Safely Navigating Exclusions in IYBA’s Listing and Purchase and Sale Agreements
By Adrian Karborani and Bob Allen, Robert Allen Law
Yacht transactions can be complicated. That’s why the IYBA has made a real effort to speed up and simplify the process, fairly balancing the rights of buyers and sellers in transactions, while keeping in mind the protection of its members – you, the brokers. The IYBA has considered the most common issues that arise during yacht transactions and has built in procedures to resolve them in the standard IYBA Listing Agreement (“Listing Agreement”) and Purchase and Sale Agreement (“PSA”).
While these agreements cover many topics, this article focuses on two subjects generally referred to as “Exclusions” – excluded customers and excluded items. In other words, customers that are outside a Listing Agreement and items that are not included in a sale.
It’s important to realize that the Listing Agreement is not just a formality between a broker and yacht owner. It’s an extremely useful tool with procedures to help deter potential commission disputes and help keep sellers, buyers, and brokers happy.
Who is excluded?
The first topic, excluded customers, is by far the most important of the “Exclusions” to brokers since it’s about your commission. To understand how the Listing Agreement handles this subject, consider this common fact situation. Broker 1 had the listing for twelve months and showed the yacht to three potential buyers. Unhappy with Broker 1, the yacht owner engages Broker 2 when the original Listing Agreement expires. Within six months, Broker 2 unknowingly sells the yacht to one of the potential buyers that Broker 1 showed the yacht to. The question then becomes – who is entitled to the commission?
The Listing Agreement answers this question clearly. If Broker 1’s prospective customer buys the yacht within six months after the Listing Agreement expires, the yacht owner is required to pay the commission to Broker 1. But not always. Why? Because, as explained below, Broker 1 can make a mistake and lose its entitlement to that commission.
The Listing Agreement also provides that when a listing changes hands, upon the request of the yacht owner or Broker 2, Broker 1 must provide, within five business days of the request, a list of all potential buyers that Broker 1 physically showed the yacht to. If any potential buyers are not listed, or if the list is not provided within the five (5) business days, Broker 1 loses any claim to a commission for those buyers. In other words, when you lose a listing, you have to be really, really, really careful.
You may be wondering how Broker 1 can avoid this situation and avoid being in a rush to provide a list of customers or lose a commission simply because it didn’t answer a request for a list within five business days – maybe the broker was away on vacation and didn’t check emails. The easiest way for a broker who loses a listing to protect itself is to send a “Thank You” card to the yacht owner and attach a list of the prospective buyers the broker showed the yacht to. Maybe (or maybe not) include a “friendly” reminder about being entitled to a commission if any of the potential buyers the yacht was shown to end up buying it.
What is excluded?
The next category of Exclusions is what is called the “Exclusion List.” That list covers items that are not included in the sale of the yacht. To simplify deals, the Listing Agreement states that everything on the yacht is included unless it is listed on the Exclusion List. This means that the yacht owner’s Picasso, Harley, and jet skis go with the yacht, unless they are on the Exclusion List – which is conveniently on the last page of the Listing Agreement. Space is somewhat limited there, so if your yacht owner has a lengthy list you may want to consider attaching an addendum.
But what happens if, after the buyer and seller sign the PSA, the seller, or worse, the broker, forgot to list something on the Exclusion List? That scenario is covered by the PSA. Basically, the seller has another chance to exclude the item from the sale. So, if an item should have been excluded and is not listed on the Exclusion List (or on the actual boat listing), the yacht owner has five days from the date both parties sign the PSA to deliver a list of excluded items. In other words, the seller gets a second chance. Even if you and the yacht owner included a list of exclusions in the listing agreement, you should make sure that the yacht owner timely provides the Exclusion List so the buyer cannot claim that everything in the yacht is included.
At that point, the buyer can choose to either accept or reject the list. However, if the buyer rejects the list that means the buyer rejects the entire agreement – and there is no deal! So before suggesting adding an excluded item, make sure you inform the yacht owner of the potential risk of the deal falling apart.
In summary, the IYBA Listing Agreement and PSA work in harmony to help protect sellers, buyers and even brokers. The agreements not only help simplify and streamline yacht transactions, but they include procedures to avoid and resolve potential disputes. Whenever possible, make sure you use the IYBA’s Listing Agreement and PSA in your deals.
This information is provided for informational purposes only and does not constitute legal advice. Please contact your attorney regarding your specific legal concerns.
Adrian Karborani is a law clerk at Robert Allen Law and is in his third year of law school at Florida International University College of Law. Bob Allen is Bob Allen. 😉 To contact any of the attorneys at Robert Allen Law, please visit www.robertallenlaw.com or call 305-372-3300.