NAFA board member and President of AOPA Aviation Finance Company, Adam Meredith writes about how to fairly split the costs of buying an aircraft.
You finally found it—that first turboprop. The aircraft looks good, but there are inspections, demonstration flights, and paperwork prior to any sale. Who pays for what as the purchase proceeds? The answer is all about fairness.
Know in advance
Have a consensus gathering meeting with the seller before the pre-buy inspection about how you are going to handle any problems found with the aircraft. What will happen if there are so many squawks that you no longer want to continue with the purchase? When you agree, put that information in the purchase-and-sale agreement. It’s much better than getting halfway through the purchase and discovering problems without a plan for addressing them.
If the pre-purchase inspection is also an annual inspection, include that in the purchase-and-sale agreement, adding who is responsible for the costs in the event the sale falls through.
Who pays what?
Obviously, the buyer pays for a pre-purchase inspection. Any airworthiness directives that need to be complied with are almost always the responsibility of the seller. Nice-to-have items that don’t affect the aircraft’s airworthiness—especially those that are expensive—usually end up getting negotiated. However, if there’s a service bulletin item, those too are generally the seller’s responsibility. In general, if something needs to be done, the seller pays. If it would be nice to repair or replace something, the buyer pays.
Here’s an example. Maybe the emergency quick-donning oxygen masks for the pilot and copilot could use an upgrade, the old ones work but are looking a bit tattered. The buyer may pay for that. But if the aircraft is approaching a limit for a landing gear overhaul, the seller will likely reduce the price to reflect the future cost. Alternatively, the buyer could just request the landing gear be overhauled as part of the inspection. In the end, negotiations tend to ebb and flow based on not only the personalities of the buyer and seller but also the supply and demand of the particular make and model aircraft.
Title and escrow costs
Not everyone recognizes the benefits to both the seller and buyer of closing a transaction with a title and escrow company. Both parties have a vested interest in making sure the documents are properly filed and thus should split that cost. Here’s a scenario that should give pause to the value from a seller’s perspective: Your buyer flies off on a “pink slip,” nothing is filed with the FAA and there’s an incident with the aircraft. Who do you think the attorneys are going to come after? Whoever has the deepest pockets! Even if it’s meritless, you may have to defend yourself and it’s going to come out of your pocket.
If the buyer is going to the seller’s location for a demonstration flight, generally the seller won’t charge the buyer for the fuel, but may limit the flight time. However, if the buyer is requesting to meet the seller away from the aircraft’s home airport, the buyer should expect to pay fuel costs. If the buyer wants to use his or her own shop for the pre-purchase inspection, same thing, the buyer should expect to pay for the fuel to get it there, and to get it home if the buyer declines the purchase. These are a few of the issues facing buyer and seller expenses, but the answer in all cases comes from asking, “Does it seem fair?”