FEATURES

Typically, the lessee:

• Is the ‘owner’ of the yacht for regulatory purposes;

• Has exclusive possession and control of the yacht;

• Will be obliged to keep the yacht in good working order;

• Must insure the yacht against loss or damage;

• Will be entitled to the yard’s warranties;

• Must indemnify the lessor against liabilities stemming from the lessor being the registered owner;

• Cannot sell the yacht as it does not own it; and

• Must pay the remaining instalments, or a cancellation fee, to terminate the lease agreement.

OTHER FORMS

The Statement of Standard Accounting Practice SSAP 21 (Accounting for leases and hire purchase contracts) defines a finance lease as a lease which transfers ‘substantially all of the risks and rewards of ownership of the asset to the lessee’. The distinction is drawn with operating leases, common for aircraft, plant and equipment, where the risk in relation to the asset falls on the lessor rather than the lessee. An operating lease will be treated as being off balance sheet in the lessee’s accounts, and at the expiry of the lease term, the lessee is obliged to return the asset to the lessor and the asset’s residual value is of no concern to the lessee.

Only relevant to smaller yachts and tenders, SSAP 21 also distinguishes a hire purchase contract, which allows the hirer to acquire legal title by exercising an option to purchase the asset – normally having paid an agreed number of instalments. SSAP 21 prescribes the accounting treatments, but note that accounting standards are being developed which will supersede SSAP 21.