A boat-hire company in Saint-Martin financed a catamaran through a finance lease (crédit-bail). After a poor season, it is three rentals in arrears. The lessor terminates, demands the return of the boat and the rentals due, and claims compensation equal to all the rentals yet to fall due.
Who owns the yacht, and why it is decisive
Under a finance lease, the lessor buys the yacht in order to lease it and remains its owner until the purchase option is exercised (Article L. 313-7 of the French Monetary and Financial Code). The lessee operates, insures and maintains the boat, but may neither sell nor encumber it. The lessor’s ownership explains the strength of its position in the event of non-payment.
Termination and its consequences
The contracts contain a termination clause: once a formal notice (mise en demeure) has gone unheeded, termination takes effect. The lessee must return the yacht, pay the rentals due and, often, a termination indemnity calculated on the rentals yet to fall due and the residual value, less the resale price of the boat.
This indemnity is in the nature of a penalty clause. The court may reduce it if it is manifestly excessive (Article 1231-5 of the Civil Code). The resale price of the yacht, the lessor’s diligence in selling it and the sums already paid all weigh in the assessment. A boat resold at a knockdown price, without any competitive process, is an argument for the lessee.
If the lessee enters insolvency proceedings
If the operator is placed in reorganisation or liquidation proceedings, the lessor may request the return of the yacht. The owner of an asset is exempted from having its ownership recognised where the contract relating to that asset has been publicly registered (Article L. 624-10 of the French Commercial Code); it must nevertheless request the return of the asset under the procedure laid down by regulation. In the absence of registration, it must bring a claim for recovery within the statutory time limits. The contract may also be continued by the administrator, provided the rentals are paid.
The lessee’s side
Before termination, negotiation remains possible: rescheduling of instalments, restructuring, transfer of the contract to a purchaser with the lessor’s consent. Afterwards, the issue shifts to the amount of the indemnity and the terms on which the boat is resold.
What the firm checks first
- The finance lease, the termination clause and the indemnity.
- The formal notice and the date of termination.
- The value of the yacht and the terms of its resale.
- Public registration of the contract.
- Whether insolvency proceedings have been opened.
For the firm’s involvement, see Yacht purchase, sale and disputes and Maritime law.
Further reading
- Yacht not returned by the skipper or the charterer: recovering the vessel
- Yacht management agreement: obtaining accounts and changing manager
- Shipowner in reorganisation or liquidation: filing a claim and what becomes of the vessel
Frequently asked questions
Can the lessor claim all the rentals remaining to run?
The termination indemnity is a penalty clause which the court may reduce if it is manifestly excessive (Article 1231-5 of the Civil Code).
Does the yacht form part of the lessee’s assets in liquidation?
No, the lessor remains its owner. If the contract was registered, the lessor is exempted from having its ownership recognised (Article L. 624-10 of the Commercial Code), but must request the return of the yacht.
Is the resale price deducted from the indemnity?
Contracts generally so provide; the terms of the resale are examined in the event of a dispute.