A binding contract is formed when three elements come together: an offer, an acceptance of the offer and an exchange of “consideration.” With those elements in place, the other terms of the contract control the rights and obligations of the parties in the execution of the contract. This is a fundamental legal concept learned by every first-year law student.
A purchase contract for a yacht is formed when a seller accepts a buyer’s offer. The “consideration” is exchanged when the buyer tenders a deposit and the seller agrees to remove the boat from the market and sell the boat to the buyer, subject to any inspection or financing contingencies.
Counteroffers may, of course, be exchanged as a part of the purchase process, but this exchange is a part of the negotiations that eventually lead to the execution of a binding contract. At some point, when one of the counteroffers is accepted and consideration is exchanged, a binding contract is formed. No “counteroffer” is possible after that point.
After a binding contract is formed, one or both of the parties may seek to modify the terms of the contract. These negotiations may proceed verbally or in writing, but unless and until the parties agree to a modification, the negotiations have absolutely no effect on the rights and obligations of the parties under the existing contract.
A request by a buyer for a survey or repair allowance is a request to modify the contract. Like any other modification, this request has no effect on the rights and obligations of the parties unless it is agreed to by the seller. The request is not a “counteroffer,” and it does not allow a seller to back out of the deal.
The confusion over the effect of a survey or repair allowance may be traced to the use by many brokers of a pre-printed “counteroffer” form to present the proposal to the seller. This was to some extent a practical approach, since a counteroffer form allows for a list of modifications to the terms of the original offer and it calls for the signatures of the buyer and seller. But as noted above, no “counteroffer” is possible after a binding contract is in place, and the title of the document has no bearing on this legal conclusion.
Regardless of the title or description of the form used to present the proposal to the seller, a request for a survey allowance is simply a request, until it is accepted by the seller. To fend off some of this confusion, the California Yacht Brokers Association recently created a “Repair Allowance Addendum” for use with the organization’s other form contracts.
The “as-is, where-is” language included in most yacht purchase agreements may add to the confusion over the survey or repair allowance issue. This language is actually very clear and it means exactly what it says. The seller agrees to sell the boat in its current condition, and he or she is not obligated to repair or replace anything. This does not, however, prevent the buyer from asking for a repair allowance.
Again, a request is just a request. The seller is free to say no to the buyer, or ignore the buyer, or turn the tables and ask the buyer for some additional concession. This decision does, of course, have a consequence, since the buyer may choose to reject the boat if the seller fails to comply with the buyer’s request.
These discussions all fall under the heading of negotiations for modifications to the contract, and the seller may not back out of the deal until the contract is terminated. All contracts include a provision for terminating the contract, either within the express terms of the agreement or by operation of law.
For a yacht purchase transaction, the contract will provide for the contingencies to be satisfied, and the boat to be accepted or rejected, prior to a selected deadline. The consequences of a missed deadline will vary depending upon the language of the contract, but most yacht purchase contracts will terminate automatically if no action is taken prior to that pre-selected date. Only then may a seller consider a backup offer.