Homegrown escrow

Each year in Canada, about 6,000 aircraft change hands.

But while some ownership transfers are simple, increasingly complicated transactions involving multiple parties, extensive documentation, searches and registrations have necessitated the use of third-party intermediaries.

Traditionally, Canadian deals have been overseen by one of the big aviation escrow agencies concentrated in Oklahoma City, Okla., where the American title registry is located. These firms collect and hold all documentation and purchase funds, in escrow, until all conditions are met. Once the deal is finalized and closing occurs, documents and funds exchange hands, and the necessary registrations are made.

But while these agencies can guarantee a clean title to the aircraft in a U.S. deal–and even issue title insurance–they can only perform “perfunctory” Canadian title checks due to differences in our legal system.

It’s a void that has nagged at Toronto aviation lawyer Bill Clark for most of his 50-year career.

“In my decades of doing this, I’ve never certified title to a Canadian aircraft,” Clark told Skies during a recent interview. “We will search provincial registries and the Canadian Civil Aircraft Registry maintained by Transport Canada [TC]–but that is strictly a custody and control registry. So it is impossible in Canada to give anybody a definitive opinion on title.”

Clark, the founder of aviation law firm YYZlaw, traced the history back to the British North America Act of 1867, which was passed before the dawn of aviation in this country. While general property rights are included in the Act, those rights come under provincial jurisdiction, so a national title registry was never created.

The difficulties involved with certifying a clear title is one reason why there has never been a Canadian escrow agency to oversee aircraft purchases.

Now, Clark and fellow YYZlaw counsel Ehsan Monfared feel the time is ripe to launch a homegrown escrow service that will cater to the intricacies of Canadian aircraft transactions.

“The reality is there is currently no Canadian escrow agency,” said Monfared. “As a law firm, we are asked all the time to act as escrow agents. But this is not legal work as we cannot certify title.”

To remove that implication, Clark and Monfared are launching EscroAir Canada Inc., an independent operation that will specialize in aircraft transactions involving Canadian parties. Its main clientele is expected to be the business aviation community. With services provided on a fixed-price basis, EscroAir will remove the uncertainty of using a law firm to do this type of work.

“We have hired an escrow agent with significant experience. It will be set up separately, located separately, have separate trust funds, everything,” said Clark. “Ehsan and I will be involved, but it’s not part of our law practice. The staff we are hiring will be responsible for it.”

EscroAir is expected to launch in January 2019. Its website, www.escroair.ca, is now in the final stages of development.

When asked about the size of the market they expect to service, Monfared said, “It’s a customer service-oriented business, so if we’re able to do that aspect of it well, I think it will grow.

“Bill has a lot of industry credibility,” he continued. “We also hired Kellie-Ann Machete as our escrow agent; she has a lot of aviation transactional experience and general industry knowledge, having previously worked at TC and the predecessor to the Transportation Safety Board.”

Typically, the escrow process for an aircraft sale can take one to three months. From the initial letter of intent to the pre-purchase inspection and subsequent action items negotiated between seller and buyer, Clark and Monfared said EscroAir will provide a neutral depository for all relevant documentation as well as all deposits.

EscroAir will also offer International Registry (IR) services. While all IR registrations are voluntary, they are essential for securing an interest in an aircraft, and are now the norm in the aircraft market.

“If the aircraft is on the IR, it documents the chain of ownership,” explained Monfared. “Essentially, the IR solves the problem of not having a central title registry in Canada. We do expect our IR service will be popular.

“There are other opportunities to add value by assisting with aircraft registrations, for example.”

Ultimately, EscroAir aims to simplify the aircraft transaction process.

Instead of sending paperwork to Oklahoma City, the parties to an aircraft transaction need only look to Toronto for a homegrown solution to their escrow agency requirements.

“There’s no reason why a $5 million jet that’s moving from Halifax to an operator in Toronto needs to go through the U.S. system,” concluded Clark.