A warranty is promise by one party about the current and future state of an aircraft. Ordinarily, aircraft purchase agreements include only a warranty of title to ensure that the buyer receives title to the aircraft free of any liens or interests. Otherwise, in most aircraft purchase agreements, there will be a provision that the aircraft is on an ‘as-is, where-is’ basis.
Aircraft are fickle things that tend to break and are costly to repair. A disclaimer in the aircraft purchase agreement stating that the buyer is purchasing the aircraft ‘as-is’, is intended to limit the seller’s responsibility for any defects or unknown conditions in the aircraft. The expression ‘as-is’ can however be misleading. When furniture at a garage sale has a sign that reads ‘as is’, it means something along the lines of this is what you get, even though it might have problems that are irreparable, and which we are not going to fix. In an aircraft purchase agreement however, there is usually a requirement that the aircraft at the time of delivery be in an airworthy condition.
Choice of Law/Venue
When the buyer and seller are from different provinces or countries, it is prudent to include language in the aircraft purchase agreement that specifies which law applies to the transaction if any disputes were to arise. Having agreed-to provisions regarding the choice of law and jurisdiction is especially crucial since aircraft are mobile assets to begin with. Some laws tend to be more or less favourable, or
import certain outdated procedural delays into resolving a dispute.
Waiver and Release of Liability
Sellers will usually include a waiver and release of liability language in the aircraft purchase agreement to limit potential liability for injury or damage sustained by the buyer while using the aircraft. This will not release a seller from responsibility for any intentional acts or gross negligence.
Delivery Conditions – Airworthiness
The delivery conditions of the aircraft are often at the heart of the aircraft purchase agreement. In most aircraft purchase agreements, the buyer can conduct a pre-buy inspection and conduct due diligence before making a final decision on whether to acquire the aircraft. Whether everything has to be working properly on the aircraft, or only things necessary to render it ‘airworthy’, has to be addressed during the negotiation of the aircraft purchase agreement.
Delivery conditions require particular attention when the deal is ‘hard’; when the agreement is signed and the purchaser’s deposit is no longer refundable. At that point, unless the seller refuses to or cannot deliver the aircraft in the condition specified in the aircraft purchase agreement, the purchaser cannot terminate the contract and get the deposit back.
Remedies on Default
If the buyer defaults in a ‘factory-new’ aircraft purchase agreement, the manufacturer’s remedies would usually allow them to keep all or part of the deposit. With pre-owned aircraft, deposits can range from a few thousand dollars to over a million, so buyers might have a strong incentive to go through with the deal if they are obligated to do so.
Apart from having the deposit refunded, there are not always consequences for a seller who defaults because they decided to sell the aircraft to a different buyer. There are practical limitations when buyers successfully negotiate rights. Nonetheless, possible arrangements can be stipulated in the aircraft purchase agreement so that the seller must also pay for some or all of the buyer’s transactional expenses, such as the cost of the pre-buy inspection.