| S N S / Yachting Italy |
Non-Refundable Deposits
in Yacht Construction LOIs

Down payment or earnest money? Legal perspective and arbitral practice
 

In yacht-construction deals, it is common for the Letter of Intent (LOI) to include a non-refundable deposit, paid by the prospective buyer to the shipyard.
 

This clause serves to:
• Demonstrate commitment,
• Cover design and material reservation costs,
• Mitigate risks during lengthy negotiations.
 

Legal issues
• Caparra confirmatoria (Art. 1385 Italian Civil Code) → retained by the builder in case of buyer’s default.
• Caparra penitenziale (Art. 1386) → allows withdrawal, with forfeiture of the deposit.
• Down payment → refundable if no final contract is signed.
 

What matters is the substance of the LOI: if it includes price, specifications, and payment schedule, it may be binding even if labelled “subject to contract.”
 

Arbitration case study
 

In a dispute over a 70-metre superyacht, the buyer claimed the LOI was non-binding and demanded a refund.
 

The arbitral tribunal, applying Italian law, ruled that the LOI was binding and the shipyard could retain the deposit as caparra confirmatoria.
 

Practical takeaways
1. Clearly define the nature of the deposit in the LOI.
2. Avoid contradictions between “non-binding” language and detailed obligations.
3. Agree on arbitration or jurisdiction to reduce uncertainty.
 

In yachting, non-refundable deposits are not details: they can decide multimillion disputes. A carefully drafted LOI is the best preventive protection.
 

Contact | S N S / Yachting | for more details and info.