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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 client is unsure of whether he or she should use a purchase agreement once purchase an aircraft. Most of these individuals have purchased homes and no doubt used a purchase agreement in such transactions. Yet, many a 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 all but 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. Tho' exceptions to this legal belief exist, compliant with the law is commonly safer than hoping you wish be able to take advantage of an exception.



Further, mistreatment an craft purchase agreement can as well help avoid confusion and misunderstandings. If the agreement clearly explains how the dealings wish happen, once it wish happen and what is enclosed in the deal, the greater the odds that the client and merchandiser wish each cognize the different party’s expectations and the less chance for surprises or misunderstandings.



What Terms Should Be Included?



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



Identify the Parties. The agreement should identify who is commerce the craft and who is purchase the aircraft. Tho' this sounds simple to do, it isn’t always clean who is the merchandiser 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 client on the different 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 merchandiser may as well want to consider having an individual buyer’s better half 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 client and, as long as the agreement allows the client 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 client and can close on the dealings 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 instrumentation and any accessories should be included. Also, if the merchandiser 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 client wish be giving the merchandiser 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 command by the seller? If an written agreement agent is not involved, the client wish need to receive several assurance that his or her deposit wish not just disappear into the seller’s pocket fashioning the buyer’s recovery from the merchandiser difficult or impossible if the dealings does not close. The agreement should as well state under what conditions the merchandiser must refund the deposit to the buyer.



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



Will different 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 merchandiser 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 merchandiser wish sign and deliver to the client at closing. Commonly 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 client wish want to have a pre-purchase examination performed on the aircraft. The purchase agreement can specify who wish perform the inspection, what qualifications that individual must possess and wherever the examination wish take place. Also, the client should do the agreement contingent upon the buyer’s satisfaction with results of the inspection. Tho' the client is commonly 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 assurance of title is probably most important. This assurance ensures that the client receives title to the craft free and clean of any liens or mortgages. Tho' the client wish still want to receive a title search of the FAA Registry’s records for the airplane, having the assurance 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 client is purchase 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 client is having a thorough pre-purchase examination 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 dealings involves a client and merchandiser from several states, it may be prudent to include language in the purchase agreement that governs what law applies to the dealings and wherever any disputes would-be have to be resolved.



Waiver and Release of Liability. The merchandiser wish want discharge and release of liability language in the purchase agreement to limit potential liability for injury or damage sustained by the client 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 merchandiser from responsibility for the seller’s intentional acts or gross negligence. Nor wish it prevent possible claims from third-parties who are battle-scarred 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 better half if the better half has signed the purchase agreement, from suing the merchandiser 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 client or merchandiser 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 client or merchandiser does not want to abide by 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 abide by with his or her obligations.



If the purchase agreement is drafted clearly and with ample 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 client refused to complete a dealings even as tho' the merchandiser and the craft complied with all of the terms of the purchase agreement. In this case, a court could force the client 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 merchandiser refuses to return a deposit even as tho' the client 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 merchandiser 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 dealings receives what is expected. It prevents confusion and misunderstanding and provides safety that a party wish have recourse if the different party to the dealings fails to perform as required. With bottom up-front time and expense, several buyers and sellers can protect their interests and maximize the odds of an quiet 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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