Sample Contract

Co-Ownership Agreement Checklist

To help you and your attorney put together a co-ownership agreement, here's a checklist of some essential matters you should include in your agreement:

• Identity of the Parties and Aircraft: It may seem obvious, but don't forget to list the full name and address of each co-owner along with the date of your agreement. It's also a good idea to spell out the make and model of your aircraft along with its registration and serial numbers.
• Title to the Aircraft: Specify how the aircraft will be held by the co-owners - joint tenancy, tenancy in common, or other arrangements.
• Financing: In many cases, each co-owner will personally finance his or her own share of the aircraft's cost. If this is not the case, the details of financing arrangements should be spelled out in the agreement.
• Insurance: The co-owners should agree on the type and amount of liability insurance they want to carry. Consideration should also be given to hull insurance, deductibles, and whether you will get "in- motion" or "not-in-motion" coverage. You must make it clear that all aircraft operations must be in accordance with the terms of the co-owners' insurance coverage. For instance, allowing no commercial operations and limiting aircraft use to pilots with certain ratings or minimum hours. You will also want to decide who is responsible for deductibles in case of an accident.
• Basing: Where will your aircraft be based? You might consider limiting the number of days your aircraft can be taken from its home base without special permission from the other co-owners. Authorized Pilots: You should decide who you want flying your aircraft. After you've decided, put your restrictions in the agreement.
• Aircraft Scheduling: Depending on your aircraft usage, it may be necessary to create a formal system for scheduling your aircraft. A flexible, but carefully spelled out set of guidelines can save a lot of headaches in the future.
• Fixed Expenses: There should be some procedure spelled out for the payment of fixed expenses, including insurance, tie-down fees, annuals, and hangar fees. Will these expenses be paid based on equal shares by all co-owners or adjusted based on hours flown? Perhaps a fund can be maintained at a fixed level and be replenished by the co-owners on a regular basis.
• Operating Expenses: These are expenses like fuel, oil, and maintenance which generally increase with aircraft use. You may decide to bear these costs equally or in proportion to hours flown.
• Overhaul Fund: Some co-owners like to set up a fund which will be used at a later date to pay for the inevitable engine overhaul. If you think an overhaul fund is a good idea, you must decide how much should be contributed and how often contributions must be made. It may also be necessary to decide whether you want to refund any portion of the contributions to co-owners who sell their share of the aircraft.
• Aircraft Improvements: Procedures should be put in place in case some or all of the co-owners want to improve the aircraft in some way, such as by adding equipment. Do all co-owners have to agree before making any new improvements? How will improvements be paid for? Perhaps an adjustment will have to be made for each co-owner's share of the aircraft if they pay for improvements.
• Federal Aviation Regulations (FARs): This should go without saying, but you still may want to specify that all operations will be in accordance with the FARs. If there is a violation of the FARs and the FAA decides to impose a civil penalty against the co-owners as the "operator" of the aircraft, rather than against the individual pilots, you should decide on who will be responsible for paying the fine.
• Co-owners Responsibilities: It might be a good idea to delegate specific duties to each co-owner. These duties might include bookkeeping, scheduling, and maintenance.
• Timely Payments: The success of your co-ownership will depend in great part on how conscientious each co-owner is in meeting his or her financial obligations. Set deadlines for payment and penalties for delinquencies. If delinquencies reach a specified point, you may want to trigger a forced sale of the defaulting co-owner's share of the aircraft.
• Life Insurance: Co-owners may want to maintain life insurance policies naming the other co-owners as beneficiaries. This will allow the other co-owners to buy out the interest of a deceased co-owner.
• Sale of Aircraft: Decide how funds will be distributed when and if all the co-owners make a decision to sell the aircraft.
• Voluntary Sale of Co-Owner's Interest: This may be one of the most important considerations in drafting your agreement. Thought should be given to valuation of the co-owner's interest and notifying the remaining co-owners of the decision to sell. You must also determine whether remaining co-owners should be given a first shot at buying the selling co-owner's interest in the aircraft. Perhaps you will want to restrict the selling co-owner's ability to transfer his or her interest to third parties.
• Forced Sale of a Co-Owner's Interest: Provisions should also be made for those difficult situations where a co-owner fails to meet his or her obligations under your agreement. Decide on what deficiencies or defaults will trigger a forced sale. How will the expelled co-owner's share of the aircraft by valued? How will adjustments be calculated for amounts owed to remaining co-owners?
• Death of a Co-Owner: This situation must be addressed with the understanding that, in most cases, the deceased co-owner's family is the new co-owner of the aircraft. In many cases, it would be wise to provide for a sale in accordance with the rules you have drawn up for voluntary sale of a co-owner's interest.
• Arbitration: It may be a good idea to provide in advance for arbitration of disputes in lieu of litigation, which can be more costly and time-consuming. Be careful to follow any special requirements your state may have for arbitration clauses.
• State Law: Decide which state law you want to govern your agreement in case of disputes. Again, this checklist is designed as a guideline for drafting your co-ownership agreement. Remember, a professionally drafted agreement can save you a lot of anguish in the future.