Do Bareboat Charters Avoid Foreign-Built Passenger Boat Prohibitions?

I read your article in the most recent issue of The Log Newspaper (Nov. 11-24) concerning the prohibition against the use of foreign-constructed boats for passenger charter service in the United States. Your article said nothing about whether a bareboat charter operation should be subject to the foreign-build restrictions or any other Coast Guard regulations. Can you shed some light on how that would all work with a bareboat charter?

A bareboat charter does, indeed, free the operation from the foreign-build restrictions that burden most chartering operations — but the bareboat structure is not a good fit for the type of passenger charter service referenced by our reader.

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. Like most principles of maritime law, bareboat charters were developed to manage the safety and commerce of oceangoing merchant ships, but they are equally applicable to recreational boats.

To create a bareboat charter, the owner of the vessel must completely and exclusively relinquish possession, operation, maintenance, command and navigation of the boat to the charterer. The charterer must supply the captain and crew and pay for the operation of the vessel during the term of the charter. If the owner is allowed to manage or operate the boat in any way, it is not a “bareboat” charter and the operation would thereby be subject to the construction and inspection regulations.

The yachting community is probably most familiar with the concept of bareboat chartering through the sailboat chartering operations that are common in the Caribbean and elsewhere. Those operations typically involve the chartering of a sailboat in the 30- to 50-foot range for a week or two, where the charterer’s party has the freedom to use the boat without supervision from the owners or the vessel managers. Since the boat is chartered without a professional captain, the charterer must demonstrate proficiency in the operation of the boat before leaving the dock. His or her skill level is usually evaluated by the owners or the vessel managers through various tests or through certification by the American Sailing Association.

Bareboat chartering may be well-suited to small sailboat chartering, but this type of charter is not a practical way around the regulations that govern the carrying of passengers for hire aboard charter vessels.

The most common mistake made by people who seek to use this structure as a way to circumvent chartering regulations is to require the use of a specific captain and crew, or to require the captain and crew to be “selected” from a very short list. A true bareboat charter arrangement does not allow the owner to designate a captain and crew.

A passenger charter operation is not likely to surrender the operation of a charter yacht to a customer. However, even if the boat were to be skippered and crewed by the charterer, it would, nonetheless, be subject to a long list of safety regulations that make the operation look a lot like a conventional charter.

In response to numerous disasters where bareboat chartering was used to circumvent chartering regulations, Congress passed the Passenger Vessel Safety Act in 1993. This legislation covered a wide range of chartering activity, including vessels where no crew is provided by the owner (i.e. a bareboat charter).

Following the enactment of the Passenger Vessel Safety Act, the Coast Guard issued Navigation and Vessel Inspection Circular No. 7-94 (NVIC 7-94), a document intended to interpret the legislation and provide an overview of Coast Guard policy regarding the new law (the document is available online at NVIC 7-94 explains that, even where no crew is provided by the owner, any vessel that carries more than 12 passengers is now subject to Coast Guard inspection and all of the other regulations that govern a vessel that carries passengers for hire.

This essentially eliminates the bareboat charter as a mechanism to circumvent Coast Guard regulations over passenger charter vessels.

In view of these limitations and regulations, and as noted at the top of this article, a bareboat charter structure allows some flexibility over a conventional charter, but it is not a good fit for the type of passenger charter service referenced by our reader.

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