| Aircraft Purchase Agreements | | | | Documents. The agreement should include a |
| © 2004 Reigel & Associates, Ltd./Aero Legal | | | | statement 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 buyer | | | | Registration Form (FAA Form 8050-3). |
| is unsure of whether he or she should use a purchase | | | | Pre-purchase inspection. In most transactions, the |
| agreement when buying an aircraft. Most of these | | | | buyer will want to have a pre-purchase inspection |
| individuals have purchased homes and no doubt used | | | | performed on the aircraft. The purchase agreement |
| a purchase agreement in such transactions. Yet, many | | | | can specify who will perform the inspection, what |
| of these same individuals would spend the same | | | | qualifications that individual must possess and where |
| amount of money to purchase an aircraft, and often | | | | the inspection will take place. Also, the buyer should |
| times a great deal more money, without the protection | | | | make 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 in | | | | buyer is usually responsible for the expenses |
| almost every aircraft sale transaction. First, the law in | | | | associated with a pre-purchase inspection, the |
| most states requires that a contract for an amount | | | | agreement should address which party is responsible |
| greater than $500.00 be in writing in order for it to be | | | | for 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 you | | | | certain 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 also | | | | purpose etc.). However, due to space limitations most |
| help avoid confusion and misunderstandings. If the | | | | of these warranties will not be discussed here. |
| agreement clearly explains how the transaction will | | | | From a buyer's perspective, the warranty of title is |
| happen, when it will happen and what is included in the | | | | probably most important. This warranty ensures that |
| deal, the greater the likelihood that the buyer and seller | | | | the buyer receives title to the aircraft free and clear of |
| will each know the other party's expectations and the | | | | any 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 should | | | | included in the purchase agreement will help to |
| be included in an aircraft purchase agreement will | | | | minimize the risk of any unrecorded liens or interests in |
| often times be dictated by the type and value of the | | | | the aircraft. |
| aircraft being purchased/sold. Although by no means | | | | Most sellers will want to include a disclaimer in the |
| inclusive, the following terms provide a good place to | | | | purchase agreement stating that the buyer is |
| start. | | | | purchasing the aircraft "As-is". This language is |
| Identify the Parties. The agreement should identify who | | | | intended 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 clear | | | | buyer is having a thorough pre-purchase inspection |
| who is the seller and who is the buyer. It is very | | | | performed by a qualified mechanic familiar with the |
| common for aircraft to be registered in the name of a | | | | specific aircraft, inclusion of this disclaimer in the |
| corporation or limited liability company. In that case, the | | | | purchase agreement is probably not a great concern |
| individual with whom you are negotiating is not the | | | | for the buyer. |
| owner of the aircraft and should not be listed as the | | | | Choice of Law/Venue. If the transaction involves a |
| seller. The registered owner of the aircraft should be | | | | buyer 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 a | | | | that governs what law applies to the transaction and |
| corporation or limited liability company. If an individual is | | | | where any disputes would have to be resolved. |
| the buyer, that person will be listed and upon | | | | Waiver and Release of Liability. The seller will want |
| registration will be the record owner of the aircraft. To | | | | waiver and release of liability language in the purchase |
| fully take advantage of release and indemnity | | | | agreement to limit potential liability for injury or damage |
| language discussed in greater detail below, the seller | | | | sustained by the buyer arising out of the buyer's use |
| may also want to consider having an individual buyer's | | | | of 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 be | | | | fine print of the purchase agreement. |
| registering the aircraft, the purchase agreement should | | | | Waiver and release of liability language will not release |
| identify that entity as the buyer. Alternatively, an | | | | a seller from responsibility for the seller's intentional |
| individual can sign an agreement as the buyer and, as | | | | acts or gross negligence. Nor will it prevent possible |
| long as the agreement allows the buyer to assign his | | | | claims from third-parties who are injured or damaged |
| or her rights under the agreement, that individual may | | | | by buyer's use of the aircraft or from the buyer's |
| still assign the agreement to a corporation or limited | | | | minor children. However, it will prevent the buyer, and |
| liability company prior to closing. The corporation or | | | | the buyer's spouse if the spouse has signed the |
| limited liability company then becomes the buyer and | | | | purchase agreement, from suing the seller if a defect |
| can close on the transaction without the individual ever | | | | in 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 agreement | | | | Agreement Give You? |
| should identify the aircraft with as much detail as | | | | First, 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 be | | | | not 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 and | | | | purchase agreement will not change that. However, |
| excluded from the transaction. By taking the time to | | | | the purchase agreement will give you the ability to go |
| detail exactly what is and isn't being sold, you will | | | | to 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 specify | | | | If the purchase agreement is drafted clearly and with |
| how much is being paid for the aircraft. If the buyer will | | | | sufficient detail, it may be possible to have the court |
| be giving the seller a deposit or earnest money, that | | | | specifically enforce the agreement (e.g. make the |
| fact should be included. Also, what happens to the | | | | breaching party do what the purchase agreement |
| deposit when it is given to the seller? Will the money | | | | says he or she is supposed to do). An example would |
| be placed in escrow or simply held by the seller? If an | | | | be where a buyer refused to complete a transaction |
| escrow agent is not involved, the buyer will need to | | | | even though the seller and the aircraft complied with all |
| obtain some assurance that his or her deposit will not | | | | of the terms of the purchase agreement. In this case, |
| simply disappear into the seller's pocket making the | | | | a court could force the buyer to purchase the aircraft. |
| buyer's recovery from the seller difficult or impossible if | | | | Alternatively, the court may award money damages |
| the transaction does not close. The agreement should | | | | for losses incurred by the non-breaching party. An |
| also state under what conditions the seller must refund | | | | example 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? If | | | | to return of the money. In this situation, a court could |
| financing is involved, the buyer may want to include | | | | enter a judgment against the seller in the amount of |
| language that makes the transaction contingent upon | | | | the unreturned security deposit. |
| the buyer obtaining financing on terms acceptable to | | | | Conclusion |
| the buyer. That way, if the buyer isn't able to obtain | | | | An aircraft purchase agreement is a valuable tool to |
| satisfactory financing, the buyer will not be forced to | | | | ensure that each party to an aircraft purchase |
| complete the purchase on financially unacceptable | | | | transaction receives what is expected. It prevents |
| terms. | | | | confusion and misunderstanding and provides security |
| Will other consideration be given to the seller, such as | | | | that a party will have recourse if the other party to the |
| a trade? If so, to the extent that it is possible, the | | | | transaction fails to perform as required. With minimal |
| item(s) to be traded to the seller should be identified | | | | up-front time and expense, both buyers and sellers |
| with the same amount of detail used to describe the | | | | can protect their interests and maximize the likelihood |
| aircraft being purchased. This will help avoid later | | | | of an uneventful closing and purchase. |
| confusion. | | | | |