Clear regulations would minimise disputes in pre-owned business aircraft deals
If there were clearer rules about the circumstances in which the money needs to be refunded to the paying party there would less disputes resulting in litigation in the pre-owned transaction process said Derek Bloom. Speaking at Wednesday’s (July 22nd) Corporate Jet Investor Town Hall, Bloom, partner at Atlantic Aviation Legal Services, presented his recent findings from a survey of litigation resulting from aircraft deals over the past decade.
Bloom recently published an article on this website, Aircraft Transactions: Deal or No Deal?, in which he outlined the numerous recurring disputes which have resulted in litigation. From purchasers demanding their deposit upon a failed purchase, escrow companies paying deposits to the wrong party, to brokers seeking exclusive listings. All being conducted, in the main, by groups of strangers.
One example Bloom gave to delegates: “There is a number of problems with the undisclosed flip sale and back-to-back transactions. Where a buyer who is the third purchaser in line, so it’s a back-to-back-to-back transaction. There are cases where people are putting up a $2.5m deposit and some of that is being used as a deposit for the first and second transaction before the one going to the company who are making the deposit. And then things go wrong for various reasons.”
Now that deposit is at risk. The person who paid the $2.5m wants it back, as they have not managed to purchase the aircraft. However, the seller in the first, and possibly second, transaction also request their deposits back. Bloom said the lesson is that a purchaser’s deposit should never stand as the deposit in another transaction. To instruct this it should be included within the Letter of Intent (LOI) and ideally, according to Bloom, the deposit should be entered into an escrow transaction.
After studying examples of litigation Bloom concluded: “To do the best possible transaction, be clear about what the transaction is going to do if it isn’t moved to a signed APA [Aircraft Purchase Agreement] or doesn’t close. I think if there were more clear rules about what in what circumstances does the money need to be refunded to the party that paid it, that would help.”