Demystifying the Aircraft Purchase Agreement
An aircraft purchase and sale agreement is a document that details the terms and conditions under which an individual buys an aircraft from a seller. The primary purpose of the agreement is to clearly stipulate the obligations of everyone involved in the transaction and to cover all possible scenarios that could occur during the process. An aircraft purchase agreement is mandatory in all aircraft transactions, and it serves as a safeguard for both parties to ensure full disclosure and security that all state and federal laws are being followed.
The terms of an aircraft purchase agreement are explicit and thorough , and they include the following: The buyer will only be required to follow the steps outlined in the contract. If the seller fails to adhere to the regulations within the contract, then the buyer can seek full restitution for damages or even take legal action. An aircraft purchase agreement will usually be 10 pages in length. There are four essential provisions that are outlined in the contract including technical specifications, price and payment, title, and closing.
Preparing a Your Aircraft Purchase Agreement in Word
To create your proposal in Word, you simply start with the newest version of the template and edit it to fit the specifics of your transaction. Using the auto-scheduling feature of Word (not unlike that used in the creation of schedules in the new purchase agreement), you can create an entire agreement that looks professional and flows with the chapters done in the order of your choosing. Further, the formatting this way ensures that your chapters will stay in order.
Another optional feature, if you already have all the information to finish your deal, is to make extensive use of the "Find and Replace" Feature of Word. This will allow you to create a proposal by inserting information from other Word files or, in most cases, past Word files you already have on various transactions. You may, for example, save that the new aircraft you are purchasing is a Gulfstream G200 with registration number N1234A. Then if you are using a purchase agreement template from a previous G200 deal, all you need to do is open that file in Word and "replace all occurrences of [the aircraft model] with [G200]." You would do the same with the aircraft registration and other variable points within the body of the purchase agreement chapter text. This is a powerful tool if you’ve done previous deals and want to create a new one quickly in Word using your existing materials. It is also a useful tool for preparing a proposal for financing; however, if you are doing a full-blown purchase agreement and plan to book the deal with your own lender, I would suggest using the template that is already integrated into the 2009 template so that your lender will be satisfied with what you present to them.
Section by section, the best practice is to use the form provided in the template so as to eliminate the need to number pages (Word will do that for you with headings) and to make sure you remember to put in all the required information before providing the document to a bank for review since a template will not let you proceed to the next paragraph until you put in required elements. Of course, there is also the option of hiding sections and printing only those you need. This has the added benefit of keeping the page numbers in the right order, although it can have the disadvantage of hiding information you do not want hidden if you forget to un-hide it before sending it off.
The templates from the FAA purchase agreement site are not the only ones out there. However, they are relatively easy to work with, relatively easy to change, relatively comprehensive and relatively "free." My suggestion is to start with them and to:
• Read through them to see if they include all the issues that will come up in an aircraft purchase transaction. The templates were created only for the most common situations; however, they do address most problematic issues.
• Take a look at the two templates of bills of sale that can be integrated into one another – one for state sales tax and one for federal taxes. This is a good way to make sure you are getting all the taxes you need to collect on the deal. You will, however, need to put in all the information for your buyer and seller as well as the aircraft model in the Right Plane Bill of Sale template. The form is set up for a jet or turboprop. For the record, I always leave tax questions to my CPA because states and jurisdictions all have different rules and fees.
• Use the templates as checklists for you to use within the deal. For example, since bills of sale are required for the sale of an aircraft, the templates have a note on the relevant page to remind you to prepare them. However, there is no section on bills of sale in the purchase agreement text because, in that situations, the bills of sale are not part of the deal, at least as far as closing the purchase is concerned, and so they are not an essential part of the purchase agreement addendum.
Once you’ve had a chance to go through them, you can also use the same format to create new proposals for the sorts of deals that you do. For example, I have created an offer letter template for new buyers that sets them out on letterhead with a few introductory paragraphs while using the basic form of the purchase agreement to fill in the basic information. You may, of course, use the purchase agreement purchase agreement as the basis for many documents to bring off-the-shelf or to create from scratch.
One severe pitfall that you can run into is a definition you put in Chapter 1 that is perfect for one deal, but too narrow for another deal. You may want to consider using the definitions for Chapter 1 as a comprehensive list and moving the more narrow definition that occurs later in Chapter 2 to the relevant place in Chapter 1 so as not to confuse the reader of the deal. I can’t tell you how many times I’ve had to give explanations for why the definitions differ in the two chapters.
Overall, the purchase agreement templates are helpful tools in creating your own purchase agreement template for your specific transactions. They do take some time to get used to and to integrate into your particular business, but overall, the time spent with them is well worth the effort if only because they should lead to a much more polished product than you can find anywhere else.
Key Components of an Aircraft Purchase Agreement
An aircraft purchase agreement template is a useful tool for structuring the purchase of an aircraft. Yet, the critical element in the purchase of an aircraft is the purchase agreement itself. An agreement that has been manipulated and adapted to the particular transaction involving the buyer and seller of the aircraft is what protects the parties. The most substantial sections of an aircraft purchase agreement will include the identification of the parties, the description of the aircraft, payment terms, warranties and delivery conditions. Unique information for the buyer and seller should be added to the aircraft purchase agreement template in Word. For example, the serial numbers and model for the engines should also be added to the purchase agreement for both the buyer and seller.
Legal Considerations in the Drafting
In addition to the commercial terms that must be covered in an aircraft purchase agreement, there are also important legal considerations under applicable domestic law and international law.
The templates of aircraft purchase agreements to be found on the Internet are not specific to your situation and therefore may be lacking critical provisions required under domestic and international law. The most important consideration for any aircraft purchase agreement is to ensure that it complies with applicable aviation laws in the jurisdictions of the seller and purchaser, and more specifically in the jurisdiction that will register the aircraft and issue a certificate of airworthiness. This is particularly important if the aircraft will be registered outside the United States. A good example of an aircraft purchase agreement template that complies with these various laws can be found in the five-appended exhibits to FAA Advisory Circular 20-18G. Even then you should have an aviation attorney at least review your purchase agreement to ensure that it covers all of the appropriate considerations under applicable law and that the terms of the agreement comply with those laws . An aircraft purchase agreement that fails to meet specific requirements under domestic or international law can result in delays and increased costs in completing the aircraft transaction. Aviation transactions involve highly regulated tax issues. For example, the sale and use of aircraft can be subject to value added tax (VAT), excise tax, sales tax, use tax, and other transaction taxes. An aircraft purchase agreement must address such taxes and the parties must undertake proper planning to avoid adverse tax issues, including double taxation. Aircraft are also subject to registration requirements, including matters such as obtaining export certificates of airworthiness and certificates of airworthiness from the aircraft registry in the jurisdiction in which the aircraft will be registered. Often times the aircraft registry has very specific registration requirements that need to be addressed in your aircraft purchase agreement. Additionally, parties should consider the tax and regulatory issues that will be raised by registering the aircraft in a particular country.
Drafting to Suit the Purchase
Although the template is extremely comprehensive, it must be customized to meet the particular transaction. One of the most important aspects is recognizing that your purchase agreement may need to address specific needs, such as: In each case, the template can be modified to include special or supplemental terms and conditions to the purchase agreement as are necessary to meet the particular needs of the buyer and seller. Not only should you modify the existing template entries, but you may well need to add one or more additional pages at the end of the template. Be sure to include your name at the top of every page on the "addition" pages so that each specific addition will appear on every page, which means that none of the pages can be deleted without notice.
Helpful Tools to Use
In today’s digital age, there are a variety of tools and resources available to assist with drafting an aircraft purchase agreement. One of the most common resources is the use of drafting templates. These templates can be found in a variety of legal drafting software, such as Clio or ContractWorks. These templates often provide boilerplate language for common contractual provisions, great reference for other provisions that the parties may need to consider during the drafting process. Additionally, there are a number of templates available online (many available for free). Examples of these templates include: Though helpful for reference, online templates should be used with caution, as not all templates are created equal, and some may contain crucial errors and omissions. Another resource available to the general public for drafting an aircraft purchase agreement is Microsoft Word itself . Though an imperfect solution, certain tools within Microsoft Word allow the user to more easily view and revise large and complex documents. For example, when drafting an aircraft purchase agreement in Microsoft Word, the "compare" function under the "review" tab is particularly helpful when reviewing an aircraft purchase agreement. When drafting a new agreement in Word, switching between "simple markup" and "no markup" options may also help to more cleanly review a new agreement. The best solution for any individual or entity looking to draft an aircraft purchase agreement, however, is to retain the services of a qualified aviation attorney. Only an attorney can advise on the exact terms and conditions that the aircraft purchase agreement needs to include based on the specific facts and circumstances of the transaction.