Aircraft Purchase Agreements
© 2004 Reigel & Associates, Ltd./Aero Legal Services. All rights reserved.
Why Use An Aircraft Purchase Agreement?
It always surprises me when a potential aircraft buyer is unsure of whether he or she should use a purchase agreement when buying an aircraft. Most of these individuals have purchased homes and no doubt used a purchase agreement in such transactions. Yet, many of these same individuals would spend same amount of money to purchase an aircraft, and often times a great deal more money, without protection of a written aircraft purchase agreement.
Aircraft purchase agreements should be used in almost every aircraft sale transaction. First, law in most states requires that a contract for an amount greater than $500.00 be in writing in order for it to be enforceable. This is called statute of frauds. Although exceptions to this legal doctrine exist, complying with law is usually safer than hoping you will be able to take advantage of an exception.
Further, using an aircraft purchase agreement can also help avoid confusion and misunderstandings. If agreement clearly explains how transaction will happen, when it will happen and what is included in deal, greater likelihood that buyer and seller will each know other party’s expectations and less chance for surprises or misunderstandings.
What Terms Should Be Included?
The number and complexity of terms that should be included in an aircraft purchase agreement will often times be dictated by type and value of aircraft being purchased/sold. Although by no means inclusive, following terms provide a good place to start.
Identify Parties. The agreement should identify who is selling aircraft and who is buying aircraft. Although this sounds simple to do, it isn’t always clear who is seller and who is buyer. It is very common for aircraft to be registered in name of a corporation or limited liability company. In that case, individual with whom you are negotiating is not owner of aircraft and should not be listed as seller. The registered owner of aircraft should be identified as seller.
The buyer on other hand, can be an individual or a corporation or limited liability company. If an individual is buyer, that person will be listed and upon registration will be record owner of aircraft. To fully take advantage of release and indemnity language discussed in greater detail below, seller may also want to consider having an individual buyer’s spouse execute purchase agreement.
If a corporation or limited liability company will be registering aircraft, purchase agreement should identify that entity as buyer. Alternatively, an individual can sign an agreement as buyer and, as long as agreement allows buyer to assign his or her rights under agreement, that individual may still assign agreement to a corporation or limited liability company prior to closing. The corporation or limited liability company then becomes buyer and can close on transaction without individual ever entering chain of title. From a liability perspective, this can be important.
Identify Aircraft. The aircraft purchase agreement should identify aircraft with as much detail as possible. At a minimum, it should include make, model, N-number and serial number for aircraft. Ideally, a list of all avionics, logbooks, handbooks, additional equipment and any accessories should be included. Also, if seller intends to retain certain items, those items should be specifically identified and excluded from transaction. By taking time to detail exactly what is and isn’t being sold, you will prevent misunderstandings at delivery.
Purchase/Sale Price. The agreement should specify how much is being paid for aircraft. If buyer will be giving seller a deposit or earnest money, that fact should be included. Also, what happens to deposit when it is given to seller? Will money be placed in escrow or simply held by seller? If an escrow agent is not involved, buyer will need to obtain some assurance that his or her deposit will not simply disappear into seller’s pocket making buyer’s recovery from seller difficult or impossible if transaction does not close. The agreement should also state under what conditions seller must refund deposit to buyer.
The buyer’s method of payment should also be stated. Is it a cash transaction or will financing be involved? If financing is involved, buyer may want to include language that makes transaction contingent upon buyer obtaining financing on terms acceptable to buyer. That way, if buyer isn’t able to obtain satisfactory financing, buyer will not be forced to complete purchase on financially unacceptable terms.
Will other consideration be given to seller, such as a trade? If so, to extent that it is possible, item(s) to be traded to seller should be identified with same amount of detail used to describe aircraft being purchased. This will help avoid later confusion.