Know the Differences and Which is Right For Your Transaction
The refundability of the deposit is always a negotiating point in a transaction. These negotiations will determine the circumstances under which the deposit should be refunded to the buyer and when it should remain in escrow with the Seller having some right to access it in the event of buyer’s default. The most common negotiating point is around the timing that the deposit becomes no longer refundable at the buyer’s discretion. The common language for this difference is a ‘hard’ or ‘soft’ deposit.
A ‘hard’ deposit is when the buyer’s deposit is made non-refundable after the Purchase Agreement is signed and before the Pre-Purchase Inspection (PPI). Such non -refundability is conditional upon the seller meeting all its obligations of the Purchase Agreement, crucially including the Seller making sure that the aircraft is delivered in the agreed delivery condition and actually selling the aircraft to the buyer. It is important to note that a buyer’s deposit is rarely completely non-refundable. It is always contingent on the seller meeting all their requirements in the Purchase Agreement. The key difference is that the deposit is no longer able to be refunded at the buyer’s discretion.
A ‘soft’ deposit means the buyer’s deposit is refundable until after the discrepancies found in the Pre-Purchase Inspection have been reported. Importantly, it is normally the buyer’s sole discretion in a ‘soft’ deposit transaction as to whether or not they want to proceed once they see the list of discrepancies. In these scenarios, the buyer has absolute discretion to reject the aircraft
and have the deposit refunded in full whenever they like up to the time of their deciding to accept the aircraft by signing the ‘technical acceptance’.
This article was first published in Fly-By Newsletter Issue 18. For market updates and more articles like this, subscribe to our newsletter and receive it directly to your inbox. Subscribe through the contact box below or at this link: Subscribe here
