What Information Must Selling Boat Owners Disclose to Buyers Under New Law?

I heard last week that a new law is in the works that will require boat owners to disclose more information when they sell their boat. Can you shed some light on this?

Our reader is referring to the “Uniform Certificate of Title Act for Vessels” (I’ll refer to it in this article as the “Uniform Title Act” or simply the “Act”).

The Uniform Title Act was drafted by the National Conference of Commissioners on Uniform State Laws (also known as the Uniform Law Commission, or “ULC”), in part to standardize the registration and titling systems in use at the state level throughout the country.

The ULC is composed of judges, law professors and attorneys from private practice, industry and government, from every state in the nation. Uniform law commissioners are appointed by their states to draft and promote enactment of uniform laws that are designed to solve problems common to all the states. According to its website, the ULC has been responsible for the enactment of more than 200 uniform laws, including the Uniform Commercial Code, the Uniform Probate Code and the Uniform Partnership Act.

The Uniform Title Act concerns only vessels that are registered through the individual states and, as such, it has no effect on Coast Guard-documented vessels. Federal law does provide some uniform guidance for state-registered boats, mostly to ensure that a particular numbering format is used for vessel registration. However, there are no federal regulations concerning state certificate of title laws for undocumented vessels and, in fact, many states (Delaware, for example) have no certificate of title law for vessels. Even among the states that require certificates of title for undocumented vessels, the variation in those laws is substantial.

The Uniform Title Act is designed to modify state law to make state vessel registration and titling laws uniform throughout the country. It was finalized by the ULC on July 12 and will now be circulated to every state and territory for consideration. In California, the legislature had not yet begun its review of the Uniform Title Act, so it will be a while before it is formally adopted.

The ULC sought to accomplish several worthy objectives with this new law, including theft deterrence and the simplification of vessel financing. However, the law includes a provision that has nothing to do with the creation of a uniform title system, and this has raised concerns from several parts of the maritime community.

The Uniform Title Act introduces the concept of title “branding.” Branding will require the owner of a vessel to report “hull damage” to the Department of Motor Vehicles, after which a notation will be made on the vessel’s title, branding the vessel as “hull damaged.” The “brand” will remain on the title regardless of whether the damage is ever fixed.

Under current law, private party sellers have no requirement to disclose any problems that they are aware of when they sell a boat. If the hull is damaged in an accident, the owner may be liable for fraud if he or she conceals the damage, but if the damage is properly repaired in a workmanlike manner, there is no need for any disclosure. The new law will change this.

The Act, including the branding provision, has been endorsed by the National Marine Manufacturers Association, and an NMMA spokesperson discussed the new law at a recent California Yacht Brokers Association legal seminar. The spokesperson was challenged about the branding provision by yacht brokers at the seminar.

The NMMA contends that the branding provision simply encourages consumers to hire a marine surveyor to inspect the damaged area, and that a boat owner has nothing to worry about if the repairs were properly completed. Some yacht brokers at the seminar complained that a boat with such a “scarlet letter” on its title will suffer a permanent reduction in value, even if the repairs effectively returned the boat to “like new” condition, and they noted that this is not fair to the vessel’s current owner.

Brokers also noted the apparent ambiguity of the “hull damaged” provision. What exactly would constitute “damage?”

For example, it may be possible for a boat to sink at its dock with no structural damage to the hull at all. Would such a boat escape the reporting requirement?

Or, a vessel may suffer a serious structural failure due to a manufacturing defect that was not related to an incident. Does a gelcoat scratch constitute hull damage?

What about structural corrosion in the hull of a metal boat or significant rot in a wood boat? If the corroded plates or rotten wood are replaced, has the hull been “damaged?”

The NMMA representative was unable to answer most of these questions, and she simply advised that the problems would probably be cleared up before the law is actually adopted by the individual states. For now, all we can do is keep an eye open for this new law as it works its way through the California legislature and hope lawmakers will be receptive to the comments and opinions of the yachting community.