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U.S. cruising license requires bareboat charters

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During the past month, several yachts have advised our office of difficulty in obtaining and/or renewing their cruising license with U.S. Customs and Border Patrol (CBP).

Upon further investigation and various meetings, it was noted that there was a new effort in place for all foreign-flagged yachts visiting the United States. In summary, CBP has discovered that many yachts applying for a cruising license are also conducting charters. A quick Internet search of a particular yacht confirms these suspicions. Combining their Internet search with personal interview, CBP officials may consider the yacht to be engaged in trade and in noncompliance with the license.  

In paragraph 2 on the cruising license, it states, “The license is granted subject to the condition that the yacht named herein shall not engage in trade or violate the laws of the United States in any respect.”

Title 46, United States Code Appendix, section 883 (46 U.S.C. App. 883), often called the Jones Act, provides, in part, that no merchandise shall be transported between points in the United States embraced within the coastwise laws either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States (i.e., a  coastwise-qualified vessel).

Furthermore, section 289 of the code prohibits the transportation of passengers between points in the United States embraced within the coastwise laws, either directly or by way of a foreign port, in a non coastwise-qualified vessel.

It is important to note that for purposes of section 289, a “passenger” is defined as “… any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership or business.” This is especially important for yachts.

Refreshing our memories with the above general guidance, let’s put it into specific wording for yachts. CBP has consistently held that when a yacht is chartered under a bona-fide bareboat charter, the bareboat charterer is treated as the owner of the yacht for the period of the charter.  Because the owners are not considered “passengers” for purposes of the coastwise laws, the charterer is not prohibited from using the yacht during the charter.

In contrast, a yacht chartered under a charter arrangement other than a bareboat charter (e.g., a time or voyage charter) and used in coastwise transportation would be subject to penalties under the coastwise laws. A yacht chartered under a bareboat charter would also be subject to penalties if the bareboat charterer used it in the coastwise trade (e.g., to transport passengers, other than bona fide guests, between coastwise points or entirely within territorial waters).

When CBP reviews a charter arrangement to determine whether it is a bareboat or some other type, the agency has generally expressed one of the following determinations. The nature of a particular charter arrangement is a question of fact to be determined from the circumstances of each case.

Under a bareboat charter, also referred to as a demise charter, the owner relinquishes complete management and control of the yacht to the charterer.  

In comparison, if the owner retains any degree of management or control, however minor, the charter is considered a time or voyage charter. As such, the yacht is deemed to be engaged in trade.

The key issue in the above situations is whether management and control have been completely surrendered by the owner to the charterer. This clear action is required to demonstrate that for the period of the charter, the charterer is in effect the owner.

Although a charter agreement at its face value may appear to be a bareboat charter, the manner in which its details are conducted and the intention of the respective parties to relinquish or to assume complete management and control are also factors to be considered.

The largest issue identified by those yachts that were refused a cruising license dealt with the hiring of crew. If a yacht is under a true bareboat charter, it is the charterer’s responsibility to provide the crew. Many of the yachts that were interviewed by CBP stated that the yacht’s owner retained control over the crew. This is a disqualifying factor for the bareboat charter test. As such, the yachts were considered as commercial vessels, engaged in trade, and not eligible for the cruising license.

While these recent instances appear to be low in number and localized to specific ports, it is highly recommended that all captains and charter brokers review the requirements for a proper bareboat charter. These can be located in Title 46 of the U.S. Code.

Capt. Jake DesVergers is chief surveyor for International Yacht Bureau (IYB). Contact him through www.yachtbureau.org.

 

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