Key Points
Populating a template lease summary is an effective way to confirm significant commercial, legal and technical provisions in lease due diligence.
Comprehensive seller and lessee representations may be negotiated in the sale and lease-assignment agreements to round out the due diligence.
Real-world examples of unscheduled lessor payment obligations to the lessee and successive lease term extensions demonstrate the efficacy of this approach.
Introduction
This advisory discusses how a buyer of a portfolio of aircraft subject to existing leases may effectively use a template lease summary rounded out with seller and lessee representations to perform due diligence on the leases and mitigate risk. Due diligence on a portfolio of leased aircraft will include reading the lease documents, confirming the commercial terms match the seller's marketing materials, confirming that most provisions of the lease are within industry norms, confirming that the lease complies with minimum lease provisions set forth in the lessor's financing agreements (if applicable), and identifying and nonstandard provisions. Appropriate representations may then be sought from the seller in the aircraft sale agreement and the lessee in the lease novation or assignment.