AOPA Pilot Magazine - November 2022 - 28

FOR THE RECORD
On shaky ground
Thinking of buying a hangar?
BY IAN ARENDT
YOU'VE EARNED ALL your desired certificates and you own an
aircraft. So, what is the next step? Purchasing your own hangar?
Think about it-no more storing your pride and joy in rundown,
drafty T-hangars or in a crowded community hangar; no
more hesitation about making modifications to a rented space; and
more than enough room to store your aircraft as well as various
fluids, tools, and myriad spare parts. It can be an exciting prospect
to own the building that protects your airplane from the elements.
Before you dive in, however, it is important to understand your
relationship with the airport. If the hangar is located at a publicuse
airport receiving funds from the FAA, even if privately owned,
the federal money comes with strings attached. These strings are
referred to as grant assurances or grant obligations. In its most
recent edition, the FAA lists 39 grant assurances to which airports
must adhere. Notably, most, if not all, grant assurances are required
by law-see 49 U.S. Code § 47107.
Grant assurances 4 and 5 work in tandem to mandate that the
airport hold good title over all property subject to federally funded
improvements, and that the airport preserve all rights and powers
to direct and control airport development. In short, to receive
federal money for a project, the airport generally must own the
property upon which the project will be built, and once the airport
owns any property, it cannot divest itself of or otherwise encumber
the property without approval from the FAA.
Additionally, grant assurance 38 addresses hangars constructed
by aircraft owners, and specifically calls for the airport to
grant the aircraft owner constructing the hangar a long-term lease
rather than a deed to the land. In Order 5190.6B, the FAA generally
recommends that the term of a lease should be long enough to
ensure the builder receives a reasonable return for the investment,
but not outlive the useful life of the hangar. The order indicates
that a lease of 30 to 35 years is usually sufficient for this purpose,
and a lease that exceeds 50 years will generally not be approved
because such a lease likely exceeds the structure's useful life and
constitutes an impermissible disposal of airport property.
All of this means that the hangar you are thinking of purchasing
probably does not include the ground upon which it is built.
So, do not be surprised when a ground lease, and possibly a master
lease, is included in your stack of closing documents.
It is vitally important for you to review and understand the
underlying ground lease and master lease before deciding whether
28
AOPA PILOT / November 2022
to purchase a hangar. In particular, you should note the term left on
the lease; whether there is a process for renewing the lease; causes
for terminating the lease; what happens to the hangar after the
lease terminates; and whether assignment of the lease is allowed
at all. For example, many ground leases include a reversion clause
stating that, upon termination, the hangar structure automatically
becomes airport property. If the ground lease expires in five years
and there is no guarantied renewal, is it worth risking six figures
to purchase the hangar only for it to become airport property?
This sentiment rings true for individuals assuming a lease or
subleasing on airport property. Many federally funded airports will
rely on an FBO to lease and manage the airport's existing hangars
or develop and oversee construction of new hangars. When this
occurs, the airport often extends a lease to the FBO which then
subleases individual hangars or ground lots to would-be tenants.
In this case, it is important to understand that the lease you sign
may be secondary to an underlying master lease.
A recent opinion issued by the Utah Court of Appeals,
Airstar Corp. v. Keystone Aviation LLC, provides a fresh example
for consideration. This case involved a hangar at Salt Lake
City International Airport (SLC), which was leased by the city to
Keystone Aviation which, in turn, subleased the hangar to Airstar
Corporation. The sublease to Airstar included a provision terminating
the sublease if Keystone's lease with the city ended for any
reason. Unfortunately for Airstar, the city and Keystone voluntarily
agreed to terminate the master lease, which also terminated
Airstar's sublease. Litigation ensued. Ultimately, Airstar lost and
was forced to rent another, more costly hangar. Notably, less than
a year before the sublease terminated, Airstar had paid a substantial
sum to resurface the hangar's floor and was unable to recover
any associated costs. To add insult to injury, Airstar was required
to pay for Keystone's attorney fees in litigating the matter because
a provision in the sublease allowed the prevailing party in any
lawsuit regarding the sublease to recover these fees.
This case highlights the need for prospective hangar owners
and tenants to carefully review all documents that could affect their
rights and obligations on airport property, including any ground
or master lease. If you fail to
do so, you may be paying for
a building on shaky ground.
ian.arendt@aopa.org
IAN ARENDT is an in-house
attorney with the AOPA
Legal Services Plan under
Pilot Protection Services.
AOPA Pilot Magazine - November 2022

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