Yards don’t appreciate abandoned hulls cluttering up their sheds. Costs, and opportunity costs, rack up daily. The sellers are usually motivated and increasingly flexible on price as time passes. As well as jumping the queue and paying less, you can also see what you're getting, as you walk through bare metal structures, and amend the design if you want. Distressed builds are rarely advertised on the open market, so you have to know where to look. But the opportunities are out there. Tempting, isn’t it?

DUE DILIGENCE

The starting point is to check the yard's financial standing. A yard in distress isn't a dealbreaker (plenty of owners have bought the yard to see their boat finished) but you need eyes wide open.

Next, commission an independent surveyor to examine the welds and see if the vessel has been made by craftspeople or clock-watchers. They’ll also check contractual conformity and classification society status, which will be of immediate interest to lenders and insurers. Overlook classification and it’ll be almost impossible to charter-out once it’s launched.

A FRESH START?

The obvious route is to buy what’s in front of you and engage with third parties as required to finish it. But, unless the yard has failed too, this isn’t the best route. The original contract price was negotiated at a point in time. If the yard has since raised prices or costs have risen, a fresh contract exposes you to renegotiation at today's rates.

Shipyards also sequence builds around production slots, subcontractor bookings, and material orders already placed: a fresh contract can give the yard an opening to push your delivery date back. Liquidated damages for late delivery, warranty scope and performance guarantees: all of this was negotiated once already, sometimes in a buyer-favourable market. Starting over means renegotiating all of it from scratch, and the yard has no obligation to offer the same terms twice.

STEPPING IN

An assignment or novation (they’re not the same although often confused) lets you step into the seller’s shoes, with the existing contract price and payment schedule, paying the outgoing buyer a discounted sum to reflect milestone payments already made.

Assignments typically only transfer the benefit of the contract (the right to receive the yacht), not the burden (the obligation to pay), and so are often prohibited by standard-form build agreements. Novations are tripartite agreements where the builder, outgoing buyer, and incoming buyer all agree that the old contract is extinguished and a new one on identical terms arises between builder and incoming buyer — with the original buyer walking away with no residual liability. That's usually what buyers and yards actually want.

MORE THAN A BOAT

And so it is, with novations, that you’re not just buying a boat: you’re buying someone’s legal position. These are wildly different things, and confusing them is how people lose fortunes. You’re inheriting all existing design decisions, quality issues and potential disputes.

Take legal title. Under a typical build contract, ownership of the materials and the partially built hull doesn't transfer to the buyer piece by piece as they're bolted on – it usually transfers at agreed milestones, or perhaps not until delivery. This means that the emerging half-yacht sitting in the shed may not, in law, even belong to the person selling it. It might still belong to the yard. This financial exposure is managed through the issuance, by the yard, of refund guarantees in return for each milestone payment. If the yard folds, the buyer’s instalments thus far should be refunded—but they are only as good as their terms. Are they simple on-demand guarantees, or something more complex? And how creditworthy is the refund guarantor? Are the guarantees even capable of being assigned under their own terms?