Ask a Maritime Attorney: What do I need to know about starting a chartering business?

Question:

            I own a 50-foot sailing yacht and I would like to start a charter business.  Our home port is Marina Del Rey, California and we would offer the boat for harbor cruises and for overnight trips to Catalina.  What legal issues should I be concerned about before I get started?

Answer

A new charter business will need to address a lot of issues. Marina restrictions, passenger parking, liquor licenses, and a hundred other details must be considered.  But the important legal issues can probably be divided into four main categories: The boat, the operator, city permits, and insurance.

Your first legal issue concerns the construction of the boat. The United States is one of many nations that protect its domestic transportation industries through “cabotage” laws. These laws require the transportation of passengers or cargo between U.S. ports to be performed aboard “U.S. flagged” vessels (vessels registered under the laws of the United States), and U.S.-built vessels.

Many sailing yachts in the 50-foot range in this country are foreign-built. A foreign-built vessel may not legally carry passengers for hire in this country unless the owner obtains a waiver of the restriction, or the operation is structured in a way that avoids the restriction through a “bareboat” charter (discussed below).  Information regarding a waiver of the U.S. construction requirement is available on the internet web site of the United States Maritime Administration https://www.maritime.dot.gov/ports/domestic-shipping/small-vessel-waiver-program

If your boat is U.S. built or has a waiver, and it is 100 gross tons or less, you may carry up to six paying passengers (the limit is increased to 12 passengers for vessels over 100 gross tons) without the need for Coast Guard inspection. These are often referred to as “six-pack” or “twelve-pack” charters. A Coast Guard Certificate of Inspection will allow the carriage of more passengers, but compliance with the Coast Guard’s inspection standards is very expensive and conversion of an existing boat to an inspected boat is usually cost-prohibitive. Coast Guard inspection for passenger service also usually requires the assistance of an experienced marine architect and it should not be confused with the courtesy inspections conducted by the Coast Guard Auxiliary.

The next issue involves the operator of the vessel. The master of any vessel that carries passengers for hire must be licensed by the Coast Guard as a Captain, for the class of service in which the boat is operating. Further, since our reader is interested in operating overnight charters, the Coast Guard may require an additional licensed crew person to be aboard if the vessel will be underway for extended periods. Contact the Coast Guard’s local Marine Safety Office for information specific to your proposed operation.

Next, you will need to comply with local regulations for the harbor in which you will be boarding passengers. Many harbors charge a boarding tax for each paying passenger. Our reader is interested in running his operation out of Marina Del Rey, and he must therefore comply with a unique set of regulations established by Los Angeles County. The County has a handout that provides a good overview of the process that can be downloaded at https://file.lacounty.gov/SDSInter/dbh/docs/1028395_CharterBusinessHandout.pdf

And finally, our reader must consider the boat’s insurance policy and other forms of liability protection.  Talk to your marine insurance broker about a charter policy. At a minimum, the policy must include an endorsement for the commercial operation of the vessel (most standard marine insurance policies exclude or limit coverage for these operations). The policy must also provide coverage for claims made by passengers, and “Jones Act” coverage for claims made by members of the crew. You may also want to consider corporate ownership of the boat as an additional level of liability protection, though this may give rise to other legal issues.

Some of the Coast Guard requirements may be avoided through a “bareboat charter” structure. A bareboat charter basically transfers ownership of the boat to the charterer during the term of the charter, but this brings a host of other restrictions, including a requirement that the charterer must select his or her own captain and crew.

These are a few of the basic legal concerns that must be considered by a boat owner who is considering a charter operation, but there are other issues to consider. For example, the charter market in Southern California is extremely competitive.  The existing charter boat operators in any harbor are likely to scrutinize new operators who may be tempted to use a few “shortcuts” to get their business off the ground. Do your homework and hire an attorney who is experienced with these issues.

David Weil is licensed to practice law in the state of California and as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.

David Weil is the managing attorney at Weil & Associates (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com,  or via email at [email protected].