The Baltic and International Maritime Council (BIMCO) has released two standard Quiet Enjoyment Letters (QELs), the first of their kind in the sector.
The QELs will provide a means to ensure that charterers may continue to utilise a ship even if the owner defaults on the financing agreement.
The lender will reportedly deliver the QELs to the charterer to ensure that the charterer, who has a contractual connection with the owner but not with the lender, may continue to ‘quietly enjoy’ the ship in the event of the owner’s default.
In exchange, the charterer makes a variety of commitments, including not cancelling the charter party and continuing to pay amounts owed under the charter party.
The QELs also offer lenders an opportunity to secure their rights, such as appointing a replacement owner in case of a default.
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Nicholas Fell, Chairperson of BIMCO’s Documentary Committee, said: “The two new forms fill a gap in the market where no such standard form is currently available. They are distinct because they are beneficial to charterers, lenders and owners.”
According to BIMCO, the QELs were developed collaboratively by representatives of owners (Wah Kwong and Oldendorff Carriers), charterers (BHP and Noble Resources International), lenders (Danish Ship Finance), leasing institutions (CMB Financial Leasing Co. Ltd.), and legal experts (Linklaters LLP and Holland & Knight LLP).
Catherine Smith, Chairperson of the BIMCO QEL subcommittee, stated: “The objective of the subcommittee in charge of the project was to create a balanced standard that reflects market practice and fairly represents the rights and obligations of all parties.”
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Two variants of the QEL have been created: a standard quiet enjoyment letter signed by the lender and agreed upon by the owner and charterer, and a ‘short form’ version signed just by the lender.
The QELs have been designed for use with bareboat and time charter parties, as well as ship leasing arrangements, and they supplement BIMCO’s current portfolio of term sheets for ship finance and sale and leaseback transactions, which includes the SHIPTERM, SHIPTERM S, and SHIPLEASE term sheets.
