Nature of a bareboat charter and lease arrangement- cargo ships employment procedure

Nature of a bareboat charter and lease arrangement- cargo ships employment procedure

A bareboat charter (sometimes called a charter by demise or demise charter, particularly by lawyers)
i) is a contract for the hire of a vessel for an agreed period during which the charterers acquire most of the rights of the owners.

ii) may be thought of as the marine equivalent of a long-term vehicle lease contract.

iii) is most usually on the BARECON 89 charter party form.

iv) is used by owners such as banks and finance houses who are not prepared to operate or manage ships themselves.

v) is often hinged to a management agreement. (e.g. where an oil company bareboat charters a tanker from an independent tanker owner but agrees that the owners will manage the ship on the oil company’s behalf during the charter period).

vi) may be hinged to a purchase option after expiry of the charter or during the hire period. (Hire payments may include instalments of the purchase price, and transfer of ownership may follow the final instalment. Many permutations are possible.)

In essence the vessel owners put the vessel (without any crew) at the complete disposal of the charterers and pay the capital costs, but (usually) no other costs. The charterers have commercial and technical responsibility for the vessel, and pay all costs except capital costs.

The “BARECON A” form, under which the owners bear responsibility for insurance premiums, was designed by BIMCO for short-period chartering (e.g. the summer hire of a passenger vessel).

The “BARECON B” form was designed as a long-period, financial type of contract, mainly for newbuildings although it can be modified for second-hand tonnage. The charterers are responsible for insurance premiums.

“BARECON 89” is an amalgamation of the “BARECON A” and “B” forms designed to reflect the growing use of bareboat charter registration. Part I contains the familiar BIMCO-style boxed details. Part II contains the standard clauses. Part III contains provisions applicable to newbuilding vessels. Part IV contains a hire-purchase agreement. Part V contains provisions to apply for vessels registered in a bareboat charter registry.

Benifits of lease arrangement in cargo ships employment

A lease arrangement is a means of financing the acquisition of a vessel that utilises a bareboat charter party as the vehicle for the loan repayment agreement. It is used as an alternative to a traditional ship mortgaging arrangement. The “sharing” of tax benefits available to the owner and charterer is sometimes the main purpose of a lease arrangement.

In a typical lease arrangement, the lessee or borrower already owns a vessel or has contracted a newbuilding from a shipyard. On entering into the lease agreement, ownership of the vessel is formally transferred to the lessor or lender, who then becomes the registered owner. The lessor then charters the vessel to the borrower on the terms of a bareboat charter party. The lessor retains ownership of the vessel for a (usually) lengthy period, following which ownership may pass to the lessee/charterer. The charter hire payments cover the instalments of a loan that represents the finance required to acquire the vessel. The lender’s tax benefits, which stem from ownership of the vessel, are passed on to the lessee/charterer by way of reduced charter hire payments. A vast set of financial documents is required in addition to the bareboat charter party.

Some of the terms of the bareboat charter party are designed to protect the lessor/charterer against the risks and liabilities normally associated with ownership of a vessel.

Contract between cargo seller and buyer

The contract of sale between the seller and the buyer of the goods is separate from the contract of carriage which one party or the other, or a third party (such as a freight forwarder), will make with the carrier.
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Summarized below seagoing cargo ship various employment guide:

Charty party forms

Nature of a bareboat charter and lease arrangement- cargo ships employment procedure

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