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Article category: Aviation Flight

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Aviation & Flight Information

Aircraft Purchase Agreements


by: Greg Reigel
Craft Purchase Agreements



© 2004 Reigel & Associates, Ltd./Aero Legal Services. All rights reserved.


Why Use An Craft Purchase Agreement?



It always surprises me once a potential craft customer is unsure of whether he or she should use a purchase agreement once buying an aircraft. Most of these individuals have purchased homes and no doubt used a purchase agreement in such transactions. Yet, many an of these same individuals would-be spend the same figure of money to purchase an aircraft, and often times a great deal more money, without the protection of a written craft purchase agreement.



Aircraft purchase agreements should be used in just about every craft sale transaction. First, the law in most states requires that a contract for an figure greater than $500.00 be in writing in order for it to be enforceable. This is called the statute of frauds. Though exceptions to this legal ism exist, yielding with the law is ordinarily safer than hoping you wish be able to take advantage of an exception.



Further, victimisation an craft purchase agreement can likewise help avoid confusion and misunderstandings. If the agreement clearly explains how the group action wish happen, once it wish happen and what is enclosed in the deal, the greater the probability that the customer and merchant wish each cognize the else party’s expectations and the less chance for surprises or misunderstandings.



What Terms Should Be Included?



The number and complexness of the terms that should be enclosed in an craft purchase agreement wish often times be settled by the type and value of the craft being purchased/sold. Though by no means inclusive, the following terms provide a nice place to start.



Identify the Parties. The agreement should identify who is commercialism the craft and who is buying the aircraft. Though this sounds simple to do, it isn’t always clean who is the merchant and who is the buyer. It is really common for craft to be registered in the name of a corporation or limited liability company. In that case, the individual with whom you are negotiating is not the owner of the craft and should not be listed as the seller. The registered owner of the craft should be known as the seller.



The customer on the else hand, can be an individual or a corporation or limited liability company. If an individual is the buyer, that person wish be listed and upon registration wish be the record owner of the aircraft. To fully take advantage of release and indemnity language discussed in greater detail below, the merchant may likewise want to consider having an individual buyer’s domestic partner execute the purchase agreement.



If a corporation or limited liability institution wish be registering the aircraft, the purchase agreement should identify that entity as the buyer. Alternatively, an individual can sign an agreement as the customer and, as long as the agreement allows the customer to assign his or her rights under the agreement, that individual may still assign the agreement to a corporation or limited liability institution prior to closing. The corporation or limited liability institution then becomes the customer and can close on the group action without the individual ever entering the chain of title. From a liability perspective, this can be important.



Identify the Aircraft. The craft purchase agreement should identify the craft with as more detail as possible. At a minimum, it should include the make, model, N-number and serial number for the aircraft. Ideally, a list of all avionics, logbooks, handbooks, additional instrumentality and any accessories should be included. Also, if the merchant intends to retain certain items, those items should be specifically known and excluded from the transaction. By taking the time to detail exactly what is and isn’t being sold, you wish prevent misunderstandings at delivery.



Purchase/Sale Price. The agreement should specify how more is being paid for the aircraft. If the customer wish be giving the merchant a deposit or earnest money, that fact should be included. Also, what happens to the deposit once it is given to the seller? Wish the money be placed in written agreement or just control by the seller? If an written agreement agent is not involved, the customer wish need to receive several assurance that his or her deposit wish not just disappear into the seller’s pocket production the buyer’s recovery from the merchant difficult or impossible if the group action does not close. The agreement should likewise state under what conditions the merchant must refund the deposit to the buyer.



The buyer’s know-how of payment should likewise be stated. Is it a cash group action or wish funding be involved? If funding is involved, the customer may want to include language that does the group action contingent upon the customer obtaining funding on terms acceptable to the buyer. That way, if the customer isn’t able to receive satisfactory financing, the customer wish not be forced to complete the purchase on financially unacceptable terms.



Will else consideration be given to the seller, such as a trade? If so, to the extent that it is possible, the item(s) to be listed to the merchant should be known with the same figure of detail used to describe the craft being purchased. This wish help avoid later confusion.



Documents. The agreement should include a statement just about which documents the merchant wish sign and deliver to the customer at closing. Ordinarily this includes a Bill of Sale (FAA Form 8050-2) and a signed current Registration Form (FAA Form 8050-3).



Pre-purchase inspection. In most transactions, the customer wish want to have a pre-purchase scrutiny performed on the aircraft. The purchase agreement can specify who wish perform the inspection, what qualifications that individual must possess and wherever the scrutiny wish take place. Also, the customer should do the agreement contingent upon the buyer’s satisfaction with results of the inspection. Though the customer is ordinarily responsible for the expenses associated with a pre-purchase inspection, the agreement should address which party is responsible for what expenses related to the inspection.



Warranties. It is possible to include a variety of warranties in the purchase agreement representing certain conditions of the craft (e.g. warranties of airworthiness, merchantability, fitness for a particular intention etc.). However, due to space limitations most of these warranties wish not be discussed here.



From a buyer’s perspective, the pledge of title is probably most important. This pledge ensures that the customer receives title to the craft free and clean of any liens or mortgages. Though the customer wish still want to receive a title search of the FAA Registry’s records for the airplane, having the pledge of title enclosed in the purchase agreement wish help to minimize the risk of any unrecorded liens or interests in the aircraft.



Most sellers wish want to include a disclaimer in the purchase agreement stating that the customer is buying the craft "As-is". This language is intended to limit the seller’s responsibility for any defects or unknown conditions in the aircraft. If the customer is having a thorough pre-purchase scrutiny performed by a qualified mechanic familiar with the specific aircraft, inclusion of this disclaimer in the purchase agreement is probably not a great concern for the buyer.



Choice of Law/Venue. If the group action involves a customer and merchant from several states, it may be prudent to include language in the purchase agreement that governs what law applies to the group action and wherever any disputes would-be have to be resolved.



Waiver and Release of Liability. The merchant wish want relinquishing and release of liability language in the purchase agreement to limit potential liability for injury or damage sustained by the customer arising out of the buyer’s use of the aircraft. The language should be in bold, all caps letters to do sure it is obvious and not buried in the fine print of the purchase agreement.



Waiver and release of liability language wish not release a merchant from responsibility for the seller’s intentional acts or gross negligence. Nor wish it prevent possible claims from third-parties who are black-and-blue or damaged by buyer’s use of the craft or from the buyer’s minor children. However, it wish prevent the buyer, and the buyer’s domestic partner if the domestic partner has signed the purchase agreement, from suing the merchant if a defect in the craft causes an accident that results in injury or damages.



What Remedy Makes An Craft Purchase Agreement Give You?



First, an craft purchase agreement is not a 100% guarantee that a customer or merchant wish not be sued. In this litigious world, I don’t cognize that such a guarantee is possible. Further, the purchase agreement alone does not do anyone do anything. If a customer or merchant does not want to obey with his or her obligations, the purchase agreement wish not change that. However, the purchase agreement wish give you the ability to go to court and have a judge do the non-performing or “breaching” party obey with his or her obligations.



If the purchase agreement is drafted clearly and with comfortable detail, it may be possible to have the court specifically enforce the agreement (e.g. do the breaching party do what the purchase agreement says he or she is supposed to do). An example would-be be wherever a customer refused to complete a group action even as although the merchant and the craft complied with all of the terms of the purchase agreement. In this case, a court could force the customer to purchase the aircraft.



Alternatively, the court may award money damages for losses incurred by the non-breaching party. An example of this is once a merchant refuses to return a deposit even as although the customer has complied with all of the terms of the purchase agreement and has a right to return of the money. In this situation, a court could enter a judgment against the merchant in the figure of the unreturned safety deposit.



Conclusion



An craft purchase agreement is a valuable tool to ensure that each party to an craft purchase group action receives what is expected. It prevents confusion and misunderstanding and provides safety that a party wish have recourse if the else party to the group action fails to perform as required. With least up-front time and expense, several buyers and sellers can protect their interests and maximize the probability of an placid closing and purchase.

Just just about THE AUTHOR
Greg is an aviation attorney, author and holds a commercial pilot certificate with instrument rating. His practice concentrates on aviation litigation, including insurance matters and creditor’s rights, FAA certificate actions and aviation related transactional matters. He can be reached via e-mail at greigel@aerolegalservices.com or check out his website at www.aerolegalservices.com.

 


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