DISCLOSURE
As
Marine Surveyors, we are asked to determine the condition
and value of a boat, often at the time of purchase. On virtually
every listing there is a disclaimer stating that the specifications
are believed to be correct but that the potential buyer should
rely on his surveyor or other sources for verification. While
disclosure of any known problems is a legal requirement during
the sale of “real property”, it is not necessarily
so in the sale of a vessel. So, what is the proper way to
handle this issue if buying or selling a boat?
This
article is being written by a marine surveyor, not a maritime
attorney and not your boat broker. As always, balance it with
other opinions and keep your mind open. It is our understanding
of the law that the seller of a yacht is not mandated to disclose
all problems (faulty engine, leaking tank, or worse - a broken
ice maker...) or significant events (such as submersions,
collisions, fires, etc…) to a potential buyer. It is
our understanding that if the current owner is asked a specific
disclosure question, he or she must answer truthfully. To
do otherwise is considered fraud. The purpose of this article
is not to provide legal advice but rather to put forth our
opinion as to the practical means and ethical obligations
of disclosure in a yacht transaction.
Ethical:
pertaining to or dealing with morals or the principles morality;
pertaining to right and wrong in conduct; 2. in accordance
with the rules or standards for right conduct or practice
especially the standards of a profession. Any right minded
individual would prefer to know any significant historical
facts of significance regarding the vessel that he or she
intends to purchase. Equally, one should feel obliged to disclose
any significant information to a potential buyer, particularly
if it may lead to unexpected financial expenditures, operational
difficulties or most importantly, safety issues. While communications
can be verbal, we suggest disclosure statements be written.
With the advent of e-mail the communication of this type of
information is simple. The written statement reduces disagreement
as to the specifics if and when it becomes relevant in the
future.
One
of the challenges to disclosure statements is the specificity
in the request for information. The blanket request to disclose
all known problems is much less effective than specific questions.
We feel there are two basic areas of enquiry, known problems
and historical events.
Among
the most common problems with boats are issues with the mechanical
systems, tanks, electrical systems, electronics, leaks (from
above and below), coring deterioration and blisters. A series
of questions specifically addressing these items, presented
to the seller and answered before the deal is done, will go
a long way towards providing documentation of information
which should be transferred with the vessel. Follow up questions
should include who has attempted repairs, when the problem
was first noticed and if the problem seems stable or is it
progressing.
Historical
information of significance should include details of any
significant catastrophic events such as submersions, fires
or collisions. Again, we suggest written questions requesting
specific information regarding this type of event history.
Follow up questions should include repair specifics, such
as which boat yard was used, when did the event occur, and
what was the scope of repair. It is imperative to learn if
there have been repetitive problems, i.e. water in an engine.
Major
changes, upgrades or improvements in the vessel should also
be documented. This would include re-powering, tank modifications,
hull changes (extensions), paint jobs, re-wiring or new electronics.
Again documentation can be very helpful if it includes who
did the work and when it was done.
We
feel that the disclosure of important information in writing
leads to a positive result for the buyer, seller and the broker.
For the broker, the ethical “high road” should
lead to repeat business, higher income and a true sense that
the right thing has been done. It is an essential part of
representing your client properly, be it buyer or seller.
Written disclosure of a known problem or prior event will
certainly preclude problems when the malfunctioning system
or event is later discovered and the buyer believes, “they
had to know about that”. In the absence of this written
disclosure, the opportunity for a bitter, dissatisfied client
is increased. A buyer who feels that he or she has been defrauded
can give rise to a bad reputation, law suits and a financial
loss.
Anyone
in the business of buying and selling yachts has stories regarding
disclosure. In my twenty years as a marine surveyor, I face
this issue regularly. As a member of the Society of Accredited
Marine Surveyors (S.A.M.S.), I communicate regularly with
approximately five hundred surveyors on a “reflector”
on the internet. It allows us to share information and ask
questions.
Several
years ago while viewing messages on the reflector, I was surprised
to see an enquiry by my brother, a marine surveyor in Florida.
He was asking if anyone had knowledge of the dropping of a
large xxx brand motor yacht. Within minutes, I had shared
with him my recollection of an event involving this particular
yacht. The dropping of the xxx brand motor yacht occurred
at a local boat yard over a decade prior, the damage was catastrophic.
I was not professionally involved in that damage claim, but
I was aware of the event. The vessel had been sold several
times since the repairs were performed. My brother was working
for a potential buyer and the potential seller had not disclosed
the event to the potential buyer. During the survey process
my brother became aware of the possibility of an event. Accidental
disclosure does happen. Would disclosure have saved the deal?
Who knows, but it certainly would have been the right thing
to do.
I
have found myself in court a few times and in deposition many
times regarding conditions which were not disclosed.
Occasionally,
egos, particularly male egos (being male I have license to
generalize), amplify the significance of conditions which
were not disclosed and can lead to litigation. One such event
was the modification of a tank, from one usage to another.
While the cost to return the tank to its original usage was
significant, the legal fees over who was responsible for the
cost were larger. It is difficult to determine the condition
of tanks and their function, during a normal marine survey
process. In this particular instance, the modification of
the tank was not disclosed. When the new owner discovered
the modification, the seller disclosed knowledge, and a legal
battle ensued.
Though
the idea of disclosure seems rather simple, there are nuances
which complicate this issue. How bad does a problem or event
need to be before it should be disclosed? Gently brushing
a dock, a blown speaker or a dripping faucet cannot be expected
to be disclosed. Furthermore, the statement of work that has
been done can be overstated or improperly interpreted. An
engine “rebuild” is often claimed but seldom means
the same thing. One boat transaction resulted in a law suit
after the seller stated an engine was rebuilt but later the
opposing sides remembered the extent of the claimed rebuild
differently. A written description of the rebuild would have
certainly prevented this particularly law suit.
Currently
most listing agreements do not include a section for the boat
owner to list known problems or events. The listing agreements
do disclaim responsibility for any problems arising from this
type of omission, and most contractually obligate the seller
to indemnify and defend the broker(s) from any liability arising
from mistakes or omissions regarding vessel information. So,
whether buying or selling the boat, it makes good sense to
obtain a disclosure statement or disclose relevant information
and to do so in writing.
