A verbal agreement might seem like an appealing way to quickly work out a deal to buy an airplane, but a written contract is usually required by law. Most states have adopted Uniform Commercial Code § 2-201, which typically requires an agreement for the sale of goods valued at more than $500 to be in writing, and any party who doesn’t sign it generally cannot be forced to comply with its terms.
Transactions often involve email or texts, and in some jurisdictions these written exchanges may be cobbled together to meet the requirements of a contract; typing your name at the end of a message can constitute a signature. To avoid misunderstandings, consider adding a disclaimer that the message isn’t a contract. Your final written agreement should also clearly state that it constitutes the entire agreement between the parties and that anything not contained in the formal written agreement is not valid or binding.
A well-drafted agreement covers a host of provisions beyond price, such as those clarifying any representations or warranties by the seller about the aircraft’s condition and title; the buyer’s right to a prepurchase inspection; financing contingencies; handling of any deposits; closing and delivery details; and responsibility for taxes. It will also specify dispute resolution, the applicable state law, and how modifications to the agreement must be made.
Many sample agreements may be found online, including from the AOPA Legal Services Plan, but these should only be used as a starting point for working with an attorney to draft an agreement tailored to the purchase and applicable state law. This also provides an opportunity to discuss the best ownership structure for the buyer as well as plan for the impact of state and local taxes, including sales and use taxes, registration fees, and personal property taxes.
Ideally, the agreement will provide that the buyer has a right to a prepurchase inspection by a mechanic of their choice—especially in the usual case where the aircraft is being sold “as-is.” This is the opportunity to identify issues to be repaired by the seller, negotiate an appropriate price adjustment, or walk away. There is no definition of a prepurchase inspection, so the buyer must specify to all involved exactly what should be covered by this inspection.
Having an A&P mechanic with inspection authorization perform an annual in accordance with FAR Part 43, Appendix D is one way to know the inspection’s exact scope and detail. Choosing a shop that carries error and omission insurance may give the buyer some protection if the inspection is not properly performed. If the aircraft has been continuously maintained by the same shop, it may be wise to have the inspection performed elsewhere by a mechanic who can objectively review the aircraft’s maintenance history.
While a purchase/sale agreement should also require the seller to warrant they hold legal title to the aircraft and that it will be transferred to the buyer free of liens or encumbrances, this doesn’t negate the need for a title search. A title search will reveal any breaks in registered ownership history, existing liens or security agreements, dates of sale, and other information that helps identify any financial liabilities that cloud the aircraft’s title.
A clouded title creates issues with financing, while for cash buyers it creates uncertainty as to their right of ownership. Most aircraft lenders use the aircraft as collateral for the loan by placing a security agreement on file with the FAA, so the lender will usually insist on a title search to verify that someone else doesn’t already have a legal claim to the aircraft. A cash buyer who could purchase an aircraft despite a clouded title should consider that if the aircraft is sold in the future, potential buyers will likely insist on a clear title.
Clearing a clouded title can be time consuming. A release of lien must be obtained from the lienholder or its successor, which may be difficult for older liens like those held by banks that have been subject to mergers over the years. Sometimes, a “quiet title action” must be brought in court to settle any possible or actual disputes over who has a legal interest in the aircraft. Quiet title actions often take many months and thousands of dollars to resolve.
A good purchase/sale agreement, prepurchase inspection, and title search go a long way in protecting a buyer, but so will having the advice of an experienced attorney. The AOPA Pilot Protection Services plan provides one hour each year for basic, and two hours for plus, for member consultation with an AOPA panel attorney regarding purchase or sale of an aircraft.