract should address what happens if the builder becomes insolvent or cannot complete the yacht. The owner needs to understand rights to the partially completed vessel, materials and designs and whether guarantees or other security can realistically be enforced.
Think about the lender before signing
If construction or post-delivery finance is contemplated, lender requirements should be considered while the building contract is still negotiable. A lender may want assignment of refund guarantees, notice rights, step-in protections, inspection information or particular provisions dealing with title and termination.
Who should sign the building contract?
The owner should decide whether the agreement will be entered into personally, by the intended yacht-owning SPV or by another project entity. Assignment or nomination mechanics, eventual flag, intended private or commercial use, financing, VAT/customs planning and delivery arrangements should be considered before signature rather than retrofitted later.
How Rosemont Yacht Services can assist
The building agreement itself should be prepared and negotiated with appropriate specialist legal and technical advice. RYS can work alongside those advisers to ensure that ownership, financing, administrative and eventual operational requirements are considered before the contract is finalised.
This can include establishing or coordinating the proposed ownership structure, considering intended flag and use, coordinating VAT/customs planning with relevant specialists and liaising with prospective lenders before the contractual structure becomes difficult to change.
Where agreed, RYS can assist with escrow or payment administration during the project once the appropriate technical and contractual confirmations have been received, and can establish the project accounting and administrative framework for payments, variations, owner-supplied items and other expenditure.
The objective is to ensure that the building contract does not develop in isolation from the ownership, financing and operational structure that will ultimately receive the yacht.
RYS Transaction Check
☐ Correct contractual buyer identified?
☐ Specification and document hierarchy clear?
☐ Fixed price, allowances and provisional sums understood?
☐ Payment milestones objectively defined?
☐ Refund guarantees/security arrangements addressed?
☐ Delay, long-stop and termination protections clear?
☐ Variation procedure controls cost, weight and programme?
☐ Inspection and performance criteria workable?
☐ Warranty provisions understood?
☐ Lender, flag, VAT/customs and operating requirements considered before signature?
You may also be interested in
- Insight - The Complete Guide to Superyacht Ownership by Rosemont Yacht Services
- Who we are - Rosemont Yacht Services
- Part 9 – Building a Superyacht: From First Concept to Delivery
- Part 11 – Managing a Superyacht Build: Controlling Cost, Changes and Delay
Important note: General information only. Transaction-specific legal, tax, customs, regulatory and flag advice should be obtained where required.