F04a.

1b Nature of a time charter

* A time charter -
- is a contract for the hire of a named vessel for a specified period of time.
- may be thought of as equivalent to the hire of a chauffeur-driven car (the ship’s crew being “the chauffeur”).
* The charterers agree to hire from the shipowner a named vessel, of specified technical characteristics, for an agreed
period of time, for the charterer’s purposes subject to agreed restrictions. The hire period may be the duration of
one voyage (a “trip charter”) or anything up to several years (“period charter”).
* The shipowner is responsible for vessel’s running expenses, i.e. manning, repairs and maintenance, stores,
master’s and crew’s wages, hull and machinery insurance, etc. He operates the vessel technically, but not
commercially. The owners bear no cargo-handling expenses and do not normally appoint stevedores.
* The charterers are responsible for the commercial employment of the vessel, bunker fuel purchase and insurance,
port and canal dues (including pilotage, towage, linesmen, etc.), and all loading/stowing/trimming/discharging
arrangements and costs. They direct the ship’s commercial operations, but not her daily running and maintenance.
The charterers normally appoint stevedores and nominate agents.
* There may be an agreement between the parties for an extra payment (of perhaps several hundred US$) to be made
by the charterers each time the ship’s crew sweep and/or wash down the holds of a dry cargo ship.
* A Directions and Logs Clause requires the charterers to provide the master with all instructions and sailing
directions, and the master and chief engineer to keep full and correct logs accessible to the charterers or their agents,
so that they can monitor the vessel’s efficiency. Stevedoring damage notification forms, and log extracts (or
“abstracts”) will usually be required to be sent to the charterers.
* Time charterers are normally allowed to fly their own house flag and, at their own expense, paint their own colours
on the funnel and/or sides.

F04a.1c Nature of a bareboat charter and lease arrangement

* A bareboat charter (sometimes called a charter by demise or demise charter, particularly by lawyers) –
- is a contract for the hire of a vessel for an agreed period during which the charterers acquire most of the rights
of the owners.
- may be thought of as the marine equivalent of a long-term vehicle lease contract.
- is most usually on the BARECON 89 charter party form.
- is used by owners such as banks and finance houses who are not prepared to operate or manage ships
themselves.
- is often hinged to a management agreement. (e.g. where an oil company bareboat charters a tanker from an
independent tanker owner but agrees that the owners will manage the ship on the oil company’s behalf during
the charter period).
- may be hinged to a purchase option after expiry of the charter or during the hire period. (Hire payments may
include instalments of the purchase price, and transfer of ownership may follow the final instalment. Many
permutations are possible.)
* In essence the vessel owners put the vessel (without any crew) at the complete disposal of the charterers and pay the
capital costs, but (usually) no other costs. The charterers have commercial and technical responsibility for the vessel,
and pay all costs except capital costs.
* The “BARECON A” form, under which the owners bear responsibility for insurance premiums, was designed by
BIMCO for short-period chartering (e.g. the summer hire of a passenger vessel).
* The “BARECON B” form was designed as a long-period, financial type of contract, mainly for newbuildings
although it can be modified for second-hand tonnage. The charterers are responsible for insurance premiums.
* “BARECON 89” is an amalgamation of the “BARECON A” and “B” forms designed to reflect the growing use of
bareboat charter registration. Part I contains the familiar BIMCO-style boxed details. Part II contains the standard
clauses. Part III contains provisions applicable to newbuilding vessels. Part IV contains a hire-purchase agreement.
Part V contains provisions to apply for vessels registered in a bareboat charter registry.
* A lease arrangement is a means of financing the acquisition of a vessel that utilises a bareboat charter party as the
vehicle for the loan repayment agreement. It is used as an alternative to a traditional ship mortgaging arrangement.
The “sharing” of tax benefits available to the owner and charterer is sometimes the main purpose of a lease
arrangement. In a typical lease arrangement, the lessee or borrower already owns a vessel or has contracted a
newbuilding from a shipyard. On entering into the lease agreement, ownership of the vessel is formally transferred
to the lessor or lender, who then becomes the registered owner. The lessor then charters the vessel to the borrower
on the terms of a bareboat charter party. The lessor retains ownership of the vessel for a (usually) lengthy period,
following which ownership may pass to the lessee/charterer. The charter hire payments cover the instalments of a
loan that represents the finance required to acquire the vessel. The lender’s tax benefits, which stem from ownership
of the vessel, are passed on to the lessee/charterer by way of reduced charter hire payments. A vast set of financial
documents is required in addition to the bareboat charter party. Some of the terms of the bareboat charter party are
designed to protect the lessor/charterer against the risks and liabilities normally associated with ownership of a
vessel.