Bareboat Charter: The Complete Guide for Shipowners, Operators and Charterers
Updated: Sep 30
Table of Content
Key Takeaways
Absolute Operational Control: A bareboat (or demise) charter transfers full possession, command, and operational responsibility, including crewing, insurance, and maintenance costs, from the owner to the charterer. Legally, this grants the charterer the status of owner pro hac vice (owner for the time being).
A Core Financial Instrument: In modern practice, bareboat charters function strictly as finance leases. Under accounting standards like IFRS 16 and US GAAP, the charterer must recognize the vessel as a right-of-use asset and the hire payments as a balance sheet liability.
The BARECON 2017 Standard: BIMCO's BARECON 2017 form is the universal contractual backbone for these agreements. Crucially, it includes mechanics like Part V, which facilitates temporary flag-in and flag-out vessel registration during the charter period.
Foundation for Complex Ship Finance: Bareboat fixtures serve as the structural base for advanced maritime financing, including standard Sale-and-Leasebacks, Japanese Operating Leases with Call Options (JOLCO), and the newly developed CSA plus LILO structures.
Emissions Compliance (2026 Update): To address the EU Emissions Trading System (ETS), BIMCO introduced an ETS Allowances Clause in February 2026. This clause allows parties to elect a Responsible Entity; if no election is made, the default responsibility falls to the charterer.
QUICK ANSWER: A bareboat charter, or demise charter, hands the charterer full possession, command and operational control of a vessel for a fixed term: crew, insurance, maintenance and every operating cost become the charterer's, while the owner supplies nothing but the ship. In commercial practice it is less a hire arrangement than a financing instrument, the contractual backbone of sale-and-leaseback deals, JOLCO structures and SPV-based vessel acquisitions, documented almost universally on BIMCO's BARECON 2017 form.
Strip a charter down to its barest possible form and this is what remains: a ship, and nothing else. No crew, no stores, no management, no operational involvement from the owner at all. That is the bareboat charter, and its austerity is exactly what makes it the workhorse of ship finance. Because the owner does nothing, the owner can be anyone, including a bank, a leasing house or a special purpose vehicle whose only asset is the vessel itself. The hire payments stop looking like rent and start looking like loan instalments, which, functionally, they are.
I have spent more than two decades on the commercial side of shipping, and in that time I cannot recall a financed vessel transaction of any sophistication that did not have a bareboat charter somewhere inside it. Understand this one contract and most of modern ship finance opens up. What follows covers the legal mechanics, the BARECON 2017 framework, the three financing structures built on it, the February 2026 BIMCO emissions clause that closed a five-year gap, and the arithmetic of a hire rate, worked through with numbers.
What a Bareboat Charter Actually Is
Under a bareboat charter the owner transfers possession, command and navigation of the ship to the charterer for the agreed period. Everything operational follows the possession: the charterer recruits and pays the crew, buys fuel and stores, arranges hull and machinery cover, P&I entry and FD&D, keeps the vessel in class through drydockings and special surveys, pays every port charge, and trades her as its own.
The law takes that transfer seriously. The controlling American authority is Guzman v. Pichirilo, 369 U.S. 698 (1962), where the US Supreme Court confirmed that a demise charterer stands in the owner's shoes for operational liability: the owner pro hac vice, owner for the time being. The status carries a benefit alongside the burden, because unlike time or voyage charterers, a bareboat charterer generally qualifies as an owner for the purposes of limitation of liability statutes.
Accounting follows the same substance-over-form logic. Under both IFRS 16 and US GAAP a bareboat charter is a finance lease: the charterer recognises the vessel as a right-of-use asset and the hire obligation as a liability on its own balance sheet. Anyone modelling a shipping company's leverage who stops at the bank debt line has missed half the picture.
Bareboat, Time and Voyage Charter: The Working Distinction
The three charter forms sit on a spectrum of control. In a voyage charter the owner performs a defined carriage between ports and never surrenders operational control at all. In a time charter the charterer directs where the ship trades and pays for bunkers, but the owner keeps possession, employs the master and crew and runs technical management. In a bareboat charter possession itself passes.
That last step is why the bareboat form ended up as a financing vehicle rather than a trading arrangement. A financier wants title and security, not a marine operations department. The bareboat structure gives the lessor ownership of the steel while the lessee runs the ship exactly as if it owned her, and the entire global leasing market for vessels rests on that division.
BARECON 2017: The Form Everyone Uses
BIMCO's BARECON has been the global standard since 1974, when it launched as two forms: BARECON A for short-period charters and BARECON B for long-period financial leases. The forms merged in 1989, were revised in 2001, and the current BARECON 2017 edition documents the vast majority of commercial bareboat business.
Its architecture matters in practice. Part I is the box layout holding the fixture's specifics: vessel, period, hire, delivery and redelivery. Part II carries the standard printed clauses on maintenance, insurance, hire, mortgages and redelivery. Part III applies to newbuildings, Part IV contains the hire-purchase provisions, and Part V governs vessels entered in bareboat charter registries.
Part V deserves more attention than it gets, and I say that having watched it become the hinge of real transactions. It is the machinery for flag-in and flag-out: temporarily registering the vessel under the charterer's chosen flag for the charter period while the underlying registration survives. When a ship financed through a Chinese or Japanese leasing house has to fly a flag acceptable to oil-major vetting, Part V is where the deal either works smoothly or generates six weeks of registry correspondence.
Popular bareboat registries include Panama, Liberia, the Marshall Islands and the Cayman Islands, each with its own dues, tax treatment and procedure, and the Philippines runs a well-used bareboat-in programme through MARINA under which a foreign-flagged vessel is treated as Philippine-flagged for the charter's duration without losing her original registry.
One caution I give every operator entering a first BARECON fixture: the form is a template, not a contract. Hire mechanics, off-hire triggers, maintenance scope, redelivery condition and mortgage treatment all get negotiated in the boxes and rider clauses, and the printed words are only the starting position.
The Obligations, and Where the Disputes Live
On paper the split is clean. The owner delivers a seaworthy vessel at the agreed port with valid class certificates and free of undisclosed liens; the delivery survey fixes the benchmark condition. The charterer then carries everything: class, surveys, drydocking, extraordinary repairs, insurance premiums, crew, regulatory compliance under flag and port state, and from 2024 onward, emissions obligations on EU trading.
In practice the disputes cluster at redelivery. The standard requires return in substantially the same condition as delivery, fair wear and tear excepted, and the meaning of fair wear and tear across a ten-year charter has kept London and Singapore arbitrators busy for decades. My advice, formed by watching owners and charterers fight over exactly this, has not changed in twenty years: more money is lost at redelivery over condition than is ever lost over hire.
Document the vessel's condition continuously, commission the independent surveys, and start redelivery planning at least twelve months out, because accumulated class items discovered in the final quarter are the charterer's bill.
Three Financing Structures Built on the Bareboat Form
The sale-and-leaseback is the base case. The owner sells the vessel to a lessor, typically a leasing SPV, and charters her back on a long-term BARECON fixture, often with a purchase option at expiry. The operator's business continues unchanged; the balance sheet and the title do not.
The Japanese Operating Lease with Call Option, the JOLCO, layers tax equity on top. Japanese individual and corporate participants seeking depreciation benefits fund a portion of the acquisition cost, an SPV holds title under a convenient flag, and the operating company charters the ship on hell-and-high-water terms: hire flows regardless of operational circumstances, which is what the Japanese equity is buying. The call option, the right but not the obligation to purchase at lease end, completes the structure. In the JOLCO documentation I have reviewed over the years, the recurring feature that surprises newcomers is how much legal weight the supporting undertakings carry; the charter party is only one document in a thick stack, and reading it in isolation misleads.
The newest arrival is the CSA plus LILO structure developed by Watson Farley & Williams, published in October 2025 and covered by Lloyd's List in February 2026. The problem it solves is real: some owners resist transferring registered title in a conventional sale-and-leaseback, and some lessors have grown wary of holding title at all, given sanctions exposure, port-fee regimes such as the US-China reciprocal fees in force since October 2025, and routine entanglement in P&I claims. The mechanics run through two stacked charters. The operator's Shipping SPV bareboat charters the vessel to the Leasing SPV under Bareboat Charter 1, passing possessory rights to the financier; the Leasing SPV immediately charters her back under Bareboat Charter 2, which is the familiar finance lease. The operator remains registered owner throughout, which simplifies oil-major vetting and keeps the lessor out of the operational firing line.
Honesty requires the other side of that ledger, and WFW's own paper states it: in a conventional sale-and-leaseback the lessor owns the ship and is protected as owner if the operator becomes insolvent, whereas in a CSA plus LILO the lessor is not the owner and relies on its mortgage as a secured creditor. The structure trades insolvency protection for operational insulation. The conventional wisdom that bareboat arrangements simply pile risk onto the charterer misses this entirely; sophisticated lessors are now paying, in legal complexity and security position, to keep the charterer holding title. Risk in these structures is negotiated, not fixed by the form.
The February 2026 BIMCO ETS Clause: The Gap Finally Closed
The EU Emissions Trading System has applied to shipping since 2024, obliging the responsible shipping company to surrender allowances against CO2 emitted on EU-related voyages. BARECON 2017 predates all of that, and for two years bareboat parties allocated ETS costs, or failed to, through improvised rider clauses.
BIMCO's Documentary Committee closed the gap on 25 February 2026, adopting the ETS Allowances Clause for BARECON 2017 at its online meeting. Three features matter commercially. The clause is built on the ETS SHIPMAN clause of 2023, so its definitions are already familiar to managers. It lets the parties elect who acts as Responsible Entity for the emission scheme: owners, charterers, or a nominated ship manager. And where the parties make no election, the default responsibility sits with the charterers, which mirrors operational reality, since the bareboat charterer controls the trading pattern that generates the emissions. That default is the detail a chartering desk needs, because silence in the boxes now has a defined meaning.
My view: overdue, and welcome. Bareboat charterers were already the de facto compliance party; putting the allocation in the charter party rather than in a lawyer's letter after the first dispute is how standard forms are supposed to evolve. For legacy fixtures on BARECON 2001 or unamended 2017 terms, the allocation still needs express treatment, and any vessel trading EU waters needs its MRV monitoring plan operational before the first covered voyage, not after.
A Hire Rate, Worked Through
Bareboat hire is quoted in dollars per day, and unlike time charter hire it contains no crewing or technical overhead: it is the capital cost of the ship, expressed daily. The drivers are the vessel's price, the advance the lessor funds, the term, the residual or purchase-option value at expiry, the interest rate environment and the charterer's credit. Illustrative arithmetic, using round inputs and not representing any actual transaction:
Input | Value |
Vessel purchase price | USD 40.0 million |
Lessor advance (90 per cent) | USD 36.0 million |
Charter term | 8 years |
Purchase option at expiry | USD 14.0 million |
All-in financing rate | 7.0 per cent per annum |
The financed amount of USD 36.0 million must be serviced down to the USD 14.0 million option value over eight years. At 7.0 per cent, the present value of that option is about USD 8.15 million, leaving USD 27.85 million to amortise through the hire. Spread over the eight-year annuity factor of 5.97, the annual charter hire comes to roughly USD 4.66 million, which is about USD 12,800 per day before the lessor's margin and fees.
Move the rate to 5 per cent and the same structure prices near USD 11,300 per day, which is the whole story of why bareboat rates for newbuildings sit materially above their 2010s levels: elevated interest rates and record newbuilding prices feed straight through the formula. Operators accept the higher daily cost because the structure still delivers what debt often cannot: full financing, no residual value risk, and fleet flexibility without covenant packages.
Bareboat Charter and Maritime Asset Tokenisation
Vessel-owning special purpose vehicles sit at the centre of maritime asset tokenisation, and bareboat contracts are among the core instruments those SPVs use. An SPV may hold its vessel outright, may have acquired her through a sale-and-leaseback and therefore owe bareboat hire to a lessor, or may bareboat the vessel out to an operating entity. Each configuration produces a different cash-flow picture, and the difference is not academic: where the SPV is a lessee, its bareboat hire is a senior cost in the cash-flow waterfall, ranking ahead of any distributions, and on hell-and-high-water terms it is payable regardless of how the freight market treats the vessel that year.
Shipfinex FZCO, operating under VARA In-Principle Approval (IPA/26/01/002), structures Maritime Asset Tokens on exactly these building blocks. An IPA is not a full operational licence and is subject to completion of final regulatory requirements. Maritime Asset Tokens (MATs) represent economic exposure to vessel-owning Special Purpose Vehicles rather than direct vessel ownership or equity, and where distributions are declared by the SPV, they are paid to token holders transparently and on-chain.
For prospective MAT holders, the practical reading list is short: establish whether the underlying SPV owns the vessel outright, holds a purchase option inside a JOLCO or leaseback, or carries a bareboat hire obligation senior to everything else, because that single fact shapes how resilient the SPV's economics are across freight cycles.
Practical Checklist Before Executing a
Bareboat Fixture
Delivery condition survey: commission an independent survey at delivery and keep the report; it is the benchmark every redelivery argument returns to.
Class continuity: confirm the classification society and satisfy yourself that your technical team can hold class, including special surveys, for the full period.
Insurance: appoint H&M and P&I brokers before delivery, ensure the club records the bareboat charterer as the operating member, and have any mortgage noted on the H&M policy with loss-payable clauses reflecting the financing.
Part V registration: if flag-in or flag-out is planned, start the registry application early; MARINA and its counterparts move at their own pace, and both registries must cooperate for the temporary flag to function.
EU ETS: for EU trading, incorporate the 2026 BIMCO ETS clause or equivalent, decide the Responsible Entity election deliberately rather than by default, and have the MRV plan running before the first covered voyage.
Off-hire and hire: understand that in JOLCO and leaseback structures the hire is typically hell-and-high-water, so commercial off-hire at the trading level does not relieve the financing payment.
Purchase option: verify the Part IV price, exercise mechanics and the tax treatment in your jurisdiction before signing, not before exercising.
Redelivery: begin condition planning twelve months out. The accumulated items are yours.
The Contract Under the Contracts
Bareboat charter looks like the simplest fixture in shipping and operates as the most consequential. It decides who is owner in the eyes of a court, who carries the ship on a balance sheet, who answers to the EU for emissions, and how the capital behind a fleet actually gets serviced. The February 2026 ETS clause, the CSA plus LILO structure and the steady flow of leasing volume through JOLCO and sale-and-leaseback all say the same thing: the industry keeps building its newest financial engineering on this fifty-year-old contractual chassis. Learn the chassis. Every structure you will ever be shown in ship finance is bolted to it.
Frequently Asked Questions
What is the difference between a bareboat charter and a time charter?
In a time charter the owner keeps possession, employs the master and crew and handles technical management while the charterer directs trading and pays hire and bunkers. In a bareboat charter possession itself transfers: the charterer crews, insures, maintains and operates the vessel entirely as its own, and the owner's role reduces to receiving hire and holding title.
Is a bareboat charter a finance lease?
Yes. Under IFRS 16 and US GAAP a bareboat charter is classified as a finance lease, so the charterer recognises the vessel as a right-of-use asset and the hire obligation as a liability on its balance sheet. The accounting mirrors the commercial substance: the hire payments function as instalments on the capital cost of the ship.
What is BARECON 2017?
BARECON 2017 is the current edition of BIMCO's standard bareboat charter party, first published in 1974 as separate A and B forms, merged in 1989 and revised in 2001 and 2017. It documents most commercial bareboat business worldwide, with Part V providing the machinery for temporary registration in bareboat charter registries.
What does owner pro hac vice mean?
It is the legal status of a bareboat charterer: owner for the time being. Following Guzman v. Pichirilo, 369 U.S. 698 (1962), the demise charterer assumes the operational liabilities of ownership for the charter period, and correspondingly qualifies as an owner for limitation of liability purposes, a protection time and voyage charterers do not enjoy.
What changed with BIMCO's February 2026 ETS clause?
BIMCO's Documentary Committee adopted the ETS Allowances Clause for BARECON 2017 on 25 February 2026, based on the ETS SHIPMAN 2023 clause. Parties can elect owners, charterers or a nominated manager as Responsible Entity for emission schemes such as the EU ETS, and where no election is made the responsibility defaults to the charterers.
What is a JOLCO?
A Japanese Operating Lease with Call Option combines Japanese tax-equity funding with a bareboat charter. Japanese tax-equity participants seeking depreciation benefits fund part of the vessel's cost, an SPV holds title, and the operator charters the ship on hell-and-high-water terms with a call option to purchase at lease end. It is a mainstream financing route for tankers, bulkers and container tonnage.
What is the CSA plus LILO structure?
It is a two-charter arrangement developed by Watson Farley & Williams in which the operator charters the vessel to the leasing SPV and immediately charters her back, so the financier obtains possessory and security rights while the operator remains registered owner. The lessor gains insulation from sanctions, port-fee and P&I exposure, but holds a mortgage as secured creditor rather than title.
Who pays for EU ETS allowances under a bareboat charter?
Under the 2026 BIMCO clause, whichever party the boxes elect as Responsible Entity, with charterers as the default if no election is made, reflecting that the bareboat charterer controls the trading that generates the emissions. On legacy fixtures without the clause, allocation depends on rider wording, which is precisely the ambiguity the new clause was written to remove.
Ravi Shanker
Co-Founder & CCO, Shipfinex
Ravi Shankar FICS is Co-Founder and Chief Commercial Officer of Shipfinex, and General Secretary of the ICS Middle East Branch. A Fellow of the Institute of Chartered Shipbrokers with extensive experience in ship sale and purchase, chartering, and maritime consultancy, he has previously held senior roles at Maersk Broker and Eastgate Shipping DMCC. His day-to-day commercial work spans dry bulk and tanker market analysis, SnP transactions, and shipbroking advisory.
