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Documents. The agreement should include a statement about which documents seller will sign and deliver to buyer at closing. Usually 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, buyer will want to have a pre-purchase inspection performed on aircraft. The purchase agreement can specify who will perform inspection, what qualifications that individual must possess and where inspection will take place. Also, buyer should make agreement contingent upon buyer’s satisfaction with results of inspection. Although buyer is usually responsible for expenses associated with a pre-purchase inspection, agreement should address which party is responsible for what expenses related to inspection.
Warranties. It is possible to include a variety of warranties in purchase agreement representing certain conditions of aircraft (e.g. warranties of airworthiness, merchantability, fitness for a particular purpose etc.). However, due to space limitations most of these warranties will not be discussed here.
From a buyer’s perspective, warranty of title is probably most important. This warranty ensures that buyer receives title to aircraft free and clear of any liens or mortgages. Although buyer will still want to obtain a title search of FAA Registry’s records for airplane, having warranty of title included in purchase agreement will help to minimize risk of any unrecorded liens or interests in aircraft.
Most sellers will want to include a disclaimer in purchase agreement stating that buyer is purchasing aircraft "As-is". This language is intended to limit seller’s responsibility for any defects or unknown conditions in aircraft. If buyer is having a thorough pre-purchase inspection performed by a qualified mechanic familiar with specific aircraft, inclusion of this disclaimer in purchase agreement is probably not a great concern for buyer.
Choice of Law/Venue. If transaction involves a buyer and seller from different states, it may be prudent to include language in purchase agreement that governs what law applies to transaction and where any disputes would have to be resolved.
Waiver and Release of Liability. The seller will want waiver and release of liability language in purchase agreement to limit potential liability for injury or damage sustained by buyer arising out of buyer’s use of aircraft. The language should be in bold, all caps letters to make sure it is obvious and not buried in fine print of purchase agreement.
Waiver and release of liability language will not release a seller from responsibility for seller’s intentional acts or gross negligence. Nor will it prevent possible claims from third-parties who are injured or damaged by buyer’s use of aircraft or from buyer’s minor children. However, it will prevent buyer, and buyer’s spouse if spouse has signed purchase agreement, from suing seller if a defect in aircraft causes an accident that results in injury or damages.
What Remedy Does An Aircraft Purchase Agreement Give You?
First, an aircraft purchase agreement is not a 100% guarantee that a buyer or seller will not be sued. In this litigious world, I don’t know that such a guarantee is possible. Further, purchase agreement alone does not make anyone do anything. If a buyer or seller does not want to comply with his or her obligations, purchase agreement will not change that. However, purchase agreement will give you ability to go to court and have a judge make non-performing or “breaching” party comply with his or her obligations.
If purchase agreement is drafted clearly and with sufficient detail, it may be possible to have court specifically enforce agreement (e.g. make breaching party do what purchase agreement says he or she is supposed to do). An example would be where a buyer refused to complete a transaction even though seller and aircraft complied with all of terms of purchase agreement. In this case, a court could force buyer to purchase aircraft.
Alternatively, court may award money damages for losses incurred by non-breaching party. An example of this is when a seller refuses to return a deposit even though buyer has complied with all of terms of purchase agreement and has a right to return of money. In this situation, a court could enter a judgment against seller in amount of unreturned security deposit.
Conclusion
An aircraft purchase agreement is a valuable tool to ensure that each party to an aircraft purchase transaction receives what is expected. It prevents confusion and misunderstanding and provides security that a party will have recourse if other party to transaction fails to perform as required. With minimal up-front time and expense, both buyers and sellers can protect their interests and maximize likelihood of an uneventful closing and purchase.
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.