Ask a Maritime Attorney: How do I lend my boat out for charters?

Question:

I own a 48-foot motor yacht that I would like to offer for charter to offset my costs of ownership. 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 we can extend that flexibility. Can you provide an overview of the regulations for this type of charter operation?

Answer

As we have discussed in prior installments of this column, vessels which operate in U.S. waters and carry at least one passenger for hire must comply with a long list of strict Coast Guard regulations, starting with a limit on the number of passengers they may carry (usually six or fewer paying passengers). Even these “six-pack” charters must comply with regulations which require the vessel to be built in the United States and to be operated by a Coast Guard licensed captain. However, as suggested by our reader, a “bareboat” charter structure may provide an avenue for boat owners who wish to charter their boat, but who are unable to comply with the complex rules that govern passenger vessels.

A bareboat charter (also known as a “demise charter”) is a lease arrangement where the charterer takes on all of the rights and obligations of ownership without actually transferring title, and the owner is generally protected from liability against third parties.

Bareboat charters are common in the world of commercial shipping, where complex tax and international vessel registration laws may encourage a lender to take ownership of a ship rather than to simply record a mortgage. Like most principles of maritime law, bareboat charters were developed to manage the safety and commerce of ships at sea, but they are equally applicable to recreational boats.

A bareboat charter has the effect of shifting the possession and control of the vessel and liability for injuries to third parties, from the owner to the charterer for the duration of the charter. It is attractive to charter boat operators because the charter cruise is treated under Coast Guard regulations as a recreational voyage rather than as a voyage with paying passengers. The charterer, as the temporary “owner” is free to take his or her non-paying guests out for a pleasure cruise, subject to a few restrictions.

Treatment of the charterer as an owner requires him or her to assume all aspects of ownership for the duration of the charter. This technically includes fuel, maintenance, repairs, and insurance premiums. The owner may remain involved in vessel operations for issues that relate to the safety of the vessel, such as requiring compliance with the conditions of an insurance policy, but they must otherwise step back.

Regardless of the technicalities, 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 subject to requirements or influence from the owner over their selection of captain or 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 importantly, 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. 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 withing 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 for any charter business is insurance.   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 their 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.

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com,  or via email at dweil@weilmaritime.com.