What is a bareboat charter?
A bareboat charter, also called a demise charter, is a contract under which the registered owner transfers full possession and operational control of the vessel to the charterer for a fixed period, against a daily hire. The charterer crews, insures, maintains, and trades the vessel; title remains with the owner.
BIMCO’s BARECON 2017 is the working standard form for bareboat fixtures, with optional Part III used when the charter sits on top of a ship-finance arrangement (bareboat hire purchase) and an additional newbuilding annex when the demise applies to a vessel under construction. The IMO ISM Code governs the safety management responsibility that transfers with possession, and flag-state registration rules (including bareboat-out registers such as the Marshall Islands, Liberia, and Panama secondary registries) determine the operational flag during the demise period. P&I clubs treat the bareboat charterer as the “owner” for insurance purposes once delivered.
A bareboat charter is structurally different from time and voyage chartering. On time and voyage terms the owner retains nautical and technical control through the master and crew. On bareboat terms, the charterer becomes the operator: they appoint the master, hire and pay the crew, fund maintenance and dry-docking, contract for insurance, and accept full liability for the operational use of the vessel.
How a bareboat charter works in practice
The transaction usually originates from one of three scenarios: a shipowner placing tonnage with an operator that has cargo cover but no fleet, a financier delivering a vessel under a hire-purchase arrangement that will eventually transfer title, or a parent company restructuring fleet ownership across subsidiaries. The charterer inspects the vessel, agrees a delivery condition, and takes delivery at a defined place with a survey signed by both sides.
On delivery, the charterer takes the vessel into their own operational structure: they re-flag if required (BARECON 2017 allows for bareboat-out registration during the term), they enter the vessel under their own H&M and P&I cover, they place the crew under their own employment or manning contract, and they assume responsibility for class, ISM, and any regulatory inspections. Hire is paid in advance at agreed intervals, typically monthly. The owner has no further operational role except auditing the charterer’s maintenance and insurance against the charter terms.
The fixture closes at redelivery. The vessel must be returned in the same condition as on delivery, fair wear and tear excepted, with class current and any dry-docking obligations satisfied as the contract requires. Disputes at redelivery centre on condition, outstanding maintenance, and the state of class records.
| Cost or risk axis | Owner exposure | Charterer exposure |
|---|---|---|
| Bunker | None during demise | Charterer pays all bunkers |
| Port costs and disbursements | None | Charterer pays all port costs and agency |
| Canal dues and towage | None | Charterer |
| Off-hire | Limited: total loss or constructive total loss only | Charterer pays hire through routine breakdown and repair |
| Demurrage and laytime | None | Charterer carries any voyage-level laytime exposure |
| Weather and routing | None | Charterer plans and bears all routing risk |
| Cargo claims | Generally none: charterer treated as operator | Charterer liable for cargo as operating owner |
| Crew | None: charterer employs or contracts the crew | Charterer pays wages, manning, training, repatriation |
| Maintenance and class | None during demise | Charterer maintains class, dry-docking, surveys, repairs |
| Insurance (H&M and P&I) | Owner may require named-assured status; underlying mortgage cover may persist | Charterer pays primary H&M and P&I premium |
Bareboat charter vs time charter
The cleanest disambiguation is the demise versus non-demise split. A bareboat charter is a demise: possession passes, the charterer is the operator, and the owner is essentially a financial party for the term. A time charter is non-demise: the owner retains the master, crew, and technical control, and the charterer only directs commercial employment.
| Dimension | Bareboat charter | Time charter | Voyage charter |
|---|---|---|---|
| Who runs the voyage | Charterer as operator | Charterer commercially | Owner |
| Who pays bunker | Charterer | Charterer | Owner |
| Who pays port costs | Charterer | Charterer | Owner |
| Hire or freight basis | USD per day or per month | USD per day | USD per tonne |
| Cargo risk | Charterer as operator | Charterer | Owner |
| Time risk | Charterer for the period | Charterer | Owner |
| Typical duration | 1 to 20 years, or hire-purchase term | 3 to 36 months | Single laden voyage |
| Best for | Operator with cargo but no fleet, ship finance | Programme of lifts, position play | Single discrete movement |
A charterer prefers a bareboat over a period time charter when they have a long-dated cargo program that justifies operating their own vessel without the capital cost of ownership, when they want to control the crew and maintenance discipline (often for high-spec cargoes like specialist chemicals, LNG, or projects), or when the transaction is structured as ship finance with eventual title transfer. An owner prefers bareboat when they want a long-term yield on the asset without operating it, typically passing the vessel through a tonnage-provider structure or a sale-and-leaseback. Time chartering is the right answer when the charterer wants commercial flexibility but does not want crew, technical, or maintenance responsibility.
Risk allocation between owner and charterer
The headline shift in a bareboat charter is that the charterer becomes the operator for the term. Every operational risk that a time-charter owner carries (crewing, technical management, dry-docking, class maintenance, insurance) transfers to the bareboat charterer. Hire continues even when the vessel is under repair or in dry-dock: the off-hire concept that drives time-charter economics is essentially absent. The owner is paid for the asset; the charterer pays for the operation.
The clause that materially controls the risk shift is BARECON 2017 clause 10, the insurance clause. The charterer must place agreed H&M and P&I cover, name the owner and any mortgagee as additional assured, and provide certificates to the owner on a defined cadence. Any lapse in cover is a default. Where the charter sits on top of ship finance, the underlying mortgagee will usually require approval rights over the insurance placement, and the charterer’s flexibility on club choice and cover limits is constrained.
The second clause that matters is the redelivery condition and dry-docking obligation. BARECON 2017 sets out a standard mechanism for the charterer to deliver the vessel back in equivalent condition, with class certificates current and no outstanding deficiencies. On long-dated demises this typically requires the charterer to complete an intermediate or special survey dry-docking during the term, and disputes at redelivery turn on whether the dry-docking was performed to the agreed standard. P&I club guidance on demise liability (Gard, the UK P&I Club, and Steamship Mutual publish charterers-liability material covering the bareboat-charterer-as-operator position) is the working reference for both sides on liability scope during the term.
Worked fixture example
Handysize bareboat, 5-year term with purchase option
- Trade
- Coastal and short-sea dry bulk, regional operator deployment
- Lane
- SE Asia and Australia regional, charterer's discretion
- Vessel size band
- Handysize, 35,000 DWT
- Duration
- 5 years firm, charterer's option to extend 2 + 2
- Delivery
- Q2 2026, dop SE Asia after pre-delivery survey
- Hire rate
- USD 7,200 per day, payable monthly in advance
- Key clauses
- BARECON 2017 Part I and II, clause 10 insurance unamended, bareboat-out registration to Marshall Islands, purchase option at year 5 at agreed schedule
The hire level was structured against the underlying ship-finance economics rather than the spot market. The owner is a leasing entity, the charterer is a regional dry-bulk operator with cargo cover but no balance-sheet appetite for vessel ownership. The hire covers the leasing entity’s funding cost, depreciation, and a margin; the purchase option at year 5 is set against a pre-agreed schedule that mirrors the leasing entity’s book value.
Clause 10 was left unamended. The charterer placed H&M and P&I cover with named-assured status for the owner and the mortgagee, with certificates to be delivered to the owner monthly. The mortgagee retained approval rights over any change in cover or club during the term.
The vessel was bareboat-out registered to the Marshall Islands for the term, with the underlying flag suspended. The charterer’s ISM document of compliance covers the vessel for the demise period, and the master and crew are employed by the charterer’s manning entity. At redelivery the vessel must hold current class with no outstanding recommendations, and one intermediate dry-docking is the charterer’s responsibility during the term.
Common mistakes and misuse
- Underestimating the insurance compliance burden. A bareboat charterer must place primary H&M and P&I cover, name the owner and mortgagee as additional assured, and maintain documentary evidence on a defined cadence. Any lapse is a default and exposes the charterer to acceleration.
- Treating the demise as a glorified long time charter. The off-hire concept is essentially absent: hire continues through repair, dry-docking, and routine breakdown. Charterers who budget on time-charter economics will undershoot the operating envelope.
- Missing the dry-docking obligation. On a 5-year-plus term the charterer is responsible for at least one intermediate survey dry-docking. Failing to plan and fund the dry-dock during the term creates a redelivery dispute.
- Letting the bareboat-out registration drift. Re-flagging to a secondary register requires approval from the underlying flag, the mortgagee, and the P&I club. Operating under the wrong flag is a P&I cover issue and can void claims.
- Confusing the bareboat with a sale and leaseback’s accounting treatment. The two are commercially adjacent but accounting and tax treatment differs by jurisdiction; the operator’s CFO needs to confirm the treatment with their auditor before fixing.
- Skipping the pre-delivery survey. Without an independent on-delivery condition survey there is no baseline to redeliver against, and the redelivery dispute is unwinnable for either side.
When a bareboat charter is the right choice
A bareboat charter is the right instrument when the charterer has long-dated cargo cover that justifies operating their own vessel without owning it, when they want operational control over crewing and maintenance, or when the transaction is structured as ship finance with eventual title transfer. It is the wrong instrument for any charterer that does not have the operational capability to crew, insure, and maintain a vessel: the operating burden is the cost of the optionality.
For operators weighing bareboat against a long-period time charter, the question is whether you want operational control and the cost discipline that comes with it, or whether you want the owner to keep running the ship. A bareboat is also the right structure for tonnage providers, sale-and-leaseback transactions, and parent-to-subsidiary fleet restructuring. The negotiation, structuring, and post-delivery support sit within the broader chartering process; our ship-brokering desk handles bareboat inquiries across dry-bulk size bands.
Scope and what this page does not cover
This page describes the commercial mechanics of a bareboat charter and the demise framework under BARECON 2017. It does not provide clause-by-clause legal drafting, jurisdiction-specific case-law analysis, accounting and tax treatment of operating leases versus finance leases, or specific ship-finance structures. Those questions are for the operator’s legal and accounting advisers.