What Do I Have to Do to Legally Offer Charter Cruises on My Boat?

I am thinking of offering my 42-foot sailing yacht for occasional chartering to offset my ownership expenses. I have done a little research on this, but I have heard conflicting versions of the legal guidelines for passenger count, licensing and other aspects of the operation. I understand that bareboat chartering allows more flexibility in certain areas, but I am not sure how far I can extend that flexibility. Can you provide an overview of the regulations for this type of charter operation?
The rules and regulations for chartering will vary considerably, based upon the type of boat, whether the boat has been inspected by the Coast Guard and the business model for the chartering operation. It’s impossible to address all of those issues without writing a book on the subject, but we can look at a few of the most significant areas of concern.

The Coast Guard will exercise some level of control over both the vessel and the crew in every charter operation, regardless of the type of boat. But the extent of Coast Guard regulatory oversight will depend mostly on the number of passengers.

In the United States, a vessel must be inspected and certified by the Coast Guard if it carries more than six passengers for hire, unless it measures more than 100 gross tons, in which case it may carry up to 12 passengers for hire. Operations that target six or 12 passengers under these restrictions are generally referred to as “six-pack” or “12-pack” charters. A passenger for hire is simply someone who pays to be aboard (or is part of a group that has paid to be aboard), and is therefore not a hired crewmember or a guest of the owner.

Regardless of the passenger count or whether the boat is inspected by the Coast Guard, the boat must be operated by a captain with a Coast Guard license that is appropriate for the type of boat. This means, for example, that the operation contemplated for our reader with a 42-foot sailboat will require a captain with a sailing endorsement on his or her license.

The boat must also have been constructed in the United States, if the owners intend to carry passengers for hire. I will note that the U.S. construction requirement is rarely enforced for six-pack or 12-pack passenger service, and we do consequently see quite a few foreign-built vessels used in those types of operations. But it would, nonetheless, amount to an illegal charter.

As noted by our reader, a boat owner may avoid both the licensing and the inspection requirements by structuring the operation as a “bareboat charter.” Bareboat charters were developed as a financing tool in the commercial shipping industry. They call for a boat owner to turn over almost all aspects of ownership to the person chartering the boat, for the duration of the charter.

This technically includes fuel, maintenance and insurance — but for the yachting community, the Coast Guard is mostly concerned with the selection of the captain and crew. If the person chartering the boat is not free to select his or her own captain and crew, the arrangement is not a bareboat charter, and the operation will be subject to all of the passenger-for-hire regulations discussed above.

Assuming the arrangement does qualify as a bareboat charter, it will be free from many of the regulations that would otherwise control the operation. The vessel may carry the charterer and up to 12 of the charter’s guests, regardless of the size of the vessel. The vessel need not be constructed in the United States and a licensed captain is not required.

Most important, no Coast Guard inspection is required for a bareboat charter vessel, which relieves the owner from the complicated construction and equipment guidelines enforced by the Coast Guard for inspected vessels. (We should note that Coast Guard inspection of a passenger vessel is entirely different from — and much more complicated than — the courtesy inspections conducted by the Coast Guard Auxiliary).

The boat must, nonetheless, comply with all of the regulations that would govern the operation of a recreational vessel, including requirements for flotation devices and other safety and navigational equipment.

Regardless of whether a vessel carries passengers for hire or is operated under a bareboat charter agreement, the owners must address a host of other practical considerations. For example, cities and harbors regulate the businesses that operate within their borders, and they may require local licensing and the payment of fees and taxes. Operating “under the radar” is extremely difficult, because of the need to market and advertise the business.

The most important practical consideration is insurance. Boating always involves an element of risk, and passengers must rely on the owner to take reasonable steps to reduce the level of risk as much as possible.

Insurance policies may exclude chartering from coverage, and the polices typically exclude coverage of hired captains and crew. The first phone call for anyone considering a charter operation should, therefore, be to his or her insurance broker. The second phone call should, of course, be to an experienced maritime attorney, who will be able to discuss these challenges in greater detail.

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