Securing your sale with a contract

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A well-drafted contract can help to secure that all-important sale. Marcel Vaarzon-Morel explains how it is done.

The words ‘Boat Sales Contract’ are often considered as making the sale process more complicated. However, a well-drafted contract should assist the sale process and secure the sale for the broker. You may ask how is this possible? The starting point with all drafting at Vaarzon-Morel Solicitors is to ensure that the final draft meets the brokerage’s practical and legal requirements while being as fair as possible for both parties.

Recently, our firm drafted a sales contract for a large boat brokerage situated on Sydney Harbour. The broker had contacted us seven days before the Sydney International Boat Show, in a panic, hoping we could assist. Three contracts were emailed to our office; one was an example of what was possibly required and the other two were contracts the broker presently relied upon. Not only were these documents badly drafted and deficient but neither could be used in conjunction with each other to fix the broker’s problems.

Fixing the problem wasn’t difficult; while our office is based in Newcastle, we assist clients all over the world. In some cases our work requires travel or simply phone or online communications will give us the required information to get started. Our initial approach is focused on what the client expects and what they can legally expect. It’s important for our clients to understand not only why a well-drafted usable contract is required but also how this occurs and what is involved in achieving the required outcome.

Vaarzon-Morel Solicitors undertakes this process by way of a total review process, initially by reviewing the structure of the business, how business is conducted and even considering the geography of the business that may affect delivery and servicing of warranties in the future. Assisting in this process of understanding is the wealth of marine knowledge in the industry that I have as principal solicitor, having sailed all my life and with 35 marine commercial years under my belt. This means that not only is time saved in preparing and drafting any documents but that the contracts really speak to the needs of the broker. It’s this straightforward approach that results in a truly professional clean-looking document.

Practical requirements

The practical requirements of a contract cover a wide range of considerations starting with the appearance of the document. The layout should be simple and well spaced using a clear font. The numbering should be easy to follow and reference to the meanings of words and other clauses used sparingly so as to minimise the to-ing and fro-ing between pages that can become confusing.

From our perspective the second page, after the cover sheet, should include all the relevant information so the parties can see at a glance the nuts and bolts, followed by the body that describes payment and the workings of the contract in whatever format is required, for example in two columns, double-sided or simply single-sided in a single column.

And finally, any details such as payment plans, inventories or plans are added as annexures to the back of the contract and referenced to from the body of the contract. The benefit of this is that the body never changes and any variable information is contained in the front pages and annexures. Ultimately, the look and feel of the document is one that is easy to read and easy to fill out, and one which looks good to the customer in many ways.

Legal requirements

In essence, what is often misunderstood is that a contract is a conversation and the basic rule of this conversation is that, provided it is legal, the parties can agree to anything. But there is always a ‘however’, and that is the contract’s terms cannot contract out of the statutory rules and must meet certain requirements such as those stipulated in the Contracts Review Act and the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth), known as the ‘ACL’. In essence there are too many rules of this nature to describe. This is where our firm ensures that not only do our contracts reflect the agreements and parties’ expectations but they are also legal and enforceable.

In a worst-case scenario, we found while reviewing our client’s contract that they were openly stating in an annexure, using size 30 font, that ‘no warranties would be honoured or were available’. This statement and effect could have been catastrophic for the business and led to criminal sanctions being brought against the broker. Fortunately we were able to advise him and changes were made before it was too late. It cannot stressed enough the importance of getting the legalese right because the contract is required generally only when things go wrong and it is in this moment that the contract should be as watertight as possible and assist in solving the problem.

The test of fairness

For me this is the deal breaker; you’ve been working hard to capture your client, a process which may have taken months with many phone calls, and finally the test sail is complete. Your clients are attending the office to start the legal process of signing the contract. They are familiar with contracts so it’s agreed that they do not need to take the contract to a lawyer. But this is where the sale can fail if the contract is weighted too much in favour of the broker; that is, it over-protects the broker at the cost of leaving the client completely exposed. Examples of this are numerous but can be as simple as not delivering the vessel or not transferring ownership in a timely manner, despite all payments being made.

The bottom line is that the broker wants to secure payment and the new owner wants to secure the safe purchase of the boat. In fact our recent contract was put to the test with a sophisticated client who reads contracts as part of his job. We were told the client read the contract, stated it was a very fair contract and signed immediately. Our client told us that not only did the contract assist in sealing the deal but it also made the broker appear professional, instilling further confidence in the client that they were dealing with a reputable broker.

While this article has referred to the specific realm of boat sales and brokerages the principles that have been discussed apply to all contractual situations. In essence where a promise is made to do something and money will be paid in consideration of this work a contract should be in place. But not just any contract butchered from the internet. The contract needs to describe what the parties expect.

The key point is while there is a cost in employing a solicitor to draw up a well-drafted contract, the savings and benefits are numerous to the business. The contract should be enforceable in the case of a dispute or, better still, assist the parties to avoid a possible disagreement or at least provide a clear resolution process. Most importantly a fair contract should result in the parties signing the contract without it going backwards and forwards between solicitors in an attempt to fix the inequities in the contract, thereby avoiding additional costs and the delay of payment for the boat or services.

Finally, as a contract is living document, it should be reviewed regularly; if the sale requires a specific contract, at least every two years or in-line with statutory changes.

About the author

Marcel Vaarzon-Morel is the principal at Vaarzon-Morel Solicitors specialising in all marine business, insurance, yacht and shipping contracts, and litigation.

The article was first published in the October-November 2016 issue of Marine Business magazine.

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