Superyachts and private jets

When it comes to the toys of the wealthy, there are few things in life more alluring than owning a superyacht and private jet. While jets offer more convenience and security for those who find themselves with their heads in the clouds (quite literally) more so than not, superyachts offer a freedom that combines luxury living with secluded anchorages. Superyachts, after all, are the floating palaces of the seas.

Sales of private jets were reported to have reached their highest ever level in 2023, according to the Institute for Policy Studies. Equally, Boat International revealed an 8.3% uptick in the total number of superyacht sales in 2023 compared to 2022. The ownership and chartering of superyachts and private jets, whether for work or play, is by no means simple. There are complex issues involved, ranging from pre-purchase inspections to taxation and legalities, all of which require technical expertise and deep industry knowledge to protect an owner in the event of a dispute.

For those considering investing in this unique asset, it’s crucial to understand the financial and investment aspects from charter revenue, asset appreciation and tax benefits. Investing in a yacht is a multifaceted decision and relying on knowledgeable brokers, whether for sales or charter, can provide invaluable insights and ensure a seamless experience. They know the market and will lead you through every step of the process.

Richard Gray, Head of Sales UK, IYC

To fly and to float

There’s an old saying that “to make a small fortune in shipping or aviation, you start with a large one”. That said, there are very few assets that enable an owner to enjoy them so much, whether cruising the gin-clear waters of the Caribbean with friends or flying VIP-style to remote destinations on business or for pleasure.

Despite the current turbulent times, both markets have shown increased sales recently and are expected to grow significantly in the future. There’s an unparalleled level of comfort and flexibility granted to those who own a jet or a yacht, making them the perfect asset for an individual or a company with multiple commitments around the world.

Travelling is easier and more efficient, opening access to a world where there are no fixed timetables or arduous queues through security with no or limited security checks at the airport or harbour. In addition, private jets enable owners to make business trips that would otherwise be impossible when flying on commercial airlines, allowing for multiple meetings in one day.

Types of assets

Once you’ve decided to buy an aircraft or a yacht, the next step is to choose a model and type that suits your needs. This will depend on a few things – namely, the required range, the number of passengers that need to be accommodated, and the purpose of the asset – whether it’s primarily a business tool or a leisure asset.

If you’re buying a yacht, there are far more manufacturers to choose from than there are in the aircraft market, which has a limited number of producers. For those snapping up a superyacht, first you’ll need to decide on the type of vessel (motor yacht, sailing yacht, catamaran, etc) depending on the size, power and style that you’re looking for.

There are two options:

Buying a brand-new asset

You’ll be able to customise the asset from scratch and decide the specifications, layout, interior and decoration of the yacht. A new asset will often be accompanied by various valuable warranties.

Buying a used asset

This will reduce the purchase price, particularly as these assets (especially yachts) do depreciate, but it is of course possible to upgrade or customise the asset upon purchase, particularly the interior.

Pre-purchase

The first thing to do when buying a new-build yacht is to source and engage a naval architect and an interior designer to work with the shipyard to maximise the available options, choose the equipment and discuss the design. In aviation, because of space and design limitations, you will mainly work with the manufacturer to decide on the layout and design of the interior of the aircraft.

It’s important that all stages of the manufacturing process are properly and carefully supervised to ensure that your asset is built on time, on budget, and in accordance with the requirements of the registry, with the applicable safety standards and airworthiness or seaworthiness directives in place.

The purchase of a pre-owned asset will require a full and detailed inspection of the asset and its records by an expert in the field, including a flight test or a sea trial to ensure that the maintenance of the asset has been carried out in a satisfactory manner, to check whether there is any undisclosed damage to the asset, and to obtain an independent valuation. During the pre-purchase inspection, you should have verified that the asset has all the equipment and modifications that are required to meet the regulations of the authority where the asset will be registered.

Costs

In addition to the purchase price, don’t underestimate the annual operational costs, which include all fees associated with the ownership and operation of the asset.

These include fuel, pilot/captain and crew, scheduled and unscheduled maintenance of the aircraft or vessel, hangarage, parking or harbour fees, insurance and all other management and administration costs. A rule of thumb is to allow for at least 10% of the purchase price annually for maintenance.

These costs can be divided into two sub-groups:

Variable costs:

These costs are linked to the number of hours the asset is used and include expenses such as fuel, landing fees and catering.

Annual fixed costs:

Irrespective of whether the asset is used or not, these costs will need to be paid and include payment of crew salaries, training costs, hangarage or dry dock, insurance, software updates, and many other expenses that must be paid regularly to keep the asset ready to be used when needed.

Ownership structure

Once you have decided on the asset you want, you need to figure out how you want to own it.

The ownership structure has implications for liability related to:

tax
accidents
the sale of the yacht or jet.

It’s important for buyers to give this careful consideration at the outset. Most owners, for tax and liability reasons, use a corporate structure to own their assets. Where the company is incorporated and what type of corporate structure needs to be used will depend on various factors, many of which will depend on the personal circumstances of the individual. For example, using a limited liability partnership or a special purpose vehicle can limit the liability of the owner in the event of a dispute if the assets are chartered or are later sold.

This is where you turn to the expertise of your lawyers, who will prepare and negotiate the terms of the contract, particularly in relation to indemnities and warranties from the seller and/or manufacturer. They will also be able to give advice regarding financing options. You’ll also need to decide whether you want to operate the asset privately by employing the crew directly and leaving the captain to deal with the day-to-day management of the vessel, or whether to put it in the hands of a professional operator who will manage, insure and operate the asset for a fee.

Provided the necessary licences are in place, the latter will allow third-party chartering in certain situations – this can have significant tax advantages, particularly enabling the recovery of VAT, and ensures liability relating to the operation of the asset rests with the licensed professional operator. Conversely, not all owners want others (including even their closest friends) using their assets.

At the time of launch of this publication, the number of operational yachts totalled around 9,895. The US has the highest number, followed by France, Italy, Spain and Greece. Additionally, more than

750 superyachts*

are under construction at any given point.

Source: credenceresearch.com/report/luxury-yacht-market

*A superyacht is traditionally defined as a custom vessel over 24 metres in length. Source: YachtWorld.com

Financing and purchase

If purchasing a pre-owned asset, the buyer should investigate whether there’s any outstanding debt finance on the asset, or any existing liens that need to be discharged, as this may affect whether or not the purchaser obtains good title to the asset and may compromise the purchaser’s ability to provide the necessary security to a lender financing the purchase. This will involve due diligence on the current owner and title searches on the asset. In the case of a jet, check the Cape Town Convention registry.

A buyer should also be aware that a lender usually takes security, for example, by giving the lender a lien over the asset. If a buyer defaults on the loan, the lender has the right to enforce the security. This can result in the asset being detained and being subject to an application for sale.

It’s likely the seller will request a deposit of around 10% of the purchase price and may also require escrow arrangements for the bill of sale (which is the document transferring title) and for the balance of the purchase price to be held in escrow by an independent escrow agent in anticipation of closing.

With new and custom-made assets, the remainder of the purchase price is likely to be payable in staged payments upon the completion of certain stages of the build or fit out. The parties need to agree whether there will be any reduction in the purchase price for delayed completion and/or delivery of the yacht or jet. Consider whether payments should be made in stages subject to the achievement of milestones in the construction process.

Finally, make sure that the ownership structure has been created, the available manufacturer warranties have been assigned and the asset has been registered in the applicable registry in accordance with its local requirements.

Registration and tax

While this isn’t exactly the fun part of yacht or jet ownership, it’s vital that you get it right. Registration, usually where the aircraft or yacht is located, needs to be considered, along with the reputation of the registry and its flexibility, the estimated cost of registration, and any applicable local taxes.

Some authorities will have additional equipment and regulatory requirements, so you’ll have to decide the place of registration in advance to ensure that the asset complies with all local regulations and that registration is possible. Some of the most popular registries are in offshore locations such as Malta, Bermuda and the Isle of Man. For aircraft, registration on the Cape Town Convention registry will help protect an interest in an aircraft.

The buyer’s tax liability depends on a number of factors, including:

chosen ports of registry
location of delivery
nationality of the buyer
ownership structure
intended use of the asset.

Purchasers need to consider sales tax, VAT and importation taxes, fees arising from the purchase of the asset, and even luxury tax in certain jurisdictions. They also need to consider other matters, such as the continued recovery of VAT on items such as fuel and maintenance. Of particular concern at present is the issue of VAT liability within Europe, with tax authorities increasingly expecting VAT to be paid on the purchase price, maintenance and even fuel where usage is not totally commercial in nature. A buyer should therefore seek expert tax advice on any potential exposure to tax as a result of the purchase.

Charter

If you’re looking to create a revenue stream from a private yacht or jet, then chartering is a viable option. The global yacht charter market size was valued at USD7.74 billion in 2023. The market is projected to grow from USD8.33 billion in 2024 to USD15.53 billion by 2032. Similarly, for private jets, the charter market is estimated at USD15.27 billion in 2024, with forecasters predicting it will hit USD29.30 billion by 2029. In some cases, chartering a yacht or jet when needed might be more cost-effective than ownership.

A reputable broker or agent in either industry will help you to ensure that the charter takes place on terms that clearly allocate responsibility for matters that can otherwise cause dispute, such as sea/airworthiness and safety, maintenance, crewing, expenses such as fuel and port/landing charges, insurance and liability for accidents.

It is also important to remember that these assets can be detained when bills aren’t paid or safety standards aren’t maintained, and contracts should address the additional costs that can arise when this happens. The shipping industry uses standard forms of charter contracts to address these issues, and most private jet charterers have their own standard terms and conditions of hire.

In the case of private jets, there are hybrid arrangements available in the market whereby you can buy a fractional share of a private jet in return for guaranteed usage, depending on the size of the share purchased.

Operator responsibilities: aircraft

The operator has a number of responsibilities. The registered owner of the jet is presumed to be the operator, unless the owner can prove otherwise.

Typically, the operator is responsible for ensuring compliance with all relevant aviation regulations. Where an issue arises with a regulator, the fact that a jet is in corporate ownership does not necessarily prevent the ultimate owner from being investigated.

The operator is responsible for ensuring that at least the minimum level of insurance is available for all flights.

Liability for aviation accidents

Owners and operators of aircraft need to be aware of the risk of liability for accidents and incidents – particularly in light of the shift in recent years towards increased criminalisation of aircraft incidents.

In order to minimise the risk of liability, owners and operators should ensure that there are adequate safety systems and training programmes in place to prevent the occurrence of an accident.

In any event, owners and operators need to put the appropriate insurance policy in place and check whether they require directors’ and officers’ liability insurance in addition to insurance for the jet itself.

Key things to consider before purchase:

When buying a new asset, you should ensure that all manufacturing phases meet safety and registration standards as well as the agreed specifications in the contract.

Evaluate asset registration based on location, registry reputation, costs, taxes and local requirements, with popular options in offshore locations.

Carefully consider the best structure for owning yachts and jets – the ownership structure can have implications for tax and liability.

When acquiring an asset, not only should the acquisition costs be considered, but also the not insignificant operating costs.

For pre-owned assets, conduct a comprehensive expert inspection, including practical tests, to verify maintenance, identify damages, evaluate value, and confirm regulatory compliance.

Superyachts and private jets: when issues arise

No one wants to buy their dream trophy asset only to find themselves facing litigation complications. Therefore, it’s integral that buyers and sellers give sufficient consideration to certain points during the sale and purchase processes. This can prevent the myriad of issues that may occur and help to protect an owner in the event of a dispute relating to their superyacht or private jet.

Points to consider in purchase contracts for used assets

Whether the asset meets the buyer’s specifications and expectations is a common area for dispute. To minimise the risk of this happening, you should ensure that the contract for sale sufficiently covers the following:

Legal title: Does the current owner have full legal title? For jets, check the register, set up under the Cape Town Convention on International Interests in Mobile Equipment, based in Dublin, where ownership may be registered.

Dispute resolution: The parties should ensure that they are aware of any dispute resolution clauses within the contract. Are the parties obligated to arbitrate rather than initiate court proceedings? Legal advice should be obtained prior to completion. The buyer should seek advice from legal advisers as to the most appropriate forum for resolving disputes.

Price: The purchase usually requires a 10% upfront deposit. The parties should ensure that the contract sets out when this deposit is returnable. The deposit should be held in a bank account in a jurisdiction where there will be no difficulty retrieving the funds.

Equipment: What is included in the sale?

Governing law and jurisdictions: What governing law will cover the contract? For example, disputes about the return of a deposit can be complicated if the funds held on deposit are in a different jurisdiction (say Monaco) than that of the court or arbitral tribunal (say England).

Liens: Has the previous owner entered into any contracts under which a third party has a lien over the asset? A buyer will want to acquire the yacht or jet free from any such encumbrances – if a creditor retains a lien over the asset after purchase, the yacht or jet can be detained and sold.

Quality: It’s industry practice that a purchaser will purchase the yacht or jet ‘as is’, with the seller having no liability as to the condition of the asset after the sale. Buyers must therefore satisfy themselves that the asset meets their requirements as to its value and condition prior to completion.

If purchasing a yacht, the seller must allow the buyer to take it on a sea trial prior to purchase. This is done at the buyer’s expense and is an opportunity for the buyer to inspect the yacht for any defects. Similarly, a potential buyer of a private jet can request a flight test.
The buyer can also have the yacht surveyed by a qualified marine surveyor. If any defects are highlighted, the parties need to negotiate how this is reflected in the transaction. Is the seller required to rectify the defects or can the parties agree to a reduction in the purchase price?
A seller should require an indemnity from the purchaser under the contract for sale for any liability arising in respect of the asset post-sale.
It is common for purchase entities to be special purchase vehicles and therefore a buyer and/or seller should consider requesting a personal guarantee from the ultimate owner in respect of any warranties or indemnities provided by either party under the contract for sale. For a seller, it is prudent to ask to be named as a third-party additional insured on the insurance policy for the asset for two years after the sale or until the next major overhaul.

Points to consider in purchase contracts for new and custom-made assets

The process for buying new and custom-made assets is slightly different. The buyer enters into a build contract with the shipyard or manufacturer as opposed to a contract with the owner of the existing asset. Shipyards usually have a standard term contract, but this can be tailored to the buyer’s individual requirements. Buyers should ensure that the build contract adequately sets out to address some of the issues we covered earlier.

The same issues give rise to disputes in relation to new assets, but in addition, it’s very important to ensure that the contract is clear as to the specification the purchaser is expecting, such as key performance criteria including speed, range/fuel consumption, noise, vibration, acoustic privacy and so on.

The buyer should also ensure they have competent technical advisers or representatives in place to supervise the construction of the superyacht or private jet. As time is usually of the essence for the buyer, the new-build contract should specify the delivery time and provide for sanctions in case of late delivery. Another aspect to be considered for any new-build project is confidentiality and the new-build contract should contain a dispute mechanism that ensures such confidentiality (ie arbitration versus ordinary court proceedings).

Post-purchase

After a purchase, there are a number of possible disputes that may arise which buyers need to protect themselves against.

Insurance: The owner needs to have insurance that’s appropriate for its intended purpose to protect against the risks of damage, liability to third parties and war/civil unrest. For example, will operator insurance and third-party insurance be required? Is the seller to be named as a third-party additional insured on the policy of insurance for a period post-sale?

Operating costs: A buyer should ensure that they are fully informed of the likely costs of operating the yacht or jet – fuel, maintenance costs, port and landing fees, and crew wages. These costs are likely to be substantial. If the owner defaults on these payments, they run the risk of a lien. If a yacht is being sold with a lien, it’s important both parties come to an agreement on its sale and the release of the lien, or this can be enforced by a creditor and the yacht involved can be impounded and an application could be made to the court for its sale.

Liens: If the yacht requires assistance at sea following a collision, those providing assistance are entitled to a reward. This reward is protected by a lien and will rank highest in priority above other creditors.

Sea and airworthiness/safety: A buyer needs to ensure that any necessary regulatory requirements with regard to sea/airworthiness and safety are complied with. These will differ according to the intended use of the asset and where it is to be used.

Asset performance

According to Superyacht Times, there was a notable 63% increase in the total number of sales of used 60-metre plus superyachts in 2023 to a total of 39, compared to 24 in 2022, while Boat International revealed that 2023 saw EUR3.9 billion worth of new superyacht sales.

Some of the biggest superyacht sales of 2023 included:

May 2023 – Ahpo (Nuvolari Lenard, length 115.1m, asking price EUR330 million)
September 2023 – Madsummer (Lürssen, length 95m, asking price EUR227.5 million)
August 2023 – Here Comes The Sun (Amels, length 95.2m, asking price EUR149 million)

Meanwhile, the General Aviation Manufacturers Association (GAMA) reported global sales of 730 new private business jets in 2023, a 2.5% increase from 2022. Jetcraft reported that transactions for pre-owned jets hit USD16.3 billion in 2022, with continued growth expected for 2024, largely driven by the post-pandemic return to regional and international business travel.

Key points to remember

You should negotiate the new-build or purchase contract with due care, especially the specifications and expectations of the asset.
When buying used assets, you should take the utmost care of the title and potential liens.
Ensure you factor the high operational costs and required compliance with Health, Safety and Environment (HSE) rules after purchase into your decision.