Boat purchase 101 - Technical due diligence

Buying a 'pre-loved' boat/ship (or any major asset for that matter) irrespective of the size without undertaking due diligence can oftentimes be like reality shows where the participants either get married or go on blind dates.  Sometimes things work out and we are delighted for them, but more often than not we sit glued to the television waiting for the inevitable train-wreck (or shipwreck!) to unfold.

The importance of due diligence cannot be overstated; a little bit of time and money spent prior to purchasing a boat should (but not always) save a lot of time, frustration, and money if she turns out to be other than advertised. Occasionally it uncovers issues that even the owner was unaware of.

The primary aim of due diligence as distinct from 'tyre kicking' is to assess whether what you see at berth is what you will get at the end of the day.

The scope of the due diligence exercise will depend on a number of factors including (a) size, age, and complexity of the vessel (you are unlikely to do the same level or due diligence on a runabout as compared to an AHTS vessel), (b) how much is being spent, (c) vessel ownership experience and (d) the intended use of the vessel.

Due diligence in the context of a boat purchase is generally split into the technical, and legal side which will occasionally overlap. In this article, we will very briefly discuss some aspects of technical due diligence.

Technical due diligence

Practically speaking the main aim (in my view) of technical due diligence is to investigate how well she has been maintained and how long it will be before you are going to have to tip some cash into the repair/replacement of machinery and/or equipment and/or the vessel itself.

Depending on the type of vessel being purchased, technical due diligence may comprise a desk-based and/or physical survey (in/out water), both of which should be conducted by someone experienced in the area such as a registered surveyor or other specialists ie marine engineer.

The desk-based exercise may consider her technical and statutory/convention documents ie logbooks, Class Certificates, Stability Book, CSR, GA, MTOP suite, etc, and hopefully minimise any surprises ie engine logbook is missing and no idea as to her maintenance schedule or whether there are recommendations from Class that require remediation, etc, and the list goes on.

A purchaser would be well advised to at the very least engage a recognised/registered surveyor to provide a pre-purchase inspection/condition survey. It is suggested that the surveyor engaged has the appropriate recognition (qualification/experience) for the type of vessel being bought/built ie do not engage a surveyor who specialises in wood vessels when you are buying one constructed in steel (common sense really!).

The outcome of the survey may reveal a well-maintained vessel or uncover additional lines of enquiry which could either serve to assist in a decision to proceed with or walk away from the deal or arguably provide leverage to negotiate a reduction in sales price.

A further aspect of technical due diligence to consider relates to the intended use of the vessel. Examples could be purchasing a yacht with the intention of commercial chartering or converting a fishing trawler into an expedition or research vessel. If the intended use is like for like then the exercise is clear cut, but if somewhat different closer attention will need to be paid as to whether it is possible (either physically or financially) to undertake the conversion (or use in the matter you intend) within your budget and/or the legal constraints/vessel rules in the area you intend to use the vessel. A little caution over a "she'll be right" attitude could be the difference between a vessel aligned with your vision and one existing in your nightmares!

It is imperative to ensure that the sale and purchase agreement provides the ability to undertake due diligence in the form of both a sea-trial and condition survey (which should include both the documentary and physical survey aspects discussed in this article) and legal due diligence (discussed in an upcoming article titled Boat Purchase 101: Legal due diligence).

This article is not intended to be relied upon as legal advice, but rather to highlight some important areas that should be considered when purchasing a vessel. If you are considering a vessel purchase feel free to contact us and we will be more than happy to assist.