Most Important Element in Aircraft Transactions

Do you have clear title to your aircraft? If not, you may not be able to sell it, and you may not want to buy one without clear title.

According to Greg Cirillo and Gary I. Horowitz of Wiley Rein LLP, in writing for The Metropolitan Corporate Counsel, clear title is the “single most important element in an aircraft transaction. It is the one objective that cannot be compromised and the one condition to closing that, if unsatisfied, will end a transaction.”

A clear title has gained even more prominence in a time in which repossession, voluntary surrender and distressed aircraft sales are more common, and buyers should use heightened caution, they write.

Cirillo and Horowitz define a clear title as “an expression reflecting that ownership of the aircraft is transferred free and clear of all mortgages, liens, leases or encumbrances, and that there are no legal questions or ambiguities as to the aircraft’s ownership.”

For the buyer, this means that he or she owns the aircraft completely and exclusively, without risk of a third party claiming ownership or a lien interest, according to Cirillo and Horowitz. For the seller, the clear title is “the essence” of what he or she is selling for the agreed upon amount. But even after selling the aircraft despite title problems, he or she may still be responsible to defend the buyer’s title to the aircraft at his or her own expense.

For a buyer to obtain a clear title, the seller must have originally acquired a clear title, resolved any existing impairments on the title and lawfully conveyed the clear title, Horowitz and Cirillo say.

Buyers must be aware that although titles and liens are filed with the Federal Aviation Administration(FAA), national and international registries do not create or prove clear title. Rather, they merely provide a place to register title and liens and find notice of filings affecting title, Cirillo and Horowitz report.

That means the parties of an aircraft transaction must rely on local law to determine whether a title was properly conveyed. The FAA is ineffective in cases of defective title transfer, defective lien creation, or termination and liens created without filing, they write.

To avoid the quagmire that post-closing title ambiguity and lien claims create, buyers and sellers alike should perform due diligence to ensure that the transaction involves a clear title.

Doing so is part of the “pre-buy” evaluation, and it is best to involve a professional broker such as L & L International, who can help not only with confirming that an aircraft will come with a clear title but will also scrutinize the jet with a trained eye. A broker will confirm the aircraft is right for the buyer, its physical condition, that it has a clean history and its papers are in order, and if it has been well maintained.

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