Securing shipbuilding finance: Malta’s enhanced regime for mortgages on ships under construction

Act No. I of 2025 (the “Act”) amended Malta’s Merchant Shipping Act (Chapter 234 of the Laws of Malta) (the “MSA”) and introduced significant updates to enhance maritime financing, particularly through the creation of the finance charter security and formalising the registration of mortgages over vessels under construction.

Defining a ‘ship under construction’

The MSA extends its definition of a ‘ship’ to also include a ship under construction, however it vaguely defines a ‘ship under construction’ as a ship which is in the process of being built. A detailed definition which distinguishes between what does and does not constitute a vessel under construction, for the purposes of flag registration, is not provided.

On this point, Article 3(5) of the MSA provides further guidance by stating that the stage of construction of a ship must be one where the ship can be identified by means of its official number, name and port of registry as displayed on its keel. Therefore, the common practice is that the keel must be laid in order for a ship under construction to be eligible to for registration in Malta.

The obligation to file the usual documents of title with the Registry of Ships (the “Registry”) is suspended and are not required to proceed with the registration of a vessel under construction. Therefore, any bill of sale, builders’ certificate and declaration of ownership are submitted at a later stage. Of course, this reflects the general contractual position between parties in a shipbuilding contract where ownership is typically transferred on delivery and final payment.

A ship under construction may, for various technical, financial and other reasons, require several years until finally completed. Prior to the Act, the law required provisional registration of a vessel including vessels under construction to be converted to ‘permanent’ registration within a maximum period of 12 months. Ships under construction may not be in a position, because they are under construction, to provide the necessary technical certification to enable their registration to be converted within the said time frames to ‘permanent’.

The Act has therefore extended the period of time for registration on a provisional basis for vessels being built. Provisional registration may now be extended throughout the construction process for up to three years subject to further extensions by the Registrar-General.

Registering a mortgage over a ship under construction

One of the more significant introductions of the Act, is a targeted provision on the registration of a mortgage over a vessel registered under construction. Admittedly, before the Act, this was already possible. However, the MSA now formalises and governs the subject, ensuring and clarifying that the provisions on mortgages generally, including therefore the strong statutory powers afforded to a mortgagee, apply to a mortgage registered on a vessel still being built.

The attachment of the mortgage is not limited to the condition or equipping of the vessel at the time of the registration of the mortgage. The law now explicitly states that the security provided by the mortgage shall extend automatically and attach to the stages of construction that follow. Therefore, building on the principle, that for the purposes of maritime privileges and mortgages, a vessel shall be considered to include the hull, all equipment, machinery and other appurtenances as accessories to the vessel, which are on board or removed temporarily.

Lending to finance a vessel during construction poses particular security problems. Reason being that generally title of ownership over the vessel will remain with the builder until delivery, so the vessel will not be under the ownership of the buyer over which the buyer can give security. The creation of a security interest including through the registration of a mortgage over a ship under construction, is possible once ownership title has been ascertained. Therefore, a declaration of ownership and other documentary proof of ownership of the vessel under construction must be filed with the Registry of Ships before the mortgage registration.

For this reason, the recordation of a mortgage on such a vessel is only possible in those instances when there has been a transfer of title from the builder to the shipowner engaging the construction of the new build or when title is registered in favour of the builder. There are several reasons where such occasions may arise, including when the builder is willing to transfer title in order to facilitate the raising of finance by the owner of the vessel being built which shall in turn be secured through a mortgage on the vessel, albeit subordinate to the builders possessory privileged rights. Or in those instances when the builder retains ownership of the vessel, for example in scenarios where the entity contracting the build has abandoned the project and is raising finance in order to complete the build.

The possibility of registering a mortgage over a ship under construction in Malta is not possible in every flag registry. Limitations generally stem from the possibility to register vessels only at the stage when they may be used in navigation, thereby by definition excluding vessels which are being built from registration. Consequently, not permitting the registration of any security interest on the vessel either.

Other than formalising the registration of mortgages over ships under construction, the Act also incorporated broader measures applicable to the different stages of a ship’s registration under the Maltese flag.

Other salient additions introduced through the Act

The lowering of the maximum age of ships eligible for registration was also another introduction, whereby ships of more than twenty years in age are no longer eligible for registration, subject to the Registrar-General’s express permission.

Previously, only ships of less than twenty-five years could be registered under the Maltese flag. The main intention behind this revision was to lower the average age of ships registered in Malta whilst simultaneously solidifying Malta’s reputation as a strong and reputable maritime flag with a young fleet. It is worth pointing out that vessels which are less than 10 years of age benefit from significant reductions on registration fees and tonnage tax.

Conclusion

In summary, the Act represents a pivotal advancement in streamlining the registration of mortgages over ships under construction and enabling robust security from the keel-laying stage onward. These reforms address longstanding challenges in shipbuilding finance by clarifying mortgage attachment to evolving vessel stages and facilitating title transfers from builders to owners even pre-delivery.

Shipowners, builders and financiers should leverage these provisions and consult the Registry for case-specific guidance. Ultimately, this legislative evolution cements Malta’s role in creating a beneficial legal environment thereby aiding parties in a ship building project.

Disclaimer:  This article was first published in ‘the Sunday Times’ on 05/04/2026.