Boat Buying Questions

[Laser310]

Say one is buying a brokerage boat in the UK, priced in the range of several hundred thousand GBP.

What is the usual procedure for the actual transfer of funds?

would a deposit (several 10's of thousand GBP) be paid by cheque.., by direct bank to bank transfer?

Would you put a 10% deposit into the selling broker's client account.., or would you have someone else hold it?

If the buyer gives a cheque, how does he know it actually ends up in a "safe" client account, and not in the broker's general funds?

if it is by transfer, then the buyers gets an account number and a routing, SWIFT, whatever .. number. How doe he know that account is a client account?

Then, on acceptance.., how would the balance be transferred?

what would be the timing of the balance payment and the transfer of title? If the balance is transferred bank to bank.., that takes time to clear...

Would it be normal to transfer the remaining 90% (assuming no adjustments) and then wait a few days to get the title signed over?

Are there people who specialize in representing buyers in this process? Is it recommended? I am generally aware of the practice of using a buyers broker, but i usually think of that as more about finding the right boat, negotiating the price.., that kind of thing.

 

[Tranona]

With a reputable broker it is very straightforward. Bank transfer to his client account (which is completely separate from his other business account, and may even be with a different bank) for which he should supply you with a reference for the deposit to confirm that the money came from you. This is confirmation that he is holding it in trust for you and cannot use it for anything other than payments related to the purchase of the boat.

Final payment is normally when all the conditions have been met and you have sight of all documentation such as BoS, registration, builders certificate, Certificate of Conformity etc plus keys. When you are satisfied then transfer the funds to client account and take possession when the funds are cleared. When I purchased my "expensive" (over £100k) boat. We sat in the office and went through all the papers and I transferred the final balance using my debit card which give immediate confirmation of deposit and took possession of the documents and boat. When I sold the boat for a similar amount we (2 owners, wife and I) did our bit over lunch with the broker checking all the documents, signed the BoS and he took it all to the buyer and collected the final payment. 2 days later transfer of proceeds to us with an account of all disbursements in the transaction.

Remember, brokers do this for a living so take it all in their stride whereas for us it is almost a one off and so quite normal to feel a bit nervous!

 

[Laser310]

When you are satisfied then transfer the funds to client account

so, the final payment normally also goes through the client account, and not direct to the seller?

In that case, it might be normal to make the transfer, and then wait for a few days for it to go through,before the seller signs the title over to the buyer?

It just seems a bit risky having that much money in a brokers client account, potentially for days, without having got anything for it, other that the signed contract.

I could imagine all sorts of problems - the boat burns up. Who owns it? Presumably my insurance doesn't begin coverage until I have title. Ok, you say, the brokerage should give me back the money. But what if the sellers lawyer insist the seller gets the money? Now, I'm in court for years without money to buy a boat.

What if a rogue employee manages to transfer some funds to the Cayman Islands?

What is my ultimate protection?

It's been a while, but I think when I bought my house, a deposit was held for a while in a client account, but the balance transfer and deed transfer happened simultaneously.

 

[Tranona]

One can imagine all sorts of situations that in reality simply don't happen. Yes, title passes at the time the funds change hands - does not matter if the funds go into the trust account because the broker is then holding them in trust for the seller and able to release the boat to you. No reason why you can't transfer final balance direct to the seller but it is of no advantage. You insure the boat starting at the day of completion as until that it is covered by the seller as it is his risk.

You cannot guard against crooks except by dealing with reputable people and following the rules. The incidence of brokers screwing up is small to non existent particularly since the Opal case in 2009 which resulted in the establishment of watertight client trust accounts which all ABYA and BMF brokers use.. There is no "ultimate" protection - you protection is the law and following tested procedures which protect your interest under the law.

 

[Refueler]

Simply put ...

Escrow account. With written contract of terms.

An escrow account is set up by an escrow agency in which both the seller and buyer (or their solicitors) are joint account holders. Escrow accounts are often used to hold money, securities, funds or any other kind of asset, providing protection for all parties.

 

[Tranona]

Simply put ...

Escrow account. With written contract of terms.

An escrow account is set up by an escrow agency in which both the seller and buyer (or their solicitors) are joint account holders. Escrow accounts are often used to hold money, securities, funds or any other kind of asset, providing protection for all parties.

That is effecttively what a brokers client account is. The structure is the same and the broker is free whereas a third paarty escrow account costs. A cynic might also point you to the number of cases of solicitors defrauding clients through their cliet accounts.

The same rules apply if the broker is reputable and uses the correct account it is no less "safe" than an escrow agency.

 

[ashtead]

The only point to note though is you do encounter a dodgy broker who makes off with the funds for a whole variety of reasons there is no compensation scheme to protect you. Luckily marine brokers default is rare but it’s a different proposition to dealing with say your regulated accountant,solicitor or uk insurance broker. Hence the need to check the broker you are dealing with which might give protection against fraud however in reality you have little protection against brokers symphoning funds from the client account to meet liabilities. You do see this with general insurance brokers occasionally but the insured has the protection of risk transfer under FCA rules hence once the money is with the broker the insurer carries the credit risk (assuming of course the broker actually has a delegation to accept the risk ) if you are planning to buy your Feadship or Wally you can afford to employ a marine lawyer to review your contract of course .

 

[Refueler]

That is effecttively what a brokers client account is. The structure is the same and the broker is free whereas a third paarty escrow account costs. A cynic might also point you to the number of cases of solicitors defrauding clients through their cliet accounts.

The same rules apply if the broker is reputable and uses the correct account it is no less "safe" than an escrow agency.

C'mon .... every transaction no matter how controlled has risks ... we can only try to reduce that risk ..

In the world I work in - we use LC's .... Letters of Credit issued by Bank ... cashable on Verified transfer of goods .. even that can fall foul as I found out to tune of 21.4 million pounds some years ago ... and I was 'interviewed' by Scotland Yard Fraud Squad.

 

[Tranona]

C'mon .... every transaction no matter how controlled has risks ... we can only try to reduce that risk ..

In the world I work in - we use LC's .... Letters of Credit issued by Bank ... cashable on Verified transfer of goods .. even that can fall foul as I found out to tune of 21.4 million pounds some years ago ... and I was 'interviewed' by Scotland Yard Fraud Squad.

Agreed. See post#4.

However the point I was making is that using a third party escrow agency or a solicitor is no better than using the brokers client account and is cost free to the buyer. There is obvious value if you are buying a boat direct from a private person and in this case many brokers will act just to handle the transactional aspect including searches and offering their client account service.

 

[Refueler]

Agreed. See post#4.

However the point I was making is that using a third party escrow agency or a solicitor is no better than using the brokers client account and is cost free to the buyer. There is obvious value if you are buying a boat direct from a private person and in this case many brokers will act just to handle the transactional aspect including searches and offering their client account service.

Question really of who you trust ... and of course how much is the boat !

 

[Tranona]

Question really of who you trust ... and of course how much is the boat !

What's new. Statistically I would rather trust a broker than a solicitor to handle the finances on a boat transaction.

 

[rotrax]

Agreed. See post#4.

However the point I was making is that using a third party escrow agency or a solicitor is no better than using the brokers client account and is cost free to the buyer. There is obvious value if you are buying a boat direct from a private person and in this case many brokers will act just to handle the transactional aspect including searches and offering their client account service.

We bought our current boat privately but used Jonic-John Rodriguez Yachts- of these pages to handle the paperwork and money. His fee was worth the certainty of a 'proper job' and trouble free fund transfer. We had two laptops on the go, showing the position of the money. Once the correct amount was in the vendors A/C Jonic handed over the keys and paperwork. The funds from our previous vessel, handled through Jonic's Brokerage, had remained in his client account, topped up by me to the correct amount for the new boat. Interestingly enough, the boat we purchased was one of the last supplied by Opal before their demise. The owner told us it required a 'Heavy Duty' visit by him and his sons to ensure delivery...........................................

After hearing that story I did not fancy meeting the vendor and his two retired Hell's Angel sons in Gloucester Docks with a large amount of cash in my pocket!

 

[Refueler]

What's new. Statistically I would rather trust a broker than a solicitor to handle the finances on a boat transaction.

I used my bank on one transaction - and charge was peanuts to assign mine and other guys signature ... joint withdrawal only ..

 

[LooseHeadPop]

You cannot guard against crooks except by dealing with reputable people and following the rules. The incidence of brokers screwing up is small to non existent particularly since the Opal case in 2009 which resulted in the establishment of watertight client trust accounts which all ABYA and BMF brokers use.. There is no "ultimate" protection - you protection is the law and following tested procedures which protect your interest under the law.

A few months on ...

I'm not so concerned about crooks as about businesses failing.

Is it true that all ABYA and BMF brokers operate trust accounts? I doubt it. The BMF/BRBA code of practice does not mention trust accounts, just accounts kept separate from the broker's own bank accounts (or escrow accounts as an alternative). Why does it not specify trust accounts? The RYA consistently calls for their use. The ABYA code, I was told by them today, is currently inaccessible because it is being revised. So no code is currently in operation?

Yesterday I asked the BMF broker I was buying through whether he operated a trust account for deposits (and said I would use an escrow if he didn't), he promptly terminated my purchase process, apparently with the vendor's agreement. It may be of course that he had other reasons for doing so (eg another buyer talking tempting numbers).

In future I'll clarify the client account situation before I even look at a boat.

 

[Tranona]

In future I'll clarify the client account situation before I even look at a boat.

That is wise - but you will find that brokers do use the correct client account. Just ask for details - sort code and account name/number and when you pay your deposit ask for a copy of the paying in slip or on line equivalent showing that the payment into the account is from you. A trust account works because the money always belongs to you (it is held in trust) until the purpose of the trust is complete - that is the contract to buy the boat is complete. The broker then gives you the keys to the boat and the papers. He also accounts for the proceeds less any disbursements to his client, the seller.

 

[LooseHeadPop]

That is wise - but you will find that brokers do use the correct client account. Just ask for details - sort code and account name/number and when you pay your deposit ask for a copy of the paying in slip or on line equivalent showing that the payment into the account is from you. A trust account works because the money always belongs to you (it is held in trust) until the purpose of the trust is complete - that is the contract to buy the boat is complete. The broker then gives you the keys to the boat and the papers. He also accounts for the proceeds less any disbursements to his client, the seller.

So you're saying BMF brokers use trust accounts even though their code does not require that. Do you have evidence?

 

[Tranona]

No, because it is now a non issue and no evidence that they don't as it has just become part of the way of doing things for brokers. If you really are worried about a particular broker just ask. The whole issue, even when it was relevant was vastly overblown because there were so few recorded cases of any form of criminal activity by brokers. The Opal case did not involve the brokerage side of the business but the dealership which used the client account incorrectly. The High Court case clarified how client accounts should be structured and they are in effect escrow accounts in the way they hold and disburse money held in trust.

What has prompted your doubts?

 

[LooseHeadPop]

What has prompted your doubts?

1. The fact that the RYA stresses that brokers should use a trust account, rather than saying they all do, as you believe
2. The fact that the BMF code talks in detail about client accounts without using the word "trust"
3. The fact that the BMF describes the use of escrow accounts as an alternative to a client account
4. The behaviour of the BM member broker I described in post 14. I did "just ask", as you suggest, and lost the boat as a result
5. The fact that the broker's client account I was invited to send my deposit to simply bears the broker's name, with no indication of any special status

 

[Laser310]

I was the original poster - the boat didn't work out...

but i ran into exactly what Loose is talking about - at least I think I did.

It seemed like the brokerage i was dealing with used what they called a "client account".., not a "trust account"

This is not a small side business for someone; they are the UK dealer for several brands, including a fairly expensive sailboat builder.

The way it was put to me, was that because the reputation of the business depended on the honest operation of that account, I had nothing to worry about. They had been doing it that way for ages, and everything would be fine.

If I had decided to proceed with the boat, I would have investigated using a 3rd party trust account.

I live in the US, and here they use an "escrow" account.., which has legal protection against misuse of the funds. I have been assuming that the UK "trust account" is that same kind of account.

I was told that the use of a "client account" is pretty standard procedure for UK brokerages.

 

[Lucy52]

I very much doubt if any broker uses a Trust Account. A trust Account requires the setting up of a trust with trustees who manage the trust. They are set up for a purpose, such as providing for the care of a child or an adult in care.

A Client Account is a very different, it is a separate account, in the name of the business, stating that it is a Client Account. There may be rules that apply to it, set by a professional body such as the Law Society, or the BMF, if the broker is a member.

Of course, the trustees could misdirect the funds, just as a broker might be tempted to embezzle them, but if they are members of a trade or professional body, there will be some protection for the purchaser.