The vast majority of yacht brokers and salespersons in California use the standardized California Yacht Brokers Association Purchase Agreement. Paragraph 11 of that Agreement states as follows:
Except as stated in paragraph 9, the Vessel is sold “AS IS,” “WHERE IS,” and “WITH ALL FAULTS,” neither seller, broker, nor any cooperating broker, nor any of their respective owners, partners, shareholders, officers, directors, brokers, salespersons, employees, representatives, agents, attorneys, or contractors, make any representation or warranty, either express or implied, pertaining to the vessel, its condition, description, merchantability or fitness for a particular purpose, and all such representations and warranties are disclaimed.
Paragraph 9 simply deals with clear title so it is understandably exempted from paragraph 11. There is, however, a great deal of misunderstanding as to the terms “AS IS,” “WHERE IS,” and “WITH ALL FAULTS.” What do these terms mean?
While some have misunderstood these terms to mean that the seller will not negotiate and the buyer will have to accept the vessel regardless of what the surveyor and mechanical inspector may find, or that the seller will not negotiate a repair allowance after the Sea Trial, nothing could be further from the truth.
It is true that in real estate, an as-is property is one that is listed for sale in its current state, meaning that any issues or problems with the home will not be addressed by the seller. When a property is listed “as-is”, it means the seller won’t entertain any such requests. In the maritime world, however, the terms are applied a bit differently.
Regarding a vessel purchase, the terms mean that the seller is not making any warranties as to the fitness of the vessel for any use or for any particular purpose. The seller is not warranting that the sailboat will make it to Hawaii or the starboard engine won’t overheat at the wrong place and the wrong time. These terms are included in the initial offer to purchase so that both parties, buyer and seller, understand that the seller, and his or her broker, are not making any warranties or representations regarding the vessel.
The terms also mean that the Seller is not required to fix any issues with the vessel prior to closing. Not being required to repair is quite different from voluntarily agreeing to fix certain issues or agreeing to negotiate a repair allowance to the final price. Indeed, if the Seller truly desires to sell his boat for a fair market price, there will be post-survey repair or price negotiations.
The terms do not mean that the seller and or his broker can say what they want to sell the boat. The terms do not excuse misrepresentations by the seller or his broker. As an example, if a seller or a broker praises the design and construction of their listing, and that vessel experiences some post-purchase structural failure, the praises may be seen as misrepresentations.
The “AS IS,” “WHERE IS,” and “WITH ALL FAULTS” terms also mean that the buyer assumes the risk of a latent defect rearing its ugly head post-purchase. While there is a general requirement in the law that all transactions be conducted in good faith, there are no statutory disclosure requirements that apply to the sale of a used boat. In other words, a seller is under no specific legal duty to investigate and disclose the condition of the vessel and its systems. Therefore, the prospective buyer should hire an experienced and competent surveyor and mechanic to carefully and thoroughly inspect the vessel and all of its systems, including the taking of oil samples, and attend a meaningful haul-out and sea trial.