Putting your yacht into charter: what owners should know

Sooner or later, most owners ask the same question: could the yacht earn something while I am not using her? Charter is the usual answer, and for many owners it does help. Income from a few good weeks each season can pay for part of the crew, the berth or the next refit.

But charter is a business, and the yacht becomes a commercial vessel. Owners who expect the boat to pay for itself are usually disappointed. This guide sets out the realities and the questions to settle before the first guest steps aboard.

Why owners charter, and the honest realities

The main reason is cost. A yacht costs money every week of the year, and charter income can offset part of that. A yacht in regular use is also often better maintained, because she must meet the standard guests pay for.

It rarely covers everything. Plan on charter reducing your costs, not removing them. The realities are:

• Wear and tear. Guests use the yacht hard. Upholstery, teak, tenders, toys and machinery all wear faster and need refreshing more often.
• Availability. The best charter weeks are the weeks you would most like to use the boat yourself.
• Fees and commissions. The charter manager, the central agent and the retail broker who finds the client are all paid from the charter fee. Rates vary by company, yacht size and services, so ask for the full breakdown in writing.
• Extra fixed costs. Compliance, safety equipment, charter insurance, marketing and sometimes extra crew cost money before the first booking arrives.
• Uncertain bookings. A yacht new to the market, a crew change or a poor season can mean far fewer weeks than forecast.

Crewed charter or a fleet management programme

There are two quite different routes into charter.

Crewed charter. The model for larger yachts. The yacht keeps her own captain and crew and is marketed to charter brokers by a charter manager or central agent. The owner keeps control and decides which weeks are available.

Bareboat and fleet management programmes. The yacht, typically a production sailing yacht or catamaran, joins a charter company's fleet, often as part of buying a new boat. The company handles bookings, base operations and maintenance, and the owner receives a share of revenue or a fixed return, with limited owner weeks. Terms differ a great deal between companies, so read the contract carefully: how owner weeks are chosen, who pays for repairs, the condition the boat must be returned in, and what happens at the end of the programme.

What the yacht needs to charter legally

A private yacht cannot simply start taking paying guests. Before she charters, she will usually need:

1. Commercial registration or coding. The yacht must be registered and certified for commercial use under her flag. Depending on her size and flag, this means meeting a commercial yacht code, which sets standards for stability, construction, fire safety, crew and manning. The choice of flag affects which code applies, so read our guide to choosing a flag for your yacht.
2. Safety equipment. Commercial rules usually require more than a private yacht carries, such as life-saving and fire equipment for everyone aboard, and regular inspections.
3. Qualified crew. The captain and crew must hold the certificates the flag requires for commercial operation, and the manning must match the yacht's certificates.
4. Licences in each country. Many Mediterranean countries have their own requirements for chartering in their waters, which may include a local charter licence, registration with local authorities or restrictions on where a charter may start and end. The rules differ between Spain, France, Italy, Greece, Croatia and elsewhere, and they change. Check them with your charter manager before you accept bookings for a new area.
5. Charter insurance. A private yacht policy does not normally cover commercial use. You need cover that includes charter operations, guests, crew and third-party liability. Tell your insurer exactly how the yacht will be used.

Working with a charter manager and central agent

The charter manager looks after the yacht's charter business: setting rates and availability, preparing the brochure, keeping the yacht compliant, and advising on crew standards and what guests expect. On larger yachts, this is often the same company that manages the yacht.

The central agent markets the yacht to the network of retail charter brokers, keeps the booking calendar, and coordinates contracts and payments. Retail brokers, who work directly with charter clients, find most of the bookings.

When choosing a manager or central agent, ask:

• Which comparable yachts they manage, and how many weeks those yachts chartered last season.
• How fees and commissions are calculated, and what is included.
• How client money is held, when it reaches you, and how income and costs are reported.

The MYBA charter agreement in general terms

Most crewed charters in the Mediterranean use the MYBA charter agreement, a standard contract that most brokers know well. In general terms, it sets out:

• The charter fee, which covers the use of the yacht and her crew for the agreed period.
• Which running costs the charterer pays on top. Under the most common terms, the charterer pays for items such as fuel, food, drinks, berthing and similar expenses during the charter. These are usually paid through an advance provisioning allowance, a sum paid in advance and accounted for at the end.
• Payment stages and deposits, held by the central agent or a stakeholder until they are released.
• Cruising area, embarkation and disembarkation, the number of guests, and what happens if the charter is cancelled or the yacht cannot perform.

Read it with your charter manager before your first season.

Pricing and seasons

Charter rates depend on the yacht's size, age, condition, crew, equipment and location, and on what similar yachts are asking. Most yachts quote different weekly rates for high and low season; in the Mediterranean, July and August are usually the most in demand. Ask your charter manager to show you rates for comparable yachts. A rate set too high leaves weeks empty; one set too low cheapens the yacht.

Owner's use

Agree your own weeks before the season is marketed, and keep to them. Changing plans later damages relations with brokers. The yacht also needs time between charters for cleaning and crew rest.

Tax and VAT

VAT on charter fees, the yacht's own VAT status, income tax on charter revenue and the structure that owns the yacht all depend on your residence, the flag, where the charters take place and how the business is set up. This is a topic for specialist tax and maritime advisers, and it is best settled before the first charter, not after.

How charter affects resale

A charter history cuts both ways. Buyers may worry about wear and engine hours. But a well-run charter yacht often has a full maintenance record, current commercial certificates and a documented income history, which matter to buyers who want to keep chartering. Keep every invoice, survey and log. When the time comes, our guide on how to sell your yacht covers preparing her for market.

Before you decide

Build a realistic budget first. Our guide to the true cost of owning a yacht helps you see your running costs clearly. Then ask a charter manager for a cautious forecast as well as a hopeful one, and decide whether the yacht still makes sense if bookings come in at the low end. The brokerages directory on Yachtxchange lists firms that work in charter as well as sales.

This article is general information, not legal, tax or financial advice. Charter rules, licences and tax treatment vary by country and flag and change over time; take advice from qualified advisers for your own situation.