| Aircraft Purchase Agreements | | | | Documents. The agreement should include a |
| | | | statement about which documents the seller |
| © 2004 Reigel & Associates, Ltd./Aero | | | | will sign and deliver to the buyer at |
| Legal Services. All rights reserved. | | | | closing. Usually this includes a Bill of Sale |
| | | | (FAA Form 8050-2) and a signed current |
| Why Use An Aircraft Purchase Agreement? | | | | Registration Form (FAA Form 8050-3). |
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| It always surprises me when a potential | | | | Pre-purchase inspection. In most |
| aircraft buyer is unsure of whether he or she | | | | transactions, the buyer will want to have a |
| should use a purchase agreement when buying | | | | pre-purchase inspection performed on the |
| an aircraft. Most of these individuals have | | | | aircraft. The purchase agreement can specify |
| purchased homes and no doubt used a purchase | | | | who will perform the inspection, what |
| agreement in such transactions. Yet, many of | | | | qualifications that individual must possess |
| these same individuals would spend the same | | | | and where the inspection will take place. |
| amount of money to purchase an aircraft, and | | | | Also, the buyer should make the agreement |
| often times a great deal more money, without | | | | contingent upon the buyer's satisfaction with |
| the protection of a written aircraft purchase | | | | results of the inspection. Although the buyer |
| agreement. | | | | is usually responsible for the expenses |
| | | | associated with a pre-purchase inspection, |
| Aircraft purchase agreements should be used | | | | the agreement should address which party is |
| in almost every aircraft sale transaction. | | | | responsible for what expenses related to the |
| First, the law in most states requires that a | | | | inspection. |
| contract for an amount greater than $500.00 | | | | |
| be in writing in order for it to be | | | | Warranties. It is possible to include a |
| enforceable. This is called the statute of | | | | variety of warranties in the purchase |
| frauds. Although exceptions to this legal | | | | agreement representing certain conditions of |
| doctrine exist, complying with the law is | | | | the aircraft (e.g. warranties of |
| usually safer than hoping you will be able to | | | | airworthiness, merchantability, fitness for a |
| take advantage of an exception. | | | | particular purpose etc.). However, due to |
| | | | space limitations most of these warranties |
| Further, using an aircraft purchase agreement | | | | will not be discussed here. |
| can also help avoid confusion and | | | | |
| misunderstandings. If the agreement clearly | | | | From a buyer's perspective, the warranty of |
| explains how the transaction will happen, | | | | title is probably most important. This |
| when it will happen and what is included in | | | | warranty ensures that the buyer receives |
| the deal, the greater the likelihood that the | | | | title to the aircraft free and clear of any |
| buyer and seller will each know the other | | | | liens or mortgages. Although the buyer will |
| party's expectations and the less chance for | | | | still want to obtain a title search of the |
| surprises or misunderstandings. | | | | FAA Registry's records for the airplane, |
| | | | having the warranty of title included in the |
| What Terms Should Be Included? | | | | purchase agreement will help to minimize the |
| | | | risk of any unrecorded liens or interests in |
| The number and complexity of the terms that | | | | the aircraft. |
| should be included in an aircraft purchase | | | | |
| agreement will often times be dictated by the | | | | Most sellers will want to include a |
| type and value of the aircraft being | | | | disclaimer in the purchase agreement stating |
| purchased/sold. Although by no means | | | | that the buyer is purchasing the aircraft |
| inclusive, the following terms provide a good | | | | "As-is". This language is intended to limit |
| place to start. | | | | the seller's responsibility for any defects |
| | | | or unknown conditions in the aircraft. If the |
| Identify the Parties. The agreement should | | | | buyer is having a thorough pre-purchase |
| identify who is selling the aircraft and who | | | | inspection performed by a qualified mechanic |
| is buying the aircraft. Although this sounds | | | | familiar with the specific aircraft, |
| simple to do, it isn't always clear who is | | | | inclusion of this disclaimer in the purchase |
| the seller and who is the buyer. It is very | | | | agreement is probably not a great concern for |
| common for aircraft to be registered in the | | | | the buyer. |
| name of a corporation or limited liability | | | | |
| company. In that case, the individual with | | | | Choice of Law/Venue. If the transaction |
| whom you are negotiating is not the owner of | | | | involves a buyer and seller from different |
| the aircraft and should not be listed as the | | | | states, it may be prudent to include language |
| seller. The registered owner of the aircraft | | | | in the purchase agreement that governs what |
| should be identified as the seller. | | | | law applies to the transaction and where any |
| | | | disputes would have to be resolved. |
| The buyer on the other hand, can be an | | | | |
| individual or a corporation or limited | | | | Waiver and Release of Liability. The seller |
| liability company. If an individual is the | | | | will want waiver and release of liability |
| buyer, that person will be listed and upon | | | | language in the purchase agreement to limit |
| registration will be the record owner of the | | | | potential liability for injury or damage |
| aircraft. To fully take advantage of release | | | | sustained by the buyer arising out of the |
| and indemnity language discussed in greater | | | | buyer's use of the aircraft. The language |
| detail below, the seller may also want to | | | | should be in bold, all caps letters to make |
| consider having an individual buyer's spouse | | | | sure it is obvious and not buried in the fine |
| execute the purchase agreement. | | | | print of the purchase agreement. |
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| If a corporation or limited liability company | | | | Waiver and release of liability language will |
| will be registering the aircraft, the | | | | not release a seller from responsibility for |
| purchase agreement should identify that | | | | the seller's intentional acts or gross |
| entity as the buyer. Alternatively, an | | | | negligence. Nor will it prevent possible |
| individual can sign an agreement as the buyer | | | | claims from third-parties who are injured or |
| and, as long as the agreement allows the | | | | damaged by buyer's use of the aircraft or |
| buyer to assign his or her rights under the | | | | from the buyer's minor children. However, it |
| agreement, that individual may still assign | | | | will prevent the buyer, and the buyer's |
| the agreement to a corporation or limited | | | | spouse if the spouse has signed the purchase |
| liability company prior to closing. The | | | | agreement, from suing the seller if a defect |
| corporation or limited liability company then | | | | in the aircraft causes an accident that |
| becomes the buyer and can close on the | | | | results in injury or damages. |
| transaction without the individual ever | | | | |
| entering the chain of title. From a liability | | | | What Remedy Does An Aircraft Purchase |
| perspective, this can be important. | | | | Agreement Give You? |
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| Identify the Aircraft. The aircraft purchase | | | | First, an aircraft purchase agreement is not |
| agreement should identify the aircraft with | | | | a 100% guarantee that a buyer or seller will |
| as much detail as possible. At a minimum, it | | | | not be sued. In this litigious world, I don't |
| should include the make, model, N-number and | | | | know that such a guarantee is possible. |
| serial number for the aircraft. Ideally, a | | | | Further, the purchase agreement alone does |
| list of all avionics, logbooks, handbooks, | | | | not make anyone do anything. If a buyer or |
| additional equipment and any accessories | | | | seller does not want to comply with his or |
| should be included. Also, if the seller | | | | her obligations, the purchase agreement will |
| intends to retain certain items, those items | | | | not change that. However, the purchase |
| should be specifically identified and | | | | agreement will give you the ability to go to |
| excluded from the transaction. By taking the | | | | court and have a judge make the |
| time to detail exactly what is and isn't | | | | non-performing or "breaching" party comply |
| being sold, you will prevent | | | | with his or her obligations. |
| misunderstandings at delivery. | | | | |
| | | | If the purchase agreement is drafted clearly |
| Purchase/Sale Price. The agreement should | | | | and with sufficient detail, it may be |
| specify how much is being paid for the | | | | possible to have the court specifically |
| aircraft. If the buyer will be giving the | | | | enforce the agreement (e.g. make the |
| seller a deposit or earnest money, that fact | | | | breaching party do what the purchase |
| should be included. Also, what happens to the | | | | agreement says he or she is supposed to do). |
| deposit when it is given to the seller? Will | | | | An example would be where a buyer refused to |
| the money be placed in escrow or simply held | | | | complete a transaction even though the seller |
| by the seller? If an escrow agent is not | | | | and the aircraft complied with all of the |
| involved, the buyer will need to obtain some | | | | terms of the purchase agreement. In this |
| assurance that his or her deposit will not | | | | case, a court could force the buyer to |
| simply disappear into the seller's pocket | | | | purchase the aircraft. |
| making the buyer's recovery from the seller | | | | |
| difficult or impossible if the transaction | | | | Alternatively, the court may award money |
| does not close. The agreement should also | | | | damages for losses incurred by the |
| state under what conditions the seller must | | | | non-breaching party. An example of this is |
| refund the deposit to the buyer. | | | | when a seller refuses to return a deposit |
| | | | even though the buyer has complied with all |
| The buyer's method of payment should also be | | | | of the terms of the purchase agreement and |
| stated. Is it a cash transaction or will | | | | has a right to return of the money. In this |
| financing be involved? If financing is | | | | situation, a court could enter a judgment |
| involved, the buyer may want to include | | | | against the seller in the amount of the |
| language that makes the transaction | | | | unreturned security deposit. |
| contingent upon the buyer obtaining financing | | | | |
| on terms acceptable to the buyer. That way, | | | | Conclusion |
| if the buyer isn't able to obtain | | | | |
| satisfactory financing, the buyer will not be | | | | An aircraft purchase agreement is a valuable |
| forced to complete the purchase on | | | | tool to ensure that each party to an aircraft |
| financially unacceptable terms. | | | | purchase transaction receives what is |
| | | | expected. It prevents confusion and |
| Will other consideration be given to the | | | | misunderstanding and provides security that a |
| seller, such as a trade? If so, to the extent | | | | party will have recourse if the other party |
| that it is possible, the item(s) to be traded | | | | to the transaction fails to perform as |
| to the seller should be identified with the | | | | required. With minimal up-front time and |
| same amount of detail used to describe the | | | | expense, both buyers and sellers can protect |
| aircraft being purchased. This will help | | | | their interests and maximize the likelihood |
| avoid later confusion. | | | | of an uneventful closing and purchase. |
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