“Sold as seen” – a phrase that is ubiquitous in the yacht trade. But does it really protect sellers from warranty claims? A look at the legal pitfalls shows that this is not always the case.
There are currently many yachts on the market. Sellers are not just looking for buyers; they are also trying to secure the best possible contractual terms for themselves. This is not always easy in a buyer’s market. Reason enough to take a closer look at the most common contractual clauses.
What the German Civil Code (BGB) stipulates regarding the sale of yachts
In principle, the same rules apply to the sale of a yacht as to the sale of other movable property: unless otherwise agreed, the provisions of the German Civil Code (BGB) governing sales contracts apply. According to these provisions, if a defect exists at the time of the transfer of risk, the buyer is entitled to subsequent performance. The seller must therefore either repair the defect or supply a defect-free item. Alternatively, the buyer may withdraw from the contract of sale or reduce the purchase price. In addition, if the buyer suffers loss as a result of the defect, they may claim damages.
It goes without saying that sellers wish to avoid the organisational and financial burden involved in such subsequent performance under a contract of sale – particularly as the statutory warranty period for material defects is two years. Against this background, every seller has an interest in excluding their liability or limiting it as far as possible.
Not every seller can exclude the warranty
Before a seller sets about drafting and negotiating the relevant contractual clause, they must check whether they can, in fact, validly exclude or limit claims at all. Not every seller is able to do so. What matters is not only whether the seller is a private individual or a business, but also who the buyer is.
In principle, a private seller may exclude warranty rights in their entirety. A trader cannot do so. They are subject to the restrictions set out in Section 476 of the German Civil Code (BGB). According to this provision, a trader cannot exclude the right to specific performance, the right of withdrawal or the right to a price reduction – at least not when they enter into a contract of sale with a consumer.
When does a legal entity become an entrepreneur?
But who is an entrepreneur? According to the relevant European Directive, which forms the basis for the corresponding provision in the German Civil Code (BGB), an entrepreneur is ‘any natural or legal person […] who […] acts for purposes falling within the scope of their commercial, business, craft or professional activities’. The term ‘entrepreneur’ encompasses, for example, a shipyard or a yacht dealer, as these entities sell yachts on a commercial and/or business basis. Less clear is the answer to the question of whether, and if so under what conditions, a legal person that owns only one yacht qualifies as an entrepreneur. The only thing that seems clear in this regard is that a legal entity is not a consumer. This is because consumers are exclusively natural persons.
However, this does not mean, by implication, that all legal entities are entrepreneurs. Rather, the term ‘entrepreneur’ covers only those legal entities which, when entering into a legal transaction, are acting in the course of their commercial or self-employed professional activities. In this respect, a distinction must be made: legal entities whose primary purpose is to hold a specific asset as a holding company, which is used exclusively for private purposes by its beneficial owner, do not fall within the definition of an entrepreneur. This is because the mere management of assets does not constitute the pursuit of a commercial activity.
The situation is different in the case of legal entities whose assets are used for commercial purposes. If, for example, the yacht is chartered out with the intention of making a profit, the legal entity that owns the yacht may be classified as a trader. Sellers who fall into this category cannot, therefore, simply agree to valid exclusions of liability for material defects, at least not if the buyer is a consumer. Now to the clause typically used: sales contracts often state: ‘Sold as is’ or ‘sold as viewed’. Sometimes the phrase ‘to the exclusion of any warranty rights’ is also added. This addition is intended to make it clear that, once the contract of sale has been concluded, the buyer cannot assert any further claims against the seller on the grounds of defects in the yacht.
In fact, the vast majority of sales contracts for second-hand yachts are drawn up using this clause or one worded in a similar way. In practice, this means that a buyer has the yacht for sale thoroughly inspected, usually with the assistance of experts, to check for any defects.
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If the buyer or their expert negligently fails to detect a defect which they could have identified had they carried out a thorough inspection, they may nevertheless not assert any warranty claims, as a correctly worded clause excludes the right to subsequent performance and thus precludes the obligation to repair or provide subsequent performance, as well as the possibility of rescission and claiming damages.
Four cases in which the exclusion of liability does not apply
But be careful! Sellers do not always succeed in agreeing a legally valid, comprehensive disclaimer of liability. There are many reasons for this.
Contradictory information in the contract
The initial risk stems from errors in the wording. Sellers often include a disclaimer of liability in one part of the contract, whilst in another part they guarantee certain characteristics or provide details regarding the yacht’s condition. If these turn out to be factually incorrect, the disclaimer of liability does not apply in respect of the statements made.
Pre-formulated clauses and the review of general terms and conditions
Caution is also advised when using pre-formulated contract clauses. This is because their use may lead courts to subject the contractual terms to a substantive review under the law governing standard terms and conditions. Provisions that are unreasonably one-sided or surprising are typically deemed invalid by the courts if they are unclear or lack transparency and deviate from the fundamental principles of the statutory provisions.
Fraudulent misrepresentation sets aside the exclusion
In cases where a seller is aware, even before the conclusion of the contract of sale, that the yacht has a defect, but fails to disclose this defect to the buyer or conceals it when asked, the legal position is clear: The exclusion of liability in respect of the concealed defect is invalid on the grounds of fraudulent misrepresentation (Section 444 of the German Civil Code (BGB)). This also applies where the misrepresentation is made to an expert. Sellers should therefore always bear in mind that a valid exclusion of liability can only be achieved if all known defects are disclosed openly and in full.
Defects that arise after the inspection
Finally, it should be noted that, logically speaking, the ‘sold as seen’ clause can only apply to defects that were present at the time the contract of sale was concluded or at the time of the inspection. Should defects arise in the period between the conclusion of the contract/inspection and the handover of the yacht, the buyer would not have been able to identify them at the time the contract of sale was concluded. Accordingly, the contractually agreed exclusion of liability does not apply to these defects in any case, meaning that liability for defects remains in this instance as well.
In summary, it can be said that an effective disclaimer of liability must not only be correctly worded, but also properly implemented. This is because both factually incorrect statements and the failure to disclose known defects mean that a seller cannot rely on a clause excluding liability – and may even risk facing claims for damages from the buyer.
Experts in all aspects of yacht law
The yacht lawyers Dr Tim Schommer (tim.schommer@clydeco.com) and Dr Volker Lücke (volker.luecke@clydeco.com) have been handling yacht-related matters for clients in Germany and abroad for over 18 years. They provide advice on the planning and construction phases, buying and selling, ownership structures, yacht operations – including insurance, crewing and charter – as well as the settlement of claims and third-party claims.