Boat Deposits with Brokers

[Sailfree]

Lifted from another thread

"My advice results from a costly experience with a Bavaria. Even if you buy a new one, have a full survey before you accept it. Something I never thought was necessary with a new boat until too late!
Also, because they take the money before delivery, payment is full of risk which needs careful thought."

Some Friends (through work ) are buying a their first boat. Its a new production boat throught a UK dealer/distributor.

I have bought 2 new Dufours from Portway Marine and a new Jeanneau from Seaventures. I am aware that both of these subsequently went bust but I am unsure whether anyone lost their deposits. IIRC correctly the main Bavaria dealer went bust a couple of years ago and a few posts on here indicated that a few had lost their deposit.

The deal is done and the payment schedule for this new boat is effectively 10% before end October, 40% in November and remaining 50% in December just before delivery. Now my question is - has the situation changed - is the money paid to the UK agent safe.

If not safe what would you advise.

I have on purpose left off the make of the boat and the UK agent as don't want to raise any unwarranted speculation as to their credit worthiness as I suspect all UK businesses connected with luxury items are currently feeling the economic squeeze.


EDIT in the light of Jonics Post I should have titled this BOAT DEPOSITS WITH DEALERS/DISTRIBUTORS Apologies

 

[[70521]]

If not safe what would you advise.

Use of a solicitor's Client Account and the agreement to deal directly with the manufacturer should things go belly up.

 

[Tranona]

Don't think your title is correct. You are not talking about brokers but traders. Very clear and important distinction in law.

The Opal case (Bavaria) is a lot more complicated than it appears at first sight. However, as a result both ABYA and BMF have firmly recommended the use of secure client accounts. Brokers seem to do this, but buying a new boat from a trader is a different type of transaction as you are dealing with the principal direct rather than with an agent (in the strict legal sense, not the general sense of the term). The transaction is therefore governed by the terms of the contract (and consumer law). Some dealers are also brokers and may use a client account for their trading activities, but other mechanisms such as a third party escrow account or a bank guarantee could be used. The dealer probably pays the builder in stages so it should be possible also to negotiate a contract similar to a new build contract where title to the boat is transferred in stages reflecting the payments made.

The thing to avoid is making any payments to the dealer's trading account as this makes you an unsecured creditor if he goes bust. The risk is obviously less if you are buying a stock boat as normally you would pay a small deposit and then the final amount on transfer. However, there is always the danger that the boat is financed by a bank so you need to be sure that it is clear.

 

[Tranona]

Use of a solicitor's Client Account and the agreement to deal directly with the manufacturer should things go belly up.

Think you will find that most builders will not agree to that. The main reason for using dealers (trading on their own account) is that it isolates them from the final customer. Just the same as buying a car - your contract is with the dealer.

There are, however, some builders who do operate in this way where they are represented by an agent, but the contract is direct with the builder. HR is one, and there are others.

 

[Sailfree]

Thanks for your helpful posts.

As stated the deal is done! at present only paid a initial deposit which will shortly be made up to 10% so they may have some wriggle room.

What questions should they ask to verify whether its a secure client account. My concern is that any broker will say "yes its secure" when it is not in effect an "escrow account" where they are secured creditors.

If they are unsecured should the ask the broker to approach the Brokers Bank for a bank guarantee quote?

Have not seen the sale contract but bet it doesn't cover the above subtlete's.

 

[Tranona]

The funds should be in a secure client account, and your friend could quite reasonably ask for confirmation from the bank. There is a section on the ABYA site which explains exactly what you should expect to see.

However, unless the contract stated the deposit and stage payments were to be held in a client account, I doubt they will be, and it is not possible to place them there from a trading account. This issue was central to the Opal case. If your friend is worried about security of his money he should take legal advice about the contract he has signed - may not be able to change it, but at least he will know what the risks are.

 

[Sailfree]

Thanks again. I suggested paying next payment by Credit Card and offer to cover the extra 2% transaction cost to the broker.

Will pass on your advice.

 

[[70521]]

Think you will find that most builders will not agree to that. The main reason for using dealers (trading on their own account) is that it isolates them from the final customer. Just the same as buying a car - your contract is with the dealer.

There are, however, some builders who do operate in this way where they are represented by an agent, but the contract is direct with the builder. HR is one, and there are others.

Perhaps in the normal state of things, but should the dealer/agent go belly up (and I hope it does not) then the manufacture is going to lose a sale; considering my manufacturer of choice went belly up this year can they afford not to work out a process that will allow the sale so go ahead?

When the time comes to buy new, my lottery numbers must come up one day, I want a very, very close working relationship with the builder of my new boat.

 

[Sailfree]

Perhaps in the normal state of things, but should the dealer/agent go belly up (and I hope it does not) then the manufacture is going to lose a sale; considering my manufacturer of choice went belly up this year can they afford not to work out a process that will allow the sale so go ahead?

Unfortunately in the last 14yrs this has happened a number of times and many people have suffered financial losses hence my question as I had hoped that the sale document/process had been changed to offer some protection but it appears not.

While I am sure manufactures regret these things happening I think they are more interested in getting a replacement distributor for their boats.

In the case of Portway I believed Dufour forced the closure.

 

[Tranona]

Perhaps in the normal state of things, but should the dealer/agent go belly up (and I hope it does not) then the manufacture is going to lose a sale; considering my manufacturer of choice went belly up this year can they afford not to work out a process that will allow the sale so go ahead?

When the time comes to buy new, my lottery numbers must come up one day, I want a very, very close working relationship with the builder of my new boat.

While that is your preferred choice, you will find your choice of boats extremely limited. The dealer model is dominant in the market and you simply can't buy most new boats direct from the builder.

Previous buyers of Sadlers, Westerlys etc will also tell you that buying direct from a builder is not risk free either.

BTW the manufacturer does not lose a sale. One of the reasons why builders use this model is that the dealer has to pay for the boat upfront, although many use finance houses to fund their stock - but the builder gets paid.

 

[Sailfree]

FYI I believe one formite recently paid for his boat direct to the Scandanavian factory with the UK dealer acting as his agent in all other respects and IIRC being paid direct from the factory.

I did once approach Elan and tried to buy direct for a Med delivery and they insisted I had to go through the UK agent/dealer as I had a UK address.

A sale to an individual does not interest any manufacturer. They are interested in the marketing/representation/exhibitions/after sales service a dealership gives them and thats why they will not by-pass them.

Exceptions are companies like Southerly that deal direct with the UK market

 

[Tranona]

Yes Scandinavian builders (as I suggested earlier) do use the agent model, and they give bank guarantees. Probably one of the reasons for their success and part of why they can charge such high prices for their boats.

 

[rwoofer]

I got a little burnt by the Portway case. What I was aware of was that I had paid for the boat fully, but the manufacturer (RM yachts) had not been fully paid. Fortunately I had the boat in my possession and mostly suffered on the commissioning/snagging front.

With that kind of experience behind me, I have no idea how I would confidently buy a new boat. There is no point having a solicitors account or client account as many manufacturers need stage payments during the build and dealers don't have the cashflow to hold money whilst paying the manufacturers.

Shocking that the industry hasn't sorted out such a fundamental transaction by now.

 

[Resolution]

Shocking that the industry hasn't sorted out such a fundamental transaction by now.

But how? Many have looked at this problem but I have seen no workable answer - yet.

 

[jonic]

As Tranona said this is not a broker issue, but a dealer/agent issue.

(Although the term yacht broker is routinely applied to a new yacht dealer/agent)

A yacht broker holds money securely for two private individuals in a written in trust client account whilst a survey is being completed on a second hand yacht. The yacht broker does not own the boat or have to buy it, so there is no funding required etc. It is exactly the same account as a solicitor or accountant will have. it does not form part of the brokers business and does not get used to fund the build of a boat or for cashflow etc. It is effectively held in Escrow until both buyer and seller have completed their contractual obligations. Then it is released as the papers and contracts are completed/exchanged.

If the broker went bust the money remains the clients and the clients alone.
It cannot be seized by the bank, creditors or the revenue.

Dealers/agents operate in another way. (By necessity if the boats are being built to order) They receive stage payments and that money is sometimes used to fund the build of the boat and/or the business and it's cashflow, so it's an entirety different matter.

Some have schemes where the purchaser owns the hull or a % of the hull from the first payment, or an insurance backed agreement.

 

[grumpy_o_g]

Actually it strikes me using a broker, as opposed to a dealer, for a new boat could actually be the way to go here as long as the funds were in a genuine client account. The difference is the broker acts as an agent but never takes title whereas a dealer should take title - if he doesn't he's acting as an agent and is effectively simply brokering a transaction between the purchaser and the manufacturer as they have title. The big problem with all these deals is that, for some reason, the marine industry seem to expect you to hand over money to someone that does not have title to the item being purchased sometimes. If the dealer or "broker" owns the boat I'll pay him direct, if he doesn't I'll pay whoever does own it.

The only alternative is to treat it like a house purchase and ensure your funds are secure until you have possession. If I felt a broker's client account offered me the same level of protection as a solicitor's client account (which isn't 100% secure or protected by any stretch) I'd happily use that instead. Using this model you're effectively paying direct but instructing the broker to hold the funds until payment is due (still slightly risky as the broker is the vendor's agent - ideally you should appoint your own broker to hold the funds).

 

[rwoofer]

But how? Many have looked at this problem but I have seen no workable answer - yet.

The most obvious thing is to ensure that you own an increasing proportion of the boat whilst in build for each stage payment. Just a bit of paperwork, but something you will need to rely on if things go wrong

 

[Tranona]

Actually it strikes me using a broker, as opposed to a dealer, for a new boat could actually be the way to go here as long as the funds were in a genuine client account. The difference is the broker acts as an agent but never takes title whereas a dealer should take title - if he doesn't he's acting as an agent and is effectively simply brokering a transaction between the purchaser and the manufacturer as they have title. The big problem with all these deals is that, for some reason, the marine industry seem to expect you to hand over money to someone that does not have title to the item being purchased sometimes. If the dealer or "broker" owns the boat I'll pay him direct, if he doesn't I'll pay whoever does own it.

The only alternative is to treat it like a house purchase and ensure your funds are secure until you have possession. If I felt a broker's client account offered me the same level of protection as a solicitor's client account (which isn't 100% secure or protected by any stretch) I'd happily use that instead. Using this model you're effectively paying direct but instructing the broker to hold the funds until payment is due (still slightly risky as the broker is the vendor's agent - ideally you should appoint your own broker to hold the funds).

You are making this too complicated. Many dealers are also (with another hat on) brokers so have the facility to offer client accounts. However, their problem is that they need the cash flows from deposits to provide working capital for their business, including paying for boats as they are built. They cannot use funds in client accounts even as security for loans because it belongs to the client. If you read the Opal case, it is exactly this problem that was the central issue.

The alternative of stage payments with title progressively passing is exactly what is offered by the BMF model new build contract. The problem is that European builders (the majority) will not deal using that type of contract. Some like the Scandinavians offer a very similar contract. Sadlers did and when they went bust 7 people ended up owning part finished boats. This in itself was problematic because the owner then has the problem of finishing his boat which will end up far more costly than the original price.