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Old 08-10-2015, 13:56   #1
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Talking Contract paragraph regarding deposit

ok... so, I've looked at numerous broker purchase and sales agreements and still have a problem with an insert from the broker representing the seller on a boat we are interested in. I am listing it below. Is this common practice? I especially have a problem with the ""but not limited to" phrasing.

6. In the event the closing is not consummated due to non-performance of BUYER, including but not limited to a failure of Buyer to pay moneys due or execute all documents necessary to be executed by buyer or completion of the purchase on or before the above named closing date, all deposit funds paid prior to closing shall be retained by the SELLER and BROKERS as liquidated and agreed damages and the parties shall be relieved of all obligations under this agreement. After all expenses incurred by the BUYER against the VESSEL have been paid from the sum retained , the sum shall be divided equally
between SELLER ( 50% ) and BROKERS (50%), which the BROKERS shall divide in the same proportions as the commission would have been divided had a sale been consummated.

7. Should the vessel be rejected by the BUYER or the purchase not be consummated by reason of contingencies set forth herein or by destruction of VESSEL for any reason, including an act of God, the deposit shall be returned to the BUYER after all BUYERS expenses incurred have been deducted and
paid, and this agreement shall become null and void. The BUYER and SELLER agree that, should there be a dispute as to the responsibility for the failure of this transaction to be consummated, the BROKERS will act as an Escrow Agent only, and may, at his option, file an interpleader with any court of
appropriate jurisdiction, and deposit said funds into the registry of the court. The BUYER and SELLER further agree that, should the court determine that the BUYER wrongfully prevented the transaction from closing, resulting in forfeiture of the deposit, that the court shall direct payment to the broker of one half of said forfeited amount as provided herein"


The SELLER is also a BROKER WITH THE SAME COMPANY. Should I be concerned? Thanks for any response to this thread.
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Old 08-10-2015, 14:05   #2
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Re: Contract paragraph regarding deposit

Sailgirl58,

The safest thing for the buyer to do is to ask a real lawyer, not a forum.

My gut says something may be fishy there. Something weird about the broker/company relationship, plus I thought escrow is supposed to be with a separate institution, to protect the buyer.

Ann
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Old 08-10-2015, 15:04   #3
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Re: Contract paragraph regarding deposit

Doing a quick read this appears, at least superficially to a non lawyer, to be about like the contracts my company used when I was a yacht broker. You didn't include the other details but I assume they cover issues allowing the buyer to reject the vessel without penalty, based on survey, sea trial, etc.

The issue about buyer's expenses is to cover costs that the buyer might incur in the negotiation, like hauling the boat for survey. If the buyer decides to reject the boat based on survey and refuses to pay the yard bill for hauling this point in the contract allows the buyer's deposit to be used to pay that bill so the seller isn't stuck with it. In theory this clause could be used to hold your deposit but not likely unless the company is just plain dishonest.

Regarding the seller being a broker with the same company, well yacht brokers are very often boaters as well. They buy and sell boats like the rest of us. So the seller should list his boat with a competitor if he wants to sell?

I would be more concerned about the reputation of the company than the wording you pointed out. Have they been in business long? What do other customers have to say about them? Have you googled the company name to see if there are any complaints with the BBB?

If you don't already have an offer or agreement pending with the selling broker you can always get your own broker to represent you in the transaction. Normally will not cost you anything as the commission is just split between the selling broker and the buyer's broker. However, if you have already started negotiations with the selling broker, depending on the specifics, it might not be ethical to now introduce another broker into the transaction.
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Old 08-10-2015, 15:49   #4
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Re: Contract paragraph regarding deposit

In answer to your question, such language is uncommon but not unique. If you are concerned, the only objective to be achieved here is to read a bunch of uninformed opinion of no real value on which you should not rely.
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Old 08-10-2015, 16:09   #5
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Re: Contract paragraph regarding deposit

It looks pretty typical to me. At least the way I understand it to read. I would focus on the Right to Reject or Inspection paragraphs also (which we don't have) You want the ability to reject for any reason you want to (even intangible) without loss or being deemed non compliant with the contract.
Also you want the ability to not have to accept repairs in lieu of rejecting the purchase.
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Old 08-10-2015, 17:21   #6
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Re: Contract paragraph regarding deposit

In this market, unless there are competing offers, you have a lot of negotiating leverage. But that leverage goes away the moment you hand over the deposit. I'm assuming that you are a serious buyer with the money and desire to buy this boat.

Ignore any sputtering from the broker -- all contracts can be negotiated. "Standard" is irrelevant. He desperately wants to sell this boat to you because a) you have a pulse, b) you don't have to sell your current boat first, and c) you have no broker of your own picking his pocket for half the commission.

Mark up the contract and explain your concerns to the broker. Be fair about the broker's reasons but if he is unwilling to meet you halfway, how is the rest of the deal going to go? It's a red flag -- walk away.

In this market, it would take a pretty stupid broker to let a deal fall through (along with his commission) over the deposit language in the contract.
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Old 08-10-2015, 17:44   #7
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Re: Contract paragraph regarding deposit

I agree with carlF. Just be sure you can walk away as a result of SeaTrial or inspection. I doubt that is an issue, but ask the broker to explain anything you don't understand.
Oh... and be sure to put an offer expiration date on your offer, or counter offers, in case the broker forgets t!
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Old 09-10-2015, 06:58   #8
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Re: Contract paragraph regarding deposit

First and most important: Internet legal advice is worth exactly what you pay for it... NOTHING!

That said, in plain English, what this is saying is that there are certain contingencies in the contract that allow you to cancel the deal and get your deposit back. If you back out of the deal for any reason that is NOT one of those specific contingencies, then they get to keep your deposit. You will find a clause similar to this (even if not the exact same wording) in almost all purchase contracts.

The key is that you need to be sure that the listed contingencies cover all of the legitimate reasons that you might want to back out. For example, if you have to finance the boat there should be a contingency about being able to acquire financing at reasonable terms. There should ALWAYS be a contingency that says the survey and sea trial must be acceptable, and I would not agree to a contract that didn't leave the definition of "acceptable" entirely up to the buyer's arbitrary discretion.

Again, though, you really should be talking to a lawyer about this, and not a bunch of strangers on an internet forum.

Good luck.
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Old 09-10-2015, 09:16   #9
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Re: Contract paragraph regarding deposit

Hi Sailgirl,

I am a lawyer and work with contracts, albeit for services daily. I agree with everyone here that you get what you pay for on the Internet re legal advice. It would be cheap insurance to buy an hour or two of a local attorney's time to review and advise you on the contract, and to answer your questions. The attorney' loyalty will be to you and to only you, and won't care if the transaction goes through or not. If you pay for an opinion, you can rely on it and have recourse if it is wrong.
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Old 09-10-2015, 10:58   #10
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Re: Contract paragraph regarding deposit

To S/V Illusion and others who post advice here that we should value the advice related to this issueas uninformed, worthless, etc., for the simple reason that it is found here in this forum / on the Internet : You may want to think about the paradoxical content that those statements convey, i.e., that your advice related to this issue, set by your own criteria, is worthless, as well.
Cheers, Pappy
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Old 09-10-2015, 11:18   #11
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Re: Contract paragraph regarding deposit

Quote:
Originally Posted by PappysSailing View Post
To S/V Illusion and others who post advice here that we should value the advice related to this issueas uninformed, worthless, etc., for the simple reason that it is found here in this forum / on the Internet : You may want to think about the paradoxical content that those statements convey, i.e., that your advice related to this issue, set by your own criteria, is worthless, as well.
Cheers, Pappy
No inconsistency between calling LEGAL ADVICE that you don't pay for worthless and the advice re same. Indeed, the opinions and advice on this forum with respect to boats and sailing is generally born of experience and of great value to those of us who are just getting started.
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Old 09-10-2015, 11:21   #12
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Re: Contract paragraph regarding deposit

Quote:
Originally Posted by PappysSailing View Post
To S/V Illusion and others who post advice here that we should value the advice related to this issueas uninformed, worthless, etc., for the simple reason that it is found here...
Well, considering that no one said anything like that, I'm not sure what your point is.

What HAS been said is the very narrow comment that you cannot rely on internet legal advice. And that is absolutely true. None of the posters here are going to stand beside you in court in the event that the deal goes bad. None of them are putting their professional reputations on the line. None of them owe you a fiduciary responsibility. And in the event that any of them gives you advice that is completely wrong and specifically leads you into financial or criminal problems, good luck trying to sue them for malpractice.

There is an absolutely HUGE difference between saying that all the advice you get on the internet is worthless, and saying that you really must not rely on internet legal advice. Not all of the advice you get on the internet is worthless. Indeed, on this forum you will find a lot of very good advice about sailing. But taking legal advice from strangers on an internet sailing forum is NOT a smart thing to do!

Hire a real lawyer. Get real legal advice.
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Old 09-10-2015, 11:26   #13
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Re: Contract paragraph regarding deposit

It just says that, if you don't keep your part of the agreement, you forfeit your deposit. So don't make promises you can't keep, and you'll be OK.
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Old 11-10-2015, 02:46   #14
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Re: Contract paragraph regarding deposit

The wisest advice you have got here is from Deverd0n and Windsurfer. A contract is an agreement between buyer and seller that is enforceable on offer and acceptance. You accept the terms in general and you are bound . If you don't like the terms strike them out and see if the seller/broker will accept your terms. It's all about trust/risk on both sides. These terms don't seem hugely different from real estate protections where one side or another defaults, but the whole contract and conditions/contingencies would have to be considered.
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Old 16-10-2015, 11:02   #15
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Re: Contract paragraph regarding deposit

Agree as Ann says, ask a lawyer as contracts and how that can be enforced vary from country to country. The boats mortgage status, country of registration etc all need consideration.

For whats its worth, loosing any deposit should I feel be final and not as the clause suggests include (in effect) open ended damages.

The other thing to do is research the financials on the broker as you will hand over funds to them. I just did this on one and found the 2014 accounts show they are insolvent by $400,000 and only supported by the directors suggestion they will cover the insolvent position (worth nothing in truth).

So check this and if needed have the contract amended for your lawyer to hold funds in escrow to pay direct to the seller on completion. Broker is paid direct from this escrow account once title transfers and not until, including registration (especially as I read USCG can be an issue if there are old debts, banks folded, etc).

Hope this helps
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