Escrow of the price in the purchase and sale of a yacht

Acquiring a yacht is no ordinary sale. It is a high-value movable asset, frequently registered under a foreign flag, whose transfer requires checks that cannot be carried out in an instant. Between the parties' agreement and the effective handover of the vessel, the buyer does not want to part with the price without a guarantee, and the seller does not want to deliver without the certainty of being paid. Placing the price in escrow resolves this tension: the funds are entrusted to a trusted third party until the transaction is genuinely completed.

Why place a yacht's price in escrow?

Three features make escrow particularly useful in yachting. First, the amounts at stake are high: a direct transfer exposes the buyer to a considerable risk if the vessel has a defect or a hidden charge. Second, the transaction is often international: seller, buyer, shipyard and flag state may be in different countries, which lengthens timescales and complicates any recourse. Finally, several checks must absolutely precede the transfer of ownership, and they take time.

A high-value movable asset, often international

Unlike real estate, a yacht moves, changes flag and may be encumbered by security interests registered abroad. Securing the price therefore means ring-fencing the funds while the uncertainties attached to the vessel itself and to its legal situation are cleared up.

The checks before releasing the funds

Before the price is remitted to the seller, the escrow agent ensures — together with the buyer's lawyer — that the agreed conditions are met. In practice, the following are checked in particular:

• The survey of the vessel: condition of the hull, the engines and the equipment, in accordance with the preliminary sale agreement;
• The absence of any registered maritime mortgage, or obtaining a release from the creditor before the transfer;
• The validity of the title and of the vessel's status, governed by the Transport Code (ownership regime of vessels);
• The VAT position (new yacht, second-hand, VAT-paid status), decisive for the net price and for subsequent navigation;
• The deregistration from the previous flag and the handover of the ship's papers (registration certificate, certificates, original invoices).

The mechanism of contractual escrow

Escrow of a yacht's price rests on contractual escrow, provided for by the Civil Code (articles 1956 et seq.). The parties agree to remit the price to a third party, who undertakes to release it only once the conditions are met. This third party is neither the buyer nor the seller: its neutrality is the guarantee of the whole.

The role of the lawyer as escrow agent

Entrusting this escrow to a lawyer brings specific guarantees. The funds pass through the CARPA account (CARPA being the French bar's fund-handling body), which ring-fences the sums on a sub-account dedicated to the matter and checks every movement. The lawyer is bound by professional secrecy and a strict code of conduct, and drafts a bespoke escrow agreement, adapted to the specifics of the vessel and to the transaction's timetable.

A worked example

Take a second-hand yacht sold for 2.5 million euros. On signing the preliminary agreement, the buyer pays a deposit of 10%, i.e. 250,000 euros, into the hands of the escrow agent rather than directly to the seller. This deposit remains ring-fenced while the survey is carried out and the absence of any mortgage is verified. The balance of 2.25 million euros is then deposited on the escrow account before delivery, and released to the seller on the day the vessel is handed over, once the mortgage release has been obtained and the bill of sale signed. Were the survey to reveal a defect justifying cancellation, the deposit would be returned to the buyer in accordance with the terms of the agreement: at no point will the funds have escaped the control of the third party.

Bill of sale and customs formalities

The sale of a French-flagged vessel involves a bill of sale and formalities with the authorities (vessel bill of sale). The escrow of the price is timed to this schedule: the release of the funds is conditional on the signing of the bill of sale and on completion of the steps that effectively transfer ownership of the yacht.

The escrow agreement adapted to yachting

Everything hinges on the escrow agreement. It is the agreement that defines precisely the conditions for release: documents to be produced, mortgage release, delivery record, the fate of the deposit in the event of non-completion. Careful drafting, adapted to the international and technical nature of the transaction, prevents deadlocks and secures the buyer as much as the seller.

Are you preparing to buy or sell a yacht? Fidens sets up the escrow of the price on a CARPA account and secures the transaction, from receipt of the deposit through to release of the balance to the seller.