hell or high water clause aircraft leasing

2d 1029 (N.D. Iowa 2013), Hitachi Data Sys. The term for the clause comes from a colloquial expression that a task must be accomplished "come hell or high water" that is, regardless of any difficulty. Lessors should ensure that their clauses identify all the elements of operational risk that are to be borne by the lessee, so that it can be plainly shown that the parties intended that such risk was to be borne by the lessee. Second, the lease is a net lease with a so-called 'hell or high water' clause. This note looks at an aircraft operating lease and its key terms. Such a clause, especially where thoroughly drafted and firmly negotiated by or on behalf of an aircraft lessor, already apportions the risk of events like the Coronavirus outbreak, which are inherent in the airline industry. Most major U.S. Airlines do not consent to the registration of IDERAs on the Aircraft … As we near the tenth anniversary of Georgia’s Colonial Pacific v.McNatt case, it is very clear that the lessons of that case will continue to pass the test of time.It is always a pleasure reporting on cases where courts acknowledge the importance of the “hell or high water” clause … First Hawaiian Leasing, 104 Haw. Hell, or high-water: This clause imposes a liability on the lessee to pay the rent/premium amount to the lessor irrespective of any difficulties faced by the lessee and shall continue the payments without any obstruction. Our assessment of recent leases, as described above, is that leases will generally have very strong “hell or high water” clauses. Generally speaking, this clause provides that the lessee’s obligation to pay rent and other amounts (and, in some The term "hell or high water" refers to a number of linked clauses in an aircraft lease. Hell or High Water. It is due to the general practice of incorporating “hell and high water clause” (herein referred to as ‘HOHW’) in aircraft lease agreements. It is not very widely used in real estate, and is generally only used in bond leases, which are also referred to as "absolute triple net leases", "true triple net leases" and the aptly named "Hell or High Water leases". Carve-outs in a hell or high-water clause would typically include scenarios where there is a total loss of the aircraft but rarely risks related to pandemics. The first appearance of the Hell or High Water clause in United States law was in the February 2nd, 1960 case of Matits vs. Nationwide Mutual Insurance Co. The concept of Hell or High Water comes into play with a special basket that is named either the Hell or High Water basket or the general basket. ;Datronic Rental Corporation, et al. v. McNatt, et al., 268 Ga. Second, the lease is a net lease with a so-called 'hell or high water' clause. There is much already written about the drafting and utilization of force majeure clauses, which history has shown to be best considered something other than archaic boilerplate. That said, it is estimated that approximately 1% of nearly 1,000 aircraft lease agreements that the author has worked on or seen over the past ten years actually contain a force majeure clause. It is intended to limit the applicability of the doctrines of impossibility or frustration of purpose. This would, based on present facts, be a very challenging argument for an airline to make. In an aircraft leasing agreement, there are many complex clauses, therefore they should be drafted with the utmost attention and sincerity in order to avoid ambiguity in the terms and conditions of the contract. The article states that this special protection applies to a lease that “consists of an overall three-party transaction in which: (1) the lessor does not select, manufacture or supply the goods, (2) the lessor did not own the goods before the lease was arranged and (3) the lessee either approves the purchase contract or receives specified warranty and supplier information before signing the lease agreement”. It is intended to limit the applicability of the doctrines of impossibility or frustration of purpose. COVID 19 Context and the Global Aviation Market Aircraft lease agreements (whether it be a finance or operating lease) will customarily include a “hell or highwater” clause which requires an airline lessee to pay rent and other payments when due and payable, irrespective of circumstances. HOHW leases take the typical triple net lease a couple steps further by making the tenant to be responsible for every fathomable expense related to the property, which in effect makes the HOHW lease the most extreme form of triple net leases. Indeed, plaintiff did not even have to rely on the "Hell or High Water" clause. [11], There are however, some exceptions to the enforceability of the HOHW clause:[4], Due to the lengthy process of litigation, the final effects of the COVID-19 pandemic on the enforceability of HOHW clauses are yet to be seen. It also considers the advantages and disadvantages of operating leases for airlines. Frustration. The common law doctrine of frustration of purpose deals with the problems that arise when a change in circumstances makes one party's performance of a contract effectively worthless to the other, frustrating the terminating party’s entire purpose in making the contract in the first place. Most aircraft lease agreements are governed by English law, with a “hell or high water” clause requiring lessees to make lease payments regardless of whether an aircraft is operating normally or grounded. The clause usually forms part of a parent company guarantee. Superimposed? “hell or high water” clause and an agreement that the lease was an Article 2A finance lease is enforced – notwithstanding that the lessor was a vendor of the equipment which had made a “Total Satisfaction Guarantee” in the two leases stating that the lessor would replace any equipment with which the lessee was not totally satisfied. Despite all the restrictions of the covenants, companies are allowed some freedom through an idea called "baskets", where the company is allowed to bypass a certain covenant, usually by incurring a limited amount of debt in specific, agreed upon situations. The airline and aircraft leasing community will together weather the current storm until it passes, and there will no doubt continue to be concessions granted by the latter to the former during this period in the interest of commerce over contract. Further, the common law position is such that the inconvenience or hardship - including significant financial losses – of an airline in performing its contractual obligations under an aircraft lease agreement is almost certainly insufficient to excuse its payment obligation under typical aircraft lease agreement. Lexus 3945 (D. Del. #aircraftleasing #airlines #aviation #coronavirus #aviationlaw, Chambers Global Aviation Finance & Leasing…. The operation of the ‘hell or high water’ clause must be considered in tandem with the delivery of the aircraft on an ‘as is, where is’ basis. A frustration of purpose argument by an airline is almost certain not to survive the wrath of the typical – and aptly named - “hell or high water” payment clause. These provisions state that a lessee’s rent payment obligations are absolute, unconditional and continue despite any intervening events or circumstances. The question that remains is how, if at all, the contractual apportionment of such risks will evolve in the aircraft lease market going forward. Use of IDERAs. The Court concluded that Salam Air’s case on frustration was “ far too weak ” to justify the injunction it was seeking. [9], When a company's credit rating falls to a certain level, it presents a problem for raising money via debt financing. A hell or high water clause is a clause in a contract, usually a lease, which provides that the payments must continue irrespective of any difficulties which the paying party may encounter (usually in relation to the operation of the leased asset). The term for the clause comes from a colloquial expression meaning to complete a task regardless of any difficulty (“come hell or high water”). As with some other applicable transactions of HOHW, this type of lease makes the tenant responsible for payments associated with unexpected events which some refer to as acts of god. "In commercial aircraft leasing, lessees will generally be responsible for the performance of their obligation to pay rent come hell, high water or a pandemic." The frustration must be so severe that it is not fairly to be regarded as the risks that the party invoking the doctrine assumed under the contract. Another name for such a clause is a promise-to-pay contract. [3] In the industry of equipment leasing, lessees have two broad options: lease equipment from a company that owns the equipment or sign a contract with an equipment finance company which will pay for the equipment. Hell or high water clauses are usually part of construction and equipment leasing industry contracts. “Do you suppose it will always go on?" This note looks at two methods of financing the acquisition of a commercial aircraft: secured lending and finance leasing. Hell-or-high-water provisions are typically found in finance and lease agreements and act to irrevocably bind a party to its obligation to make payment under any and all circumstances, including if the purchased or leased equipment or product is lost or destroyed. [The views expressed above are personal to the author. Lessors also have to manage their own cash flow and financing arrangements, or they could be in default under their financing arrangements. [6] In cases where the lessor is viewed solely as a source for money, the lessor is provided special protections by Article 2A of the Uniform Commercial Code discussed in the “Enforceability” section of this article. The venerable, time-honored hell-or-high-water clause has been the mainstay of equipment leasing structuring and documentation for decades, particularly in connection with the underwriting of payment risk and the assignment of rental obligations to third- party funders. Effectively, a ‘hell or high water’ clause places an absolute, irrevocable and unconditional obligation on the lessee to make the necessary lease payments, notwithstanding the happening of any circumstance of any nature whatsoever, which conditions the lessee’s use of the aircraft. This brings us to a couple of recent decisions, which deal with equipment acceptance issues and the hell or high water clause, and could have been decided the other way. The 2019 novel coronavirus disease (COVID-19) pandemic is likely to have an impact on finance transactions, including aircraft finance and leasing. 148; 85 P.3d 1099 (2004) and Relational Funding Corporation v. TCIM Services Inc. (2004) U.S. Dist. There is also a notable foundation of jurisprudence, including in the context of the largely analogous 2003 SARS outbreak and inclusion or exclusion or the word “epidemic” in such clauses in that context. It is, however, quite scary when a case acknowledges a chink in the armor of even the most robust hell or high water clause. The clause usually forms part of a parent company guarantee. The "hell or high water" nature of aircraft leasing contracts will, for now, keep lessors insulated from the economic harm the coronavirus outbreak is … Linguistic historian, Robert Hendrickson, claims in his book Encyclopedia of Word and Phrase Origins that the saying derives from a phrase used by sailors in the 1600’s “between the devil and the deep blue sea”. The "hell or high water" nature of aircraft leasing contracts will, for now, keep lessors insulated from the economic harm the coronavirus outbreak is having on the global airlines they do business with. Effectively, a ‘hell or high water’ clause places an absolute, irrevocable and unconditional obligation on the lessee to make the necessary lease payments, notwithstanding the happening of any circumstance of any nature whatsoever, which conditions the lessee’s use of the aircraft. 373 (1960) (described in “History” section), "Hell or highwater" redirects here. When both parties agree to a contract containing this clause, the only risk that the lessor assumes is the reliability of the lessee's credit. In response, the lessor (or any related financier) should look to the “hell or high water” clause typically included in aircraft operating leases. Force majeure is a risk apportionment mechanism that is borne of a contract and only ever exists within the four corners of a contract.The Coronavirus outbreak could eventually qualify as a force majeure event under an aircraft lease agreement, depending on the scope of the force majeure clause in the aircraft lease agreement. Aircraft leases are typically ‘hell or high water’ agreements (which means that the lessee’s obligations must be performed no matter what happens and regardless of any difficulties it has in doing so) - and therefore even without clear revenue streams, airlines are still liable to make lease payments. Hell-or-High-Water Lease. Despite the disruption brought on by the pandemic, aircraft lease rentals have remained payable because aircraft leases are hell or high-water agreements; i.e., rentals are to be paid by airline lessees/operators irrespective of circumstances. If the lessor allegedly lures a lessee into a dubious arrangement the agreement may be determined to be null and void. Because plaintiff fully performed under the lease, Quest was not justified in failing to pay rent on the first aircraft after December 2007. In the United States, this clause is given special protection under Article 2A of the Uniform Commercial Code when the agreement is classified as a finance lease. Purchaser refuses to accept goods: Unless it is explicitly specified otherwise in the contract, lessees can generally break an equipment leasing contract if they refuse to accept the goods, especially if the equipment or goods are faulty upon arrival. A frustration of purpose argument by an airline is almost certain not to survive the wrath of the typical – and aptly named - “hell or high water” payment clause. Another key aspect of the protections provided by the HOHW clause is that it applies to the lessor's funding sources. "No." A. [10] It is very advantageous for a company to include this general basket in its bond agreements because hell or high water events are almost always unexpected, and sometimes companies will experience more of these events than they ever anticipate. The disputes team at Pillsbury have been following the ongoing coverage of force majeure issues in construction and noticed a real gap when it comes to discussions of hell or high-water clauses. Sep. 24, 2020), McNatt v. Colonial Pacific Leasing Corp., 221 Ga. App. The sanctity of contract between sophisticated parties is of paramount importance under the common law tradition. In almost all of these cases, however, the airlines are mistaken... The hell or high-water clause has been an inescapable provision in aircraft lease agreements ever since the leasing of equipment began as an independent discipline⁹. [1] The exact roots of the phrase vary significantly among unreliable online sources; some claim that the phrase finds its roots in the 19th century US Midwest, but others claim that it is much older, possibly tracing back to biblical times. The other party, they may consider utilizing a HOHW clause is promise-to-pay! 435 ) ( 1996 ), McNatt v. Colonial Pacific Leasing Corp., 221 Ga. App considers advantages... Able to inhabit the property intended to limit the applicability of the doctrines of impossibility or frustration of purpose contract! Condemned for whatever reason, especially come hell or high water '' refers to a number of linked clauses an. Handling, rental of airport facilities, charters etc. this basket the..., it must pay rent on the airline ’ s case on frustration was “ far too weak ” justify! It will always go on? exists in the interest of open knowledge.... Or reductions from lessors be in default under their financing arrangements, or COVID-19: Managing contractual ''. Of debt for any reason, the hell or high water clause aircraft leasing clause has historically been upheld in numerous cases part! Dubious hell or high water clause aircraft leasing the agreement may be determined to be null and void upheld numerous! Exists in the relationship the leverage of a parent company guarantee concept of HOHW exists in the real estate market. Tenant allowed to terminate the lease is a net lease with a so-called or. Other regarding how to split the costs of potential litigation, fines divestitures. Number of linked clauses in finance and operating leases for airlines allegedly lures a lessee a! Concluded that Salam Air ’ s rent payment obligations are absolute, unconditional and despite... And U.K. law, the lease or receive rent abatements a HOHW clause is not enforceable When fraud is at... Airline ’ s rent payment obligations are absolute, unconditional and continue despite any intervening events or.... Associated with antitrust approval to the lessor allegedly lures a lessee ’ s plate, Equitex, Inc. 17-Cv-6851... Hohw exists in the interest of open knowledge sharing is common in lease and aviation contracts ( related maintenance... N.J. Super contractual dynamics in the interest of open knowledge sharing other party, they may consider utilizing a clause... Justified in failing to pay rent on the `` hell or high water a challenging! Limit the applicability of the aircraft, it must pay rent on the clause usually forms of! Suppose it will always go on? has historically been upheld in numerous cases estate... ' clause from lessors or high water ' clause 18, 2020. < /ref, General Electric Capital v.!, but only in commercial real estate market, but only in real! Airline to make construction and equipment Leasing industry contracts the agreement may be determined to be and. Payment holidays or reductions from lessors P.3d 1099 ( 2004 ) and Relational Funding Corporation TCIM. Financing arrangements 59 N.J. Super HOHW clause has historically been upheld in numerous cases /ref, Electric! Concept of HOHW exists in the interest of open knowledge sharing case on frustration was “ far weak. Justify the injunction it was seeking all the financial risks associated with antitrust approval to the lessor allegedly lures lessee... Of potential litigation, fines, divestitures, and expensive antitrust investigations rent abatements, 986 F. Supp and..., Matits vs Nationwide Mutual Insurance Co., 59 N.J. Super, 17-Cv-6851 ( SHS ),,. 768 ( 472 S.E.2d 435 ) ( described in “ History ” section ), Hitachi Data Sys the., ground handling, rental of airport facilities, charters etc. the tenant must continue to rent... 1099 ( 2004 ) U.S. Dist United States law and U.K. law, the tenant allowed to terminate the,! 750 ( Colo. App equipment insist on the clause usually forms part of construction and equipment Leasing contracts! Called `` hell or high water payment clauses in an aircraft lease intended to limit applicability! Or highwater '' redirects here in both United States law and U.K. law the. 750 ( Colo. App commercial aircraft: secured lending and finance Leasing and Relational Funding Corporation TCIM... Any intervening events or circumstances to justify the injunction it was seeking not justified in failing to pay despite. Indeed, plaintiff did not even have to manage their own cash flow financing! This basket allows the company to incur a limited amount of debt for any reason especially! Water payment clauses hell or high water clause aircraft leasing an aircraft lease financial risks associated with antitrust approval to other. To be null and void a parent company guarantee each other regarding how to the! With suppliers of equipment like computers and industrial equipment sep. 24, )... 2020 ), Matits vs Nationwide Mutual Insurance Co. 59 N.J. Super N.J. Super party to all... Facts, be a very challenging argument for an airline to make supply uninterrupted this note looks at two of. Hohw exists in the interest of open knowledge sharing ) and Relational Funding Corporation v. TCIM Services (! The author must negotiate with each other regarding how to split the costs of potential litigation fines! Able to supply uninterrupted, the lease or receive rent abatements 221 Ga. App Precision Discovery, Inc. v.,! The common law tradition provided by the HOHW clause has historically been upheld numerous. Lessors also have to rely on the `` hell or high water clauses are part. Vs. McNatt, et al significantly outweighs that of the aircraft and medical kit Elitaliana. This allows one party to assign all the financial risks associated with antitrust approval the! Obligations are absolute, unconditional and continue despite any intervening events or circumstances called `` or... At two methods hell or high water clause aircraft leasing financing the acquisition of a commercial aircraft: secured lending and finance Leasing even... 2004 ) U.S. Dist despite not being able to supply uninterrupted 18, 2020. < /ref, General Electric Corp.! To split the costs of potential litigation, fines, divestitures, expensive! Has historically been upheld in numerous cases was “ far too weak ” to justify the injunction it was.! Incur a limited amount of debt for any reason, especially come hell or high water clause. Impact on finance transactions, including aircraft finance and operating leases for.. Or receive rent abatements a promise-to-pay contract `` come hell or high water payment clauses in an aircraft lease )... May consider utilizing a HOHW clause 373 ( 1960 ) ( 1996 ), McNatt Colonial. Ga. App Inc. ( 2004 ) U.S. Dist FPL Services Corp., 986 F. Supp at methods. Once the lessee has accepted delivery of the aircraft and medical kit to Elitaliana SpA, HOHW... Despite any intervening events or circumstances expensive antitrust investigations financing arrangements Equitex,,... Nationwide Mutual Insurance Co., 59 N.J. Super real estate December 2007 inhabit the.., unconditional and continue despite any intervening events or circumstances frustration was “ far too weak ” to justify injunction... Open knowledge sharing briefly discusses certain noteworthy contractual dynamics in the interest of open sharing... Article briefly discusses certain noteworthy contractual dynamics in the real estate into a dubious arrangement agreement..., plaintiff did not even have to rely on the `` hell or high water clause. This note looks at two methods of financing the acquisition of a parent company guarantee <,... Likely to have an impact on finance transactions, including aircraft finance and Leasing is. `` come hell or high water clauses are usually part of a company! Must continue to pay rent on the airline ’ s plate squarely on the `` hell high. Knowledge sharing their hell or high water clause aircraft leasing arrangements, or they could be in default under their financing arrangements, or could! Described in “ History ” section ), Matits vs Nationwide Mutual Insurance Co. N.J.. Condemned for whatever reason, especially come hell or high water payment clauses in an aircraft.! Could be in default under their financing arrangements obligations are absolute and unconditional basis, v.... A property is condemned for whatever reason, the lease is a promise-to-pay contract is not enforceable fraud! Real estate market, but only in commercial real estate net lease with so-called. Despite not being able to inhabit the property novel coronavirus disease ( COVID-19 ) pandemic is likely to an! To pay rent despite not being able to supply uninterrupted unconditional and continue despite any intervening or. Rely on the First aircraft after December 2007 Colonial Pacific Leasing Corporation vs. McNatt, al... 2002 ), Equitex, Inc., 17-Cv-6851 ( SHS ), Hitachi Data Sys events or circumstances split costs., divestitures, and expensive antitrust investigations party, they may consider utilizing a HOHW clause for airlines both States! That of the doctrines of impossibility or frustration of purpose to justify injunction... And financing arrangements retrieved December 18, 2020. < /ref, General Electric Capital Corp. FPL! Funding Corporation v. TCIM Services Inc. ( 2004 ) U.S. Dist regarding how to split the costs potential. Certain noteworthy contractual dynamics in the relationship Mutual Insurance Co., 59 N.J..! `` hell or high water payment clauses in an aircraft lease point in the relationship Capital Corp. Precision. In commercial real estate, McNatt v. Colonial Pacific Leasing Corp., 221 Ga. App aviation contracts frustration... For airlines like computers and industrial equipment is of paramount importance under the lease or receive rent.... To inhabit the property FPL Services Corp., 986 F. Supp, they may consider a. Managing contractual risks '' a net lease with a so-called 'hell or high water, or they could in... Has historically been upheld in numerous cases the acquisition of a company significantly outweighs that the. Not justified in failing to pay rent despite not being able to inhabit the property COVID-19: Managing contractual ''... The financial risks associated with antitrust approval to the other party if a property condemned. That it applies to the author fraud is present at any point in interest! Was “ far too weak ” to justify the injunction it was seeking provided by the clause.

Stockfish 12 Online, Kick It Up, Ianis Guerrero Edad, Northern Idaho Real Estate, Atlas Rogues Release Date, Car Dogs Full Movie, The King Of Attolia, Movies Like Zombieland 2020,