Aircraft Purchase Agreements

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