The mystery of finance lease contract

However, in the ship finance leasing arrangement, whether the shipowner negotiates the finance leasing with the lessor after seeing a suitable ship and making initial contact with the other party, or begins to look for the ship after negotiating the financial leasing relationship with the lessor, the ship, including its quality, performance, price and many other details are the contents of the negotiation between the shipowner and the other party, and the lessor usually does not participate in it.

Therefore, in ship finance leasing arrangements, it should not be very likely that either the shipyard selling the new vessel or the seller selling the second-hand vessel will be regarded as the lessor's agent. In addition, if the way of ship finance leasing is to buy the ship from the owner and then lease it to the owner, the so-called problem will no longer exist, because the seller is actually the owner.

3 Relationship between shipowners, shipyards and sellers

Under normal circumstances, the shipowner only has a contractual relationship with the lessor, and has no contractual relationship with the shipyard or the seller. According to the relative principle of contract, shipowners cannot directly claim rights against shipyards or sellers based on contracts.

In other words, the shipowner can neither make claims or claims against the shipowner regarding the quality, performance and functionality of the ship, nor can he make similar claims or claims against the shipyard or the seller, which is obviously quite unfavorable to the shipowner.

The practical solution is: in the case of a new ship, the shipowner can ask the shipyard to provide the warranty directly to himself or allow the lessor to transfer the warranty to the shipowner, so that he can directly claim the warranty from the shipyard. If the leased vessel is a second-hand vessel, the shipowner may require the seller to assure him that the quality, performance and functionality of the vessel are not in question.

In view of the problems in the process of ship construction, the shipowner can participate in the whole process of ship construction as the supervisor, and can put forward claims and claims according to the ship construction contract between the shipyard and the lessor.

The shipowner may also persuade the shipowner to agree to enter into a construction or purchase contract directly with the shipyard or the seller. Since the ownership of the ship will not change, the shipowner should agree to this request. Where English law applies, shipowners should also have the opportunity to assert their rights directly against the shipyard or seller under the Contracts (Rights of Third Parties) Act 1999.

The law applies naturally unless the parties to the contract agree to an exclusion, so all the shipowner needs to do is ask the lessor not to exclude the application of the Contracts (Rights of Third Parties) Act in the contract with the shipyard or the seller.

In practice, the shipowner's claim against the shipyard or the seller is often transferred to the shipowner's side along with the ship, in other words, the shipowner can file a claim against the shipyard or the seller in his own name. In this regard, the 1988 UNIDROIT Convention on International Financial Leasing clearly provides the right of shipowners to claim compensation directly against shipyards or sellers.

4 Delivery of the vessel

Ship delivery here refers to the shipowner delivering the ship to the shipowner. If the ship finance lease involves a new ship, the shipyard usually delivers the ship to the shipowner according to the ship construction contract, which is also the time when the shipowner delivers the ship to the shipowner according to the finance lease contract.

Even if the finance lease is a used ship, the time when the seller delivers the ship to the lessor in accordance with the sale and purchase agreement is usually the time when the lessor delivers the ship to the charterer in accordance with the ship finance lease contract. If the ship finance lease adopts the sale-and-leaseback method, although the ship owner becomes the charterer from the owner, the actual delivery of the ship does not actually occur.

Because the shipowner sells the ship in order to obtain money, the shipowner does not give up possession of the ship. Therefore, the so-called delivery of the ship is actually virtual, and the delivery of the ship under the sale and purchase agreement is carried out at the same time as the delivery of the ship under the financial lease contract.

All the parties need to do is to determine a time point as the delivery time of the ship, the quantity and condition of the fuel oil, lubricating oil and equipment on board, the class of the ship, the class of the ship and the insurance are determined in accordance with the agreed time point, and the corresponding rights and obligations of the parties are also determined in accordance with this time point. Although the shipowner always owns the ship, his status changes from owner to charterer.

5 Lease Term

Although for the lessor, the shorter the lease term, the better, the shorter the lease term means that the lessor is exposed to the risk of the shorter period. On the contrary, the longer the lease term, the greater the risk to the lessor.