Offering your yacht for charter in the U.S. may sound like an attractive option to recoup some costs of owning and operating your luxury yacht. However, there are some very important implications you must consider to ensure that you are chartering properly, otherwise you could face some serious consequences. This article discusses some of the implications to consider, but it is summary in nature and each charter situation is specific, therefore it is imperative to speak with a qualified professional before setting up your charter operation in the U.S.

Types of Charters:

The two most common charters conducted in U.S. waters are time/voyage charters, and bareboat/demise charters. Each type of charter has different charter contracts and each carry different implications with it. Both types of charter will be examined a bit more in depth below.

The Time or Voyage Charter:

A time or voyage charter (often referred to as a “crewed charter” in the yachting industry) occurs when a yacht is chartered for a specific amount of time (i.e. one week, two weeks), or for a specific voyage. Under a crewed charter, the yacht owner maintains primary possession and control of the yacht and provides the yacht, captain, and crew under a single contract. A crewed charter with the vessel and crew provided by the owner under one contract is considered carrying passengers for hire and a commercial use of the vessel.

In order to legally conduct commercial charters and carry passengers for hire in U.S. waters or between U.S. ports, a yacht must be U.S. flagged and have a coastwise endorsement on its Certificate of Documentation. To receive a coastwise endorsement and conduct crewed charters in the U.S., a yacht must be built in the U.S., or if the yacht is foreign built, it must be granted a MARAD waiver to obtain a coastwise endorsement on its Certificate of Documentation. To be eligible for a MARAD waiver foreign built U.S. flagged yachts must be at least three years old and owned by a U.S. citizen (U.S. entities may qualify as U.S Citizens for ownership purposes depending on how they are structured). A vessel with a MARAD waiver can carry a maximum of twelve passengers, must meet separate USCG safety and manning requirements, and may not conduct commercial fishing, towing, salvage, or carry cargo for hire. The application process may take several months and there is no guarantee that a vessel will obtain a waiver.

Bareboat/Demise Charters:

Yachts that are foreign flagged, or foreign built yachts that are unable to obtain a coastwise endorsement, must conduct charters under a bareboat charter also known as a demise charter. Demise charters are not considered commercial use of a yacht under U.S. law, therefore foreign flagged and foreign built yachts are allowed to conduct demise charters in U.S. waters, and between U.S. ports. Under a demise charter, the charterer charters the yacht without crew and takes over full control of the yacht and its operation and navigation. The demise charterer essentially operates the yacht as an owner for the duration of the charter. A demise charter usually involves two charter contracts, a demise contract for the charter of the yacht, and a separate contract to hire the crew to operate the yacht during the charter. While the two-contract demise charter setup may appear legal and proper on paper, issues may arise if the crew is selected by the yacht owner, or if the yacht owner directs the charterer to hire a certain crew. Courts in the U.S. will focus more on the conduct of the owner and charterer rather than the charter contracts. Therefore, in order to avoid doubt and ensure that a demise charter in the U.S. is legal, it is important that the charterer has complete control over hiring the crew.

In addition to ensuring that a foreign flagged or foreign built yacht is properly conducting charters in the U. S., it is important to understand that there are liability issues involved with demise charters. Under a demise charter, a charterer may be liable for the actions of the yacht and its crew, along with the maintenance and upkeep of the yacht during the charter period.

Other Considerations:

Insurance:

It is extremely important that your yacht’s insurance policy allows for chartering and allows for the type of charter you plan on conducting. If you plan on conducting demise/bareboat charters, you must ensure that your policy allows this type of charter. There have been cases in the past where coverage was denied for an accident because the yacht was conducting demise/bareboat charters, but the policy only covered time/voyage (crewed) charters. Before beginning any charters review your insurance policy with your insurance broker and other qualified professionals to ensure you have the proper coverage in place.

Taxes:

Depending on the type of charter and where the charter originates, sales and/ or use tax may be due on the value of the charter. For example, a demise/bareboat charter originating in Palm Beach County, Florida will be taxable at 7% (6% States sales tax and 1% Palm Beach County tax) of the value of the charter. However, a time/voyage charter originating in Palm Beach County, Florida is not subject to sales tax.

In Conclusion:

Chartering your yacht in the U.S. may seem like an attractive option to offset the cost of yacht ownership, however failure to properly setup your charter operations may lead to more headaches and costs in the long run. This article is intended to expose yacht owners to some of the issues faced when deciding whether or not to conduct charters, but the issues discussed herein are not exhaustive and they are discussed in summary only. More issues may need to be examined more thoroughly for your specific situation.

***The information contained in this blog post should not be construed as legal advice. It is intended as general information only. You should consult a qualified professional to discuss the specifics of your situation before deciding on a course of action regarding your yacht and possible charter operations.