Coast Guard Clarifies Requirements for Foreign-Flagged Yachts

On November 18, 2015, the United States Coast Guard published a policy letter titled “Guidance on Port State Control Examinations for Foreign Flagged Yachts.” Many yacht owners are concerned about this policy letter’s implications for operating their foreign-flagged yachts in the United States. What was the reason behind this policy letter, and what does it mean for yacht owners?

Under federal law, certain categories of vessels are subject to inspection by the Coast Guard. These inspection requirements apply to both U.S. and foreign-flagged vessels. Although standards for vessel construction, safety, and equipment are primarily determined by a vessel’s flag state, port states have the right to enforce standards on vessels entering their waters. Among the vessels subject to Coast Guard inspection are “seagoing motor vessels,” which are vessels of at least 300 gross tons that make voyages beyond the “boundary line,” an imaginary line that divides internal from offshore waters. Foreign-flagged yachts of 300 gross tons or more meet this definition and are therefore subject to inspection under federal law.

Unlike many other jurisdictions, the United States has never adopted a set of vessel regulations specifically designed for large yachts, such as the Maritime and Coastguard Agency’s Large Commercial Yacht Code (LY3). As a result, in the United States, the vessel regulations that would apply to large yachts are the same ones that apply to merchant vessels. Because these regulations were not designed for yachts and include, among other things, standards related to vessel construction, as a practical matter, it is almost impossible for large yachts to meet these regulations. For this reason, almost no large yachts are documented under the laws of the United States.

As an alternative to meeting Coast Guard inspection requirements, foreign-flagged vessels may obtain a certificate from their flag state evidencing compliance with the International Convention for the Safety of Life at Sea (SOLAS). While large yachts of 500 gross tons or more may obtain SOLAS certificates, many flag states will not issue these certificates for vessels of less than 500 gross tons. As a result, before the November 18 policy letter, foreign-flagged yachts of at least 300 gross tons, but less than 500 gross tons, occupied a sort of twilight zone, too large to avoid inspection but too small to obtain equivalent certificates. For this reason, for many years, the Coast Guard declined to enforce inspection requirements for such yachts.

The policy letter represents the Coast Guard’s effort to reconcile the letter of the law with the reality of large yacht registration. Specifically, the policy letter says when the Coast Guard will accept flag-state certificates in place of an inspection and what certificates they will accept. The requirements depend on whether a yacht is engaged in trade, the number of passengers, and tonnage. “Engaged in trade” means that a yacht carries at least one paying passenger, such as a time charterer, and does not include yachts under a valid bareboat charter.

The specific requirements are as follows: Yachts of any tonnage that are engaged in trade and carrying more than twelve passengers must hold a valid Passenger Ship Safety Certificate. Because this certificate requires full SOLAS compliance, it will be almost impossible for most yachts to obtain. For yachts engaged in trade carrying twelve or fewer passengers, the requirements depend on the yacht’s tonnage. Yachts of 500 gross tons or more must hold a valid Cargo Ship Safety Equipment or Cargo Ship Safety Certificate.

Yachts of at least 300 gross tons, but less than 500 gross tons, must hold a valid Cargo Ship Safety Equipment or Cargo Ship Safety Certificate, if available from the yacht’s flag state, or, alternatively, a certificate of compliance with a large yacht code, such as LY3. In any case, the requirements related to yachts engaged in trade are unlikely to pose a challenge because foreign-flagged yachts are generally prohibited by the coastwise laws from engaging in trade; thus, when foreign-flagged yachts carry charter guests, they do so under bareboat charter, which does not constitute an engagement in trade as long as the charter is valid. Yachts of 300 gross tons or more that are not engaged in trade, regardless of the number of passengers, must hold a valid Cargo Ship Safety Equipment or Cargo Ship Safety Certificate, or, alternatively, a certificate of compliance with a large yacht code. In addition, although the Coast Guard is still developing a national policy, for vessels of less than 500 gross tons, which generally cannot obtain a Cargo Ship Safety Equipment or Cargo Ship Safety Certificate, the Coast Guard may also accept other documents or certificates evidencing compliance with flag-state safety standards.

Many foreign-flagged yachts of at least 500 gross tons already carry the required certificates. The November 18 policy letter presents a more significant issue for owners of foreign-flagged yachts of at least 300 gross tons, but less than 500 gross tons. Under the policy letter, these yachts will need to obtain a certificate of compliance with a large yacht code, such as LY3, or some other acceptable evidence of compliance with flag-state safety standards, in order to avoid Coast Guard inspection. However, they do not need to change to a commercial registration if they are not engaged in trade.

David R. Maass is an associate at Alley, Maass, Rogers & Lindsay, P.A., in Palm Beach, where he focuses his practice on yacht transactions. For more information, please email david.maass@amrl.com or call 561.659.1770.