Over the past couple years there has been a notable increase in first time yacht buyers. This means that there are many inexperienced buyers that will be looking to you, the broker, for guidance in purchasing a yacht. As a broker, you play an integral role in either the purchase or sale of a yacht.
One common circumstance where yacht brokers open themselves up to liability is when a buyer or seller seeks guidance or a recommendation from their broker. Typically, a buyer or seller will ask for a recommendation for a mechanic or surveyor, or for the broker’s overall opinion of the yacht. Of course, we all have people or companies that we prefer to work with for one reason or another, but hopefully, the reason you recommend someone is because you trust that person or company, they have done good work in the past, and they are qualified for the work. If the person or company you recommend is not, you could find yourself in a difficult situation with an upset client.
For example, let’s pretend a buyer wants to purchase an older wood-built sport-fishing yacht. As part of his due diligence, the buyer asks his long-time broker for a recommendation for a surveyor to inspect the yacht for deficiencies. The broker recommends only one surveyor, a good friend that the broker has used in the past, and the buyer ends up hiring that surveyor who goes out to the yacht and conducts the survey. The survey comes back pretty clean, so the buyer accepts the yacht and the deal closes. A couple of weeks later, the buyer takes the yacht to a yard to have some work done and discovers the bottom of the hull is riddled with wood rot and will cost $250,000 to repair.
Who’s at fault here? Well, it depends on who you ask, but we all know that wood rot does not happen in two weeks and this should have been identified during the pre-purchase survey, so the surveyor should be on the hook. But what happens if the surveyor does not have the proper insurance to cover such an error? What about the yacht broker?
Well, in the above scenario, one could make a compelling argument that the broker should share in that liability. Why? In the legal world, there is concept that is known as ‘steering’, or more formally, negligent recommendation, and given that the broker in the above hypothetical only recommended one surveyor, it can be argued that the broker steered the buyer to this surveyor. This could end up being quite problematic for the broker and the brokerage firm.
So, how can a yacht broker put himself or herself in the best position to avoid being sued? For starters, provide the buyer or seller with more than one option to choose from and let them make the decision as to who they believe is best qualified for the job. Three different options is generally a safe number to recommend, but it should never be just one.
Also, before making the recommendation, do your homework. Ask the surveyor or mechanic if they carry insurance and request a copy of the policy. Tell the buyer to run the insurance policy by his or her lawyer to make sure there is coverage in the event of an error or omission. Also, check to see if he or she is certified or licensed to conduct the work he or she is being hired to do and get proof of it.
The same goes for insurance brokers, when the buyer asks the yacht broker where to get the best insurance for the yacht. With the current insurance market, binding coverage is no easy task and insurance companies want to know just as much information about the boat as the buyer. Tell them and send them the pre-purchase survey with the question: Is there anything else needed to bind coverage?
Finally, buyers rely on brokers for their opinions on the manufacturer of the boat, the brand of engines, and will likely ask the famous question: “Do you see anything wrong with the boat or should I buy it?” Be very careful when answering this question and avoid words like ‘perfect’ or ‘flawless’. The buyer should rely on the surveyor regarding imperfections and on his or her financial advisors as to whether or not to purchase the boat, not the broker’s opinion. However, during the due diligence period, if a broker sees something wrong with the boat, SPEAK UP and tell the buyer or seller, even though it may blow the deal and lose out on the commission. If you don’t, you might find yourself in a much worse position.
Remember, when the buyer is asking for your help for recommendations, do your homework and check for the proper insurance, licensing and skill level. Don’t be too quick to send a job to someone just because you’re buddies. Your buddy could be the reason you get served with a lawsuit.
* This article is provided for informational purposes only and does not constitute legal advice. Please contact an attorney to discuss the specifics of your circumstance.
Nicholas J. Zeher is an attorney in the Litigation and Yacht Law Departments of Robert Allen Law, an international boutique law firm with a dynamic practice in the yachting industry. For more information about Nicholas and Robert Allen Law, please visit www.robertallenlaw.com.