Bareboat Charter : Full Guide

Table of Contents

What is a bareboat charter?

It is a contract between a shipowner and a charterer where the shipowner agrees to lease the ship to the charterer without any crew, usually for an extended period of time, for an agreed amount of hire.

The charterers have the possession of the ship and the complete control. They take up management of the ship and operate it, as if they are the owner. They are known as disponent owners.

The charterer thus will take care of almost all the owner’s functions except for the payment of capital costs. The charterer will pay for maintenance and crew costs and will have the commercial and the technical responsibilities.

The actual, registered ownership remains with the owner.

Before the 1970s, bareboat charter was uncommon as there were no standard forms of contract. If at all bareboat charters were made, the companies used forms based on self-modified time charters forms.

These led to problems because of the legal consequences that were not considered when drawing up a form.

The Americans used a private form: “Form 149”, and, during the second world war, they used “Warshipdemise” to requisition ships from owners.

Some oil companies have used their own forms, such as the Shell Oil Company’s “Shell-demise”.

In 1974, BIMCO published two standard forms, called “Barecon ‘A'” and “Barecon ‘B'” which became very popular.

During subsequent years due to changes in the shipping business, certain changes were made in the Barecon standard bareboat charters, which led to the emergence of a new standard bareboat charter from BIMCO.

It is a merger of Barecon A and Barecon B, and the new form is called Barecon 89.
Barecon “A” – A standard-form bareboat charter party used for existing ships, with or without an existing mortgage.
Barecon “B” – A financial type of standard form bareboat charter party used particularly for new building ships financed by a mortgage.
Barecon 89 – A Barecon A and Barecon B union with alternative provisions applying to newbuilding ships only. The latest edition of this contract is Barecon 2017.

When do the owners prefer bareboat charter?

1) During the period when the cost of building new ships is very high, to meet their immediate requirements. Shipowners may prefer to defer ordering new tonnage and, in that case, may resort to chartering suitable tonnage on a bareboat basis.

2) At times, due to any accidents to their own ships, the shipowners may also necessitate the chartering of suitable ships on a bareboat basis.

3) To avoid tax, sometimes a second-hand sale is masked as a bareboat charter with an option to buy.

4) For many reasons, like various maritime policies, it may lead to the growing use of bareboat charter, despite many different problems that may arise with respect to the nationality of the ship, manning rules, etc.

When do the owners not prefer bareboat charter?

Unless the owners are well satisfied with the general experience and management of the charterers, the shipowners may not readily agree to let their ships on a bareboat basis because they then relinquish the management and control to charterers, thereby increasing the possibility of financial liabilities.

Why may bareboat chartering often be described as a kind of ship financing rather than as a genuine charter agreement?

Bareboat chartering may often be described as a kind of ship financing rather than as a genuine charter agreement; one of the reasons is that the owner has surplus capital to invest, whereas the charterer, lacking such capital, has need for the vessel in his fleet.

Such “financing bareboat” is a form of “financial leasing”, a modern type of financing based on a three-party relation between the seller, financer, and “charterer” (buyer), where the charterer ordinarily becomes the owner after the expiration of the charter.

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