On August 13, 2018, President Trump signed the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year 2019. The NDAA includes a provision, section 3529, that requires the U.S. Coast Guard to develop a code for U.S.–documented yachts of 300 gross tons or more that is comparable to the Large Yacht Code (LY3) adopted by the U.K. Marine and Coastguard Agency (MCA). The law gives the Coast Guard one year to develop the new code. In the meantime, vessels of 300 gross tons or more that comply with LY3 will be eligible for U.S. documentation.
For decades, owners of yachts of 300 gross tons or more have been effectively shut out of the U.S. flag because these yachts were subject to U.S. Coast Guard inspection as “seagoing motor vessels.” The Coast Guard’s inspection requirements, which were designed for cargo ships and other merchant vessels, were impossible for yachts to meet. As a result, yachts of 300 gross tons or more had to be registered under foreign flags if they operated outside inland waters. Not anymore. The new law specifically exempts compliant yachts from Coast Guard inspection requirements.
There are several caveats. First, under the new law, large yachts cannot carry cargo or passengers for hire, which means they cannot be time-chartered. The law appears to allow bareboat chartering. Second, large yachts must comply with other requirements for U.S. documentation, including citizenship requirements for the yacht’s owner and crew. Finally, owners of large yachts must disclose the identity of the yacht’s beneficial owner to the Coast Guard.
Although the law has changed, we’re awaiting regulatory guidance from the Coast Guard on how the new law will be implemented. We expect opportunities for industry input as the Coast Guard develops the new code.
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