Aircraft Purchase: Legal Aspects
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Aircraft purchase: Important legal considerations for a successful conclusion
Purchasing an aircraft is a significant investment and a demanding process for many professionals. At the outset, it is crucial to clearly define the "mission" - that is, to determine what requirements the aircraft must meet. These specifications are crucial for selecting the appropriate model and for efficiently researching both the new and used market.
Buying an aircraft is challenging due to the high purchase price, but technical uncertainties and limited market availability can also cause problems. To minimize both legal and technical risks, it is advisable to seek support from an experienced lawyer and technical experts.
In the following text, we explain the optimal process for purchasing an aircraft and explain the essential legal steps that are necessary to protect your investment and successfully complete the purchase.
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3Aircraft purchase law: Applicable law, warranty and broker liability at a glance
Which law applies when purchasing an aircraft?
Within the European Union, the so-called "seller's statute" applies. According to the Rome I Regulation, the law of the country in which the seller is established generally applies, unless otherwise agreed. A practical example of this is the sale of an aircraft from Germany to a buyer in the Netherlands; in this case, German law, specifically the German Civil Code (BGB), would apply. However, there are exceptions, for example if the aircraft is located in a third country at the time of sale. To avoid possible legal uncertainty, it is advisable to explicitly specify the applicable law and the place of jurisdiction in the purchase contract.
Warranty when purchasing an aircraft: commercial or private?
In private sales, it is possible to exclude the warranty in the contract, whereby the seller is only liable if he has fraudulently deceived the buyer. The situation is different for commercial sellers: here, an exclusion of the warranty can only be agreed with other commercial buyers. Private buyers, on the other hand, benefit from a reversal of the burden of proof, which applies to them for a period of 12 months. During this period, the warranty cannot be excluded, even if the seller is not an expert in the relevant industry.
An example of this is a furniture dealer who sells a commercially used aircraft to a private individual and excludes the warranty. If defects arise within the first 12 months, the seller is still liable, despite the agreed warranty exclusion.
Broker Liability When Buying an Aircraft
Brokers often play a key role in real estate and other transactions, whether through mediation or advice. If problems arise with the purchase agreement, it is advisable to examine the broker's role closely and carefully check possible breaches of duty. In particular, incorrect information or breaches of the duty to inform and advise can lead to liability on the part of the broker. This underlines the importance of the conscientiousness and professionalism of brokers in carrying out their activities.
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Buying an Aircraft: Key Factors for Making the Right Choice
The first step when purchasing an aircraft should always be to precisely determine the “mission” – that is, what tasks the aircraft should perform.
This consideration helps to narrow down the selection of suitable models on the market and to ensure that the aircraft chosen meets the desired requirements while providing the necessary safety.
By precisely defining the mission objectives, unrealistic expectations can be avoided and the most suitable aircraft can be found.
Consideration of exclusion criteria:
Defining the mission of an aircraft forms the basis for selecting the appropriate aircraft type and works similarly to a decision tree. This process excludes different aircraft types based on specific requirements and criteria. Important questions in this context are:
- mission objective: What goals should be achieved and is it necessary to achieve them nonstop?
- reach: What range is required, including an appropriate safety margin to account for unforeseen circumstances such as bad weather or air traffic control delays?
- availability of fuel: Can the necessary fuel, especially AvGas, be reliably obtained at the destinations?
These considerations help to make the aircraft selection efficient and ensure that the aircraft chosen is optimally suited to the planned missions.
Payload and cabin pressure:
The range of an aircraft is largely determined by its weight and the amount of fuel required, which in turn depend on factors such as the number of passengers and cargo capacity. Therefore, the desired number of passengers and cargo capacity are decisive criteria when selecting an aircraft.
Special requirements also arise for the aircraft if flights are planned over large bodies of water or if pets and small children are to travel with the aircraft. In such cases, a pressurized cabin is necessary, which enables higher flight altitudes and thus increases comfort and safety during the flight.
In terms of engine count, choosing a single-engine model is often a viable option. Single-engine aircraft are not only reliable, but also require less pilot effort, which can increase safety. These models offer an efficient and cost-effective solution for many flight missions without sacrificing performance or reliability.
Commercial use and drive technology:
If the aircraft is to be used commercially, this will influence the choice of model. Particularly relevant here are the decision between piston or turbine engines and the choice between single or twin-engine aircraft.
Operating costs and investments:
It is important to accurately calculate the operating costs per flight hour and to consider the possible investments in future technical upgrades or necessary overhauls.
These factors can significantly impact running costs, both positively and negatively.
Legal protection through a quality agreement:
It is advisable not to rely on verbal promises or information in the exposé and to record all the essential characteristics of the aircraft in writing in order to avoid later disputes. A clear and detailed written specification of the relevant characteristics of the aircraft in the contract as a so-called quality agreement is highly recommended. This safeguard protects the buyer against material defects if there are deviations between the contractually agreed and the actual condition of the aircraft.
Aircraft purchase: research, initial viewing and pre-buy inspection
With a clearly defined mission, the search can be narrowed down to specific aircraft models and years of manufacture. The initial research is carried out via relevant online platforms and can be supplemented by inquiries in the "off-market" area with specialized brokers. The aircraft market is highly illiquid, many offers are outdated, misleading or susceptible to manipulation. A careful and time-consuming verification process is necessary to identify genuine offers. Not only the price is important, but also the duration of the offer and the availability of information on the history and use of the aircraft. Statements from sellers and brokers should be documented, as they could be important in legal disputes. A written summary by email after discussions helps to record important information. Possible liens should be checked, especially in the case of American-registered aircraft (N-Reg. aircraft), as these are often pledged.
First aircraft sighting and letter of intent (LOI):
After the research, the aircraft is inspected, during which an expert checks the condition of the aircraft and checks the documentation for completeness, authenticity and plausibility. Proof of ownership and any liens should also be checked. If the first impression is positive, an initial price negotiation and reservation of the aircraft by an LOI (Letter of Intent), which regulates the conditions of the purchase process and the responsibility for possible defects.
Pre-buy inspection and test flight:
If the aircraft is still an option, a comprehensive pre-buy inspection is carried out by a certified aviation technician. This inspection includes a thorough check of the technical condition and the aircraft's life record, which often includes extensive documentation for older aircraft. The inspection should ideally take place in a workshop and take one to two days. A list of defects is drawn up. Certain defects can stop the purchase process, and these termination criteria should be recorded in the LOI through seller assurances. It can also be negotiated that the seller will cover the inspection costs if assured conditions are not met.
Aircraft takeover, transfer and registration: Important planning steps for a smooth purchasing process
Planning the takeover and registration of the aircraft:
Before concluding the final purchase contract, important plans should be made for the takeover, registration and possible inspections or repairs.
Key questions include:
- In which country will the aircraft be registered?
- What taxes and fees apply?
- How is the aircraft transported to the designated shipyard or hangar?
This phase is very individual and often brings with it organizational challenges. A detailed cost planning of these steps is crucial and can even be more important than the pure purchase price.
Admission requirements and tax aspects:
The requirements for approval vary depending on the country and the relevant authority. Different documents and approval deadlines must be taken into account. In some EU countries, importing the aircraft may also trigger special taxes or a luxury tax, which should definitely be taken into account when planning.
Purchase contract for the aircraft:
The purchase contract regulates all essential conditions, such as purchase price, assurances and payment terms.The point in time at which risk is transferred - i.e. the moment when responsibility for the aircraft is transferred to the buyer - is particularly important. It influences the insurance status and clarifies possible liability issues in the event of damage caused by weather events or external influences.In the case of financing or leasing, clear regulations for the respective steps must be set out in the contract in order to create a legally secure basis for the purchase of the aircraft.
Common technical defects when purchasing an aircraft: Important inspection points to avoid problems
Propulsion problems in turbine aircraft:
Hot start incidents: In turbine aircraft, especially the PT6 models, so-called “hot start events” can occur after the last hot section inspection (HSI). These can cause enormous costs – often up to 250,000 euros.
Foreign body damage at the inlet: Damage caused by foreign objects is a common cause of problems with the intake, especially when landing on grass runways. This can significantly affect performance.
Propulsion problems in piston aircraft:
Turbocharger wear: Incorrect handling or improper shutdown procedures often lead to increased wear of the turbocharger, which can result in costly repairs.
Increased oil consumption: Oil consumption of more than 1 liter per hour may indicate improper maintenance or inadequate overhauls, which is another sign of possible technical problems.
Electrical and mechanical problems:
Avionics failures: Corrosion or invisible defects, often caused by prolonged outdoor storage or salty air, often lead to failures in avionics. These problems are often difficult to detect and occur when the aircraft is in active use.
Faulty instruments: Sporadic flight instrument malfunctions may occur, but are often only discovered after a flight.
Corroded control cable: Moisture trapped between the outer shell and the inner lining can cause corrosion of control and traction cables, affecting flightworthiness.
Problems with the pressurized cabin: During flights at higher altitudes, defects in the pressurized cabin often occur, which can lead to safety risks.
Faulty avionics installations: Subsequent avionics installations should always be checked for approval by a Supplemental Type Certificate (STC), otherwise they may not meet legal requirements.
Structural defects:
Corrosion under the aircraft structure: Corrosion that occurs in hard-to-reach areas of the structure often goes undetected but can compromise structural integrity.
Damage caused by landing shocks: Especially on aircraft with retractable landing gear, hard landings can lead to structural damage that often only becomes visible later.
Stress damage caused by excessive taxiing: If the aircraft is moved at too high a speed on the ground, considerable stress can be placed on the landing gear, which can later lead to total loss.
Legal problems:
Missing or outdated emergency supplies: The lack or obsolescence of emergency equipment such as oxygen cylinders can lead to legal and logistical difficulties when they are required for registration or use.
Approval of components: Every component of an aircraft must be approved for the specific model. Unapproved replicas often require a Supplemental Type Certificate (STC) to ensure legal protection.
These common technical defects should be carefully checked when purchasing an aircraft to avoid expensive consequential damage and legal problems. Our lawyers are on hand to thoroughly review the legal and technical details so that you do not experience any unpleasant surprises.
Aircraft purchase and German law: key judgments and legal pitfalls
US lien as a legal defect in aircraft purchase (BGH)
When purchasing a Cessna Skymaster, it was clarified whether a registered US mortgage represented a legal defect. The Federal Court of Justice (BGH) ruled that a mortgage registered in the USA is recognized for German buyers and must be treated like a German registered mortgage. Even if the buyer was aware of the mortgage, the seller remains responsible, as such entries are considered mortgages under Section 98 of the Aircraft Act (LuftFugG) (BGH, judgment of October 7, 1991 - II ZR 252/90).
Airworthiness Directives and Defects (LG Hildesheim)
In the case of a Beechcraft 23/24 Musketeer, the Hildesheim Regional Court ruled that failure to implement prescribed airworthiness instructions constitutes a material defect. Ignoring such instructions leads to unairworthiness and can result in subsequent performance or claims for damages by the buyer (Hildesheim Regional Court, judgment of October 10, 2003 – 4 O 227/03).
Airplane declared “accident-free” (Higher Regional Court of Munich)
When purchasing a Piper Cheyenne PA.31T1, accident-free operation was stipulated as part of the contract. It later emerged that the aircraft had already suffered a serious accident. The Munich Higher Regional Court ruled that the designation "accident-free" represents a binding quality agreement and allows withdrawal in the event of a breach of contract (Munich Higher Regional Court, judgment of February 14, 2019 - 8 U 130/18).
Priority of subsequent performance when purchasing an ultralight aircraft (OLG Brandenburg)
A buyer of an ultralight aircraft withdrew from the purchase without setting a deadline. The Brandenburg Higher Regional Court ruled that the buyer should have first set the seller a deadline to remedy the defect. Withdrawal without setting a deadline neglects the priority of subsequent performance in accordance with Section 439 Paragraph 1 of the German Civil Code (Brandenburg Higher Regional Court, judgment of March 15, 2019 - 7 U 94/18).
Premature termination of an eBay auction for a Cessna FR 172 K (LG Berlin)
The seller prematurely cancelled an eBay auction, which led to a dispute over the transfer of ownership of the Cessna FR 172 K. The Berlin Regional Court ruled in favour of the highest bidder, as the premature cancellation was considered a binding purchase contract. A subsequently discovered, repairable engine failure was not sufficient grounds for contesting the auction (Berlin Regional Court, judgment of May 15, 2007 – 31 O 270/05).
Typical legal challenges and how we support you:
Applicable law and place of jurisdiction:
The international aircraft market often requires clarification of the applicable law and the competent jurisdiction. Our lawyers will help you to define these aspects contractually and resolve potential conflicts in advance.
Examination of liability for defects:
Hidden defects, especially in used aircraft, can cause high costs. We support you in identifying material defects and help you to anchor reliable liability for defects in the purchase contract.
Protection through quality agreements:
Special characteristics such as “accident-free” or “airworthy” should be recorded in writing as a quality agreement in order to legally secure your claim to a defect-free handover of the aircraft.
Financing and leasing contracts:
The financial structuring of an aircraft purchase, whether through financing or leasing, also involves legal complexities. We provide you with comprehensive advice on the contractual conditions and support you in the contract drafting and negotiation.
Liens and registration:
When making international purchases, legal peculiarities such as the registration of liens in the aircraft register must be taken into account. We check whether the aircraft is encumbered with a mortgage or lien and clarify legal questions regarding registration and takeover.
Avoiding legal risks when purchasing an aircraft
Our experienced aviation lawyers offer you tailor-made advice and ensure a legally secure purchase transaction.
From the initial interest in purchasing to the final signing of the contract and beyond, we are at your side to protect your investment. Trust in our expertise to complete your aircraft purchase successfully and legally.
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