FYBA BROKERAGE FORMS UPDATE
The FYBA Purchase and Sale Agreement (PSA) and Listing Agreement forms were recently updated. The key changes to the forms are described below, including a comparison of the new provisions to the old provisions and the reasoning for each change. Most of the changes are not intended to vary the intent of the agreements. Their purpose is to clarify and deal with potential misinterpretations by “heading them off at the pass.”
There also were some very important changes to the PSA designed to strengthen its integrity. The first deals with the situation in which a buyer signs a PSA but never “antes up” the required deposit. Previously, a buyer could generally just “walk away scot-free” but no longer. A provision also was added so that, in the event of litigation, the prevailing party will get its attorney’s fees whereas previously each party to litigation paid its own freight.
Other important changes to the Listing Agreement deal with what happens when a person to whom a broker showed a yacht purchases it after the original listing has expired. In addition, the standard length of a listing was increased to one year.
New Provision: Whether or not the buyer inspects the yacht, he rejects it if he fails to provide timely written notice of acceptance: Although the PSA already provided in paragraph 3 that a buyer rejects the vessel if he doesn’t accept it in writing, it is now absolutely clear that no inspection is required in order for a rejection to occur. The change was made to deal with the potential argument that in order to be able to reject the vessel, a buyer had to inspect it – and if the buyer didn’t inspect, he waived his right to reject.
New Provision: The seller is solely responsible for the broker’s commission: Although this provision is already in paragraph 5 of the Listing Agreement (and is the law even without an agreement), it was added to the PSA because buyers ask the question often enough. Now, a broker can point to paragraph 5 of the PSA and reassure the buyer, since buyers aren’t parties to and don’t see the Listing Agreement.
New Provision: If the vessel is damaged and repaired after acceptance, the buyer now has an explicit right to inspect those repairs: If the vessel is damaged after acceptance, the seller is obligated in paragraph 7 of the PSA to make repairs if they can be made for less than 5 percent of the purchase price and require fewer than 30 days to complete. Previously the PSA did not state the obvious, that a buyer had a right to inspect those repairs (and make an issue out of it if the repairs were not done properly). The update makes it clear that the buyer has the right to inspect such repairs.
New Provision: The seller will retain the buyer’s deposit, notwithstanding any other term in the contract, if the buyer fails to pay the deposit when due or the closing is not consummated due to Buyer’s nonperformance: The PSA already provided in paragraph 8 that the seller will retain the buyer’s deposit if the buyer breaches. But what happened if the breach was not paying the deposit?
The new language includes a hammer. The new approach is as follows: If a buyer signs a contract but doesn’t pay the deposit, he no longer can walk away by saying, “Hey, I had a right to reject by not accepting anyway.” The PSA responds to that type of buyer by saying clearly, “No siree, Bob!”
The message to a buyer is now, “If you are going to sign a contract, you had better be serious, because there is a consequence.” The consequence is that a yacht’s value is affected by an accepted contract, especially when the contract price reflects any reduction from the listing price. And if a buyer plays that game, he is at risk for the amount of the deposit he should have paid.
New Provision: The buyer warrants that he is not relying on any representations by the seller or the broker: Paragraph 10 was revised to make it clear that a buyer warrants he is not relying on any representation made by the seller or the broker. The previous version only included the broker. This change puts an accent on the concept that the sale truly is “as-is” and the buyer can’t rely on anything other than what is in the PSA.
New Provision: The prevailing party in any litigation arising out of the PSA is entitled to expenses, attorney’s fees, and costs for all pretrial, trial, and appellate proceedings: The attorney’s fee provision in paragraph 16 is new to the PSA. The addition of this provision discourages frivolous lawsuits, or parties taking unreasonable positions, because if there is going to be a lawsuit, the losing party will have to pay the costs and attorney’s fees of the prevailing party.
New Provision: All notices are effective upon delivery with proof of delivery retained. Notice is no longer accepted by U.S. mail: The notice provision in paragraph 16 was modernized to conform to today’s business standards. The update removed the option to provide notice by U.S. mail and made notice effective upon delivery with proof of delivery retained. This change was also incorporated into paragraph 16 of the Listing Agreement. This should eliminate arguments about whether or not proper notice was given.
Listing Agreement Updates
New Provision: The term of the listing is now one year and it automatically renews for successive one year periods. After the first year, either party may terminate the Listing Agreement with 30 days’ written notice: Previously either party could terminate the listing after 180 days with 90 days’ written notice. The change to paragraph 9 makes things simpler by extending the time before termination is allowed to one year and shortening the number of days required for written notice of termination.
New Provision: A commission is due to the broker if within six months after the listing ends the seller sells the yacht to any party to which the broker physically showed it. At the seller’s request, the broker must provide a list of persons physically shown the yacht: Previously a commission was due to the broker if within two years of the listing ending the seller sold the yacht to a buyer whom the broker or a sub-broker showed “or provided information”. Also, under the previous version, no commission was due to the broker if the seller relisted and sold the vessel through a different broker.
The update to paragraph 10 of the Listing Agreement significantly changes this provision. The time frame for which the seller is responsible for a commission is tightened and there is a new requirement that the broker must have physically shown the vessel to that buyer. If requested, the broker must give the seller the list of persons to whom it physically showed the yacht – so it’s a very good idea (it should be a requirement of each brokerage house) that every broker keep such list. In addition, the new language provides that a commission is due to the broker even if the seller relists the vessel with a new broker.
Robert Allen Law is located at 1441 Brickell Avenue, Suite 1400, in Miami. Contact the firm at 305.372.3300 or visit RobertAllenLaw.com.
Article Author: Stephanie Klein, Bob Allen & Christopher Anderson