hen purchasing an aircraft, it is important for a buyer to retain an aviation attorney who possesses the knowledge and experience necessary to navigate through the complicated, and sometimes lengthy, purchase process. Aviation law is a complex field that incorporates many different aspects of the law. An aviation attorney plays a vital role as an advocate and consultant while guiding the buyer through the process. This includes, for example, negotiating with the seller on behalf of the buyer, working with the buyer to minimize both taxes and registration fees, and providing consultation on options for liability protection. An attorney ensures that every necessary step is taken to avoid future headaches with the various state, federal, and international regulators.
Once a potential buyer has selected an aircraft, the buyer should retain an aviation attorney to draft a letter of intent for presentation to the seller. A letter of intent is a document that identifies the property to be purchased, the purchase price, the deposit amount, and the process for inspecting, accepting, and delivering the aircraft. Simply put, it is an offer from buyer to seller for the purchase of the aircraft.
It is important to note that the letter of intent is non-binding and may be cancelled by either party at any time. Upon execution of the letter of intent, the parties will then negotiate, draft, and execute a purchase agreement. The purchase agreement must be signed by both parties in order for the terms agreed upon to be enforceable. It is at this stage that involvement of an attorney is most crucial. Here, the attorneys, in consultation with their respective clients, work through the details of the purchase agreement to ensure that both sides are properly protected. Once the document is finalized, it is signed by the parties and the terms become enforceable.
The buyer’s attorney will provide further advice on liability protection and tax planning. One of the easiest and most effective ways to plan against future liabilities stemming from aircraft ownership is to form a business entity in which to own the aircraft. This creates a liability shield which helps to protect the buyer from becoming personally liable for any claims arising out of the ownership or operation of the aircraft. For further liability protection planning, a qualified aviation attorney can also review an insurance policy to confirm that the aircraft is adequately insured.
Planning for tax and registration fees prior to the purchase of the aircraft can also save the buyer thousands of dollars. The various states have significantly different taxation laws and registration fees for aircraft owners. An aviation attorney with knowledge of various state laws can assist the buyer in choosing the state in which to register the aircraft and advise the buyer on the most advantageous tax strategies. For example, in some states, if an aircraft owner leases an aircraft to a charter service, and the charter service collects sales tax on the charters, the owner may be able to avoid the state’s sales and use taxes which would otherwise be applied on the purchase of the aircraft.
Finally, an aviation attorney facilitates communication with all third-parties involved, including, but not limited to, the escrow agent, maintenance operator, and the seller, as well as the applicable state, federal, and international authorities. Constant communication between the parties ensures that the purchase is completed smoothly and every necessary action is taken. This includes reviewing all title searches to ensure that the seller has clear title to both the aircraft and its engines, as well as assisting in registration of the aircraft with the applicable states, the FAA, and, if necessary, the International Registry. In addition, the attorney will negotiate which items revealed by the pre-purchase inspection will be fixed by the seller and identify an appropriate dollar amount to be held back from the purchase price to cover the cost of any repairs which could not be completed prior to the closing.
The purchase of an aircraft can, at times, be a lengthy and complicated process. An experienced aviation attorney can guide the buyer through the process and complete the purchase as quickly and efficiently as possible. Without the assistance of an experienced attorney, the buyer’s risk of missing an important step is high, and the financial, legal, and tax consequences can be significant.
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