Misleading MBY article about buying a new boat?

[Deleted User YDKXO]

Anyone read 'The truth about buying a new boat' article on p18 of this month's MBY? In this article, the writer suggests that deposits and stage payments for the purchase of a new boat under British Marine (the old BMIF) contracts are protected in client accounts but at the same time, it states that these payments are used by the builder to cover start-up manufacturing costs and pay for high value items such as engines

How can deposits and stage payments be both protected in a client account and at the same time be used by the builder to fund the building of the boat? Surely this is a complete nonsense or am I missing something here?

 

[Whitelighter]

It's typical protectionism of an industry that needs to radically change.

Sunseeker, princess et al now have multi million pound backers. It's simply not acceptable that their customer fund their business and therefor shoulder the risk. Super at manufacturers, many smaller companies than yacht builders, don't have to do neither should these large companies.

MBY should be challenging this practise, not supporting it by way of making it seem normal and/or reasonable.

 

[jfm]

Mike, you're dead right and I thought the same when I read it last week and meant to post. The article was wholly incorrect in saying stage payments to boat builders for new builds are generally held in trust/client accounts or otherwise protected. This error risks encouraging people to part with cash without realising the exposures they face

Jez you can challenge it all you want but it isn't going to change. No owner of a boat builder is going to be allocating more capital to such an investment right now (if ever)

 

[benjenbav]

I read it and my eyebrows are so raised that they are sprained.

Let's be clear. Putting the word "Client" in front of the name of a bank account is not the same as sprinkling magic dust over it.

Solicitors wishing to handle client money have to maintain client accounts which are hedged around with rules which discourage their abuse.

But, at the end of the day, the protection for the client lies in the regulatory scheme which backs the account.

I could (but won't) name a former solicitor who stole approx. £2mio from his firm's client account. The firm was viable enough to replace the money and did so quietly and without a fuss. But, if they hadn't there was another line of back up through the SRA.

So far as I am aware there is nothing remotely comparable in boat builders' client accounts. Worse yet is the money isn't just going to sit there until it's needed. It is going to be used to build your boat.

This is not quite the same as a blind trust but it can often involve blind trust. Or, if prudent you check their balance sheet before you do so.

iirc the article had an oblique reference to the BA Peters fiasco, where Lord Neuberger decided that there had not been an abuse of a trust because the abuse of the money occurred by not putting the money into a trust. This is angels on pinheads stuff so far as the punters who lost money were concerned, if handy for those charged with the task of making something out of the shambles.

 

[volvopaul]

Reading articles like this from the major boating mag on the planet gives a buyer little in the way of protection and the will to place your hard earned £££ into someone else's hands.
It's time for some kind of legislation. Even using a solicitor can't protect your money in someone else's account that could misuse it for other purposes. When you think most boats cost more than a house you sure do have to place a lot of trust in a company .

 

[Deleted User YDKXO]

This error risks encouraging people to part with cash without realising the exposures they face

I think that anyone reading that article who is clever enough to amass the wherewithal to blow it on a new boat is probably clever enough to realise the contradiction in it. However my point really was that a respected rag like MBY could publish such blatant rubbish in an article titled 'The truth about ....'

 

[z1ppy]

i haven't read the article yet but maybe there was some input from the big manufacturers in an attempt to make it seem "safe" to spend money with them?

 

[jfm]

It's time for some kind of legislation.

You need realpolitik here. Exactly what are you going to legislate?

If you legislate that stage payments on a boat must be held in trust until boat is delivered then there will be a huge requirement for more capital in boatbuilding firms. Capital isn't free; it has to be paid for. Some builders will not have access to the required capital so will go bust, and prices will go up for others. Then why stop at boats - do you want to legislate this for all consumer products? Then, are you going to apply it to boats built in UK, or boats sold in UK, or what? People will just move boat building and boat selling outside of the UK where boat transactions can be done using less capital on the supply side (and more on the customer side). Finally, what about the many customers who don't want a nanny state to wipe their bottoms bottom and are perfectly happy for their stage payments to be used to build the boat? - Will your legislation contain an opt out so they can have their boats more cheaply please?

All rhetorical questions of course. My point is that legislation isn't an easy solution

 

[jfm]

I think that anyone reading that article who is clever enough to amass the wherewithal to blow it on a new boat is probably clever enough to realise the contradiction in it. However my point really was that a respected rag like MBY could publish such blatant rubbish in an article titled 'The truth about ....'

Yep, agreed

 

[benjenbav]

You need realpolitik here. Exactly what are you going to legislate?

If you legislate that stage payments on a boat must be held in trust until boat is delivered then there will be a huge requirement for more capital in boatbuilding firms. Capital isn't free; it has to be paid for. Some builders will not have access to the required capital so will go bust, and prices will go up for others. Then why stop at boats - do you want to legislate this for all consumer products? Then, are you going to apply it to boats built in UK, or boats sold in UK, or what? People will just move boat building and boat selling outside of the UK where boat transactions can be done using less capital on the supply side (and more on the customer side). Finally, what about the many customers who don't want a nanny state to wipe their bottoms bottom and are perfectly happy for their stage payments to be used to build the boat? - Will your legislation contain an opt out so they can have their boats more cheaply please?

All rhetorical questions of course. My point is that legislation isn't an easy solution

Agree with all that. I am surprised that there is no driver for a fix based on the builders upselling a finance product to bond the price. So that, let's say I walk into YachtBuildSales and play out the following scene:

Me: £1mio? Done. Show me where I sign. Heck, wait...Are you going to build it with my money?

Them: Yes, sir.

Me: I don't like the sound of that. Can't you use your own money?

Them. No, sir. We don't have any.

Me: Oh dear.

Them: That's why we can sell you this Lombard/GECapital/BarcLloyds bond. Yes, sirree. For just £100k extra, your money is safe.

Me: Sounds good

And everyone takes a fee on the way thru'

 

[Deleted User YDKXO]

You need realpolitik here. Exactly what are you going to legislate?

Agreed. I take stage payments for the supply of construction machinery during the course of operating my business (although not as generous as boat builders seem to want) but you could equally argue that stage payment protection legislation should apply to my business just as much as to the boat building industry. The whole construction industry, like many industries, operates on a stage payment basis. Where would the legislation stop?

In the end, every commercial transaction is a matter of trust between the buyer and the seller. However I believe that the boat building industry could help itself to sell more boats if it had some kind of optional payment insurance scheme. The issue really with the boat building industry is that the buyers tend to be private individuals rather than companies and private individuals tend to be less able to swallow losses from contracts going wrong and are less well equipped to fight their corner in contractual disputes so such a scheme could be of interest to many people

 

[Portofino]

Theres Allways going to an element of trust -from both sides with stage payments for manufactor with boats or new construction. With building .
With building in many EU states you buy the land and contract to stage pay the builder ( of your choise ) , whatever % for whatever per agreed stage ending up with "key in hand " .
There's risk for both sides .
Back ground search may -I stress MAY help -plus gut feeling .
If you can not stomach this perceived risk do not do it .
Plenty of used boats / property out there .

 

[maby]

Making stage payments that the supplier is able to use to fund the construction is a way of reducing the price. You are always free to insist that they borrow the money - provided you are prepared to cover the interest costs. We negotiated this with a prospective supplier when we were planning our new boat - as it happens we ended up buying a stock boat off-the-shelf and the question actually didn't arise. If the banks consider them too great a risk to advance the money, they you probably don't want to be dealing with them either!

 

[jrudge]

The only real method is transfer of title with the stage payment. This is far far from perfect as

(a) at best you end up with a part built boat - although the theory is the liquidator has and incentive to complete the build to realise the profit ... but if they were making profits they would not have gone bust in the first place ( profits don't pay bill cash does, so treat profit as a general term).

(b) at worse, and probably more likelyis you get into a bun fight with the supplier under a romalpa type clause. The engine is mine - I made a stage payment. No it isn't, my contract says title does not pass until I am paid. The engine is mine.

At the end of the day trust pays a large part sadly. I agree it should not be like this.

As a minimum the manufacturer should offer title transfer ( they don't - you need to twist their arm) and some sort of transparent process that the goods you are taking title to as not subject to another lien. Once goods have been transformed ( resin for the hull) they cant ( or could not when i looked at this years ago) be claimed back, but big bits like engines, generators and so on are self contained very expensive bits of kit with a serial number.

To make matters a lot lot worse your contract is with the dealer who with a few exceptions ( Boats.co.uk ( better than Fairlines by some margin, probably PYMS ( not looked just a guess) will have a non existent balance sheet.

It is a lottery and it is surprising it does not go wrong more often.

 

[NGM]

I was very lucky when I bought my Sealine in 2013, it was the 2nd last out of the factory.
In the final few weeks and after reasonable size payments I started thinking what happens to the boat if they fold.

In return for stage payments why can't you own the unfinished product ? Typically the first large payment covers the engines, why can't they be legally yours. (subject to insurance agreements).
If all goes wrong you may at least be able to salvage some costs rather than lose all.

 

[jfm]

@#10, BJB: Nice BJB, but the Lombard lot would be at the back of the queue behind a lot of other debt, unless the owners of Fair Prin Seek were prepared to put them at the front of the queue, so stepping backwards themselves*. Position in the queue is going to determine whether this costs £20k or £120k on your hypothetical £1mio

*They are funded by shareholder loans not bank debt

 

[jrudge]

I used to run the Lombard division that included Lombard marine ... We used to fund quite a few big boats ( many many millions ) through build that were mysteriously paid off post completion ... for exactly this reason. This was 10 years ago, so if they still do it I have no idea. At the time ( and again no idea about now) there were no early redemption penalties - it was simply a margin over FHBR and the punter just "lost" the lending fee.

 

[jfm]

some kind of optional payment insurance scheme.

You can soften it by calling it insurance but it involves credit default and so it burns up a bank's or an insurer's required capital ratios in the same way as the risk premium on lending does. In other words, it will cost the same even if you structure it as insurance rather than client account monies

 

[jfm]

I used to run the Lombard division that included Lombard marine ... We used to fund quite a few big boats ( many many millions ) through build that were mysteriously paid off post completion ... for exactly this reason. This was 10 years ago, so if they still do it I have no idea. At the time ( and again no idea about now) there were no early redemption penalties - it was simply a margin over FHBR and the punter just "lost" the lending fee.

J, were you lending to the builder or the punter? If the latter, how does (s)he escape personal liability to Lombard if the builder goes t.u.? Were you lending to personal companies owned by the punter, without PGs?

 

[maby]

J, were you lending to the builder or the punter? If the latter, how does (s)he escape personal liability to Lombard if the builder goes t.u.? Were you lending to personal companies owned by the punter, without PGs?

The relationship needs to be between the supplier and the bank. When we were negotiating and were told that the supplier needed £250k up front, we told them to go away, get the bank to lend them the £250k over the required period and quote us a new price taking this into account. We were prepared to put a significant deposit into an independently held escrow account and would make the remaining payment a couple of days before handover. They grumbled but the market for new boats is sufficiently difficult that they agreed. The total price to us would have been quite a lot higher than if we had agreed to the stage payments - the difference is the insurance premium against them doing a Southerly.