What Disclosure Is Required When a Boat Is Sold ‘As-Is?’

I made an offer on a boat, and we just completed the sea trial and survey. The marine surveyor identified a few problems, and I am considering the best way to approach the seller and his broker to see if something can be done to fix those problems. Before I start those negotiations, I was hoping you could shed some light on exactly what the seller is legally obligated to do in connection with problems he is aware of. Is he required to disclose problems? And what is the significance of the language in the sales contract that calls for the boat to be sold “as-is?”
Our reader hit upon two of the elements of a yacht purchase transaction that seem to cause people the most problems: disclosure requirements and the “as-is” clause.

Most boat owners are familiar with real estate transactions — and a home purchase is often compared to a yacht purchase, since the purchase price and complexity of the two types of transactions may be similar. There are, however, many differences, starting with the duty to disclose.

California Civil Code section 1102 requires the seller of a home to disclose a wide assortment of features and equipment, and to disclose significant defects, hazards or characteristics which may be deemed to materially affect the buyer’s decision to go forward with the purchase.

Civil Code section 1102 does not, however, apply to a yacht purchase. The California Commercial Code does impose these requirements upon a merchant or dealer, and there is a general requirement that all transactions be conducted in good faith, but there are no specific disclosure requirements that apply to the sale of a used boat.

Therefore, a claim of wrongdoing by a buyer of a yacht against the seller would focus on the representations and other behavior by the seller, and whether such behavior was designed to steer the buyer’s attention away from a defect.

The “as-is” clause is inserted into a contract to further insulate a seller against future claims by a buyer, but the effect of the clause is often misunderstood. The clause typically provides that the vessel is sold “as is, where is, and with all faults,” and that the sale does not include any warranties. This does not give a seller or a broker a license to say whatever he or she feels is necessary to sell the boat. Instead, it simply means that the seller is not required to fix any problems that the buyer may discover during the pre-purchase inspections of the boat, and that the sale does not include any warranties if something breaks after the transaction closes and title is transferred.

The limits of the “as-is” clause were tested this year in a Florida lawsuit involving a $3 million sportfishing yacht that suffered a structural failure soon after the buyer took delivery.  Certain representations were made by the broker and seller, both verbally and in the broker’s advertising, praising the high quality of the yacht’s design and construction.

The jury did not find that any fraud or intentional misrepresentation had been committed, but they nonetheless awarded $2 million in damages to the buyer. The jury rendered this award because, even if there was no evidence of intentional wrongdoing, the broker and seller had no rational basis from which to make the representations that were made, and as such they held the broker and seller liable for negligent misrepresentation.

The short answer to our reader is, therefore, something like this: A seller generally owes no specific duty to disclose anything to a buyer, but the seller must nonetheless be very careful about the information provided to the buyer and confirm that the information is accurate. And the “as-is” clause will not provide much protection if the buyer is misled by the seller’s words or actions.

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