So, you've met with the salesperson, been dazzled by the fancy brochures and decided that you're in—you're going to buy a fractional jet share. What's next?
You'll receive a set of contract documents from your provider. The contracts are short and are made to look like standard "boilerplate." Your salesperson will do his best to convince you that everyone signs the same simple contract. Don't be fooled. These documents govern your rights and obligations with respect to what most likely will be a multi-million dollar investment, and they are negotiable. Here's a brief primer that describes the critically important documents and what they mean to you:
If your provider is awaiting delivery of your aircraft, it may want you to put up a deposit to hold your share. This document should identify the specific aircraft in which you're buying the share, guarantee that the pricing won't change and a include a firm delivery date. Most importantly, make sure you understand how and when your deposit becomes nonrefundable.
This is the document through which you purchase your fractional share from the provider. We make sure that this document includes iron clad representations and warranties from the fractional company regarding title to, and the condition of, the aircraft. Just as important, the Purchase Agreement provides the terms under which the provider will repurchase your share at the end of your contract term. All too often, buyers don't consider the likely decline in value of their aircraft, and thus their share, when projecting the "all in" cost of their investment. Shaircraft negotiates these repurchase provisions to make certain that the process for determining the repurchase price for your share is fair. Along with the repurchase provisions, we also negotiate the provisions of this agreement (and the Management Agreement discussed below) relating to your right to assign or otherwise transfer your share so that you enjoy as much liquidity in your investment as possible.
Master Dry Lease Exchange Agreement.
This document governs the relationship among all fractional owners in the program. Essentially, each owner agrees to share his plane with every other owner, thus enabling the provider to utilize the entire fleet to service all the owners. This arrangement is a common feature of all fractional programs; so much so that you may rarely, if ever, actually fly on the aircraft in which you own a share.
Along with the Purchase Agreement, this document provides the core terms of your investment. Nominally, it reflects your appointment of the provider as the manager of your aircraft and as the administrator of the fractional program. More importantly, the Management Agreement tells you when you can fly, how many hours you can fly and what costs you'll incur when you fly. It describes how your flight time will be calculated, what you'll pay if fuel prices go up, and how far in advance you must reserve your flight. It spells out your right to interchange, i.e., use other models of aircraft in the fleet, and how you'll be charged if you do. It specifies "peak travel days" when greater restrictions on your use of the aircraft apply; and it maps out the service area within which you can fly. Shaircraft heavily negotiates these provisions to make certain your travel needs are accommodated so that you get the most value from your investment.
These contract documents, and not that beautiful brochure, will govern your rights and obligations. The contracts may look simple, but if you don't read and negotiate them carefully, you may make a multi-million dollar mistake.