Residual value agreements—common features and mechanics
Produced in partnership with Norton Rose Fulbright
Residual value agreements—common features and mechanics

The following Banking & Finance guidance note Produced in partnership with Norton Rose Fulbright provides comprehensive and up to date legal information covering:

  • Residual value agreements—common features and mechanics
  • Common features of residual value agreements
  • Mechanics of making a claim under a typical residual value guarantee
  • Key considerations when negotiating a residual value agreement

Residual value agreements are a tool for allocating the residual value risk in an aircraft.

A good understanding of the sequence of events that will typically lead to a claim under a residual value agreement is necessary both for negotiations and for making a successful claim.

See also Practice Note: Residual value agreements—uses and types.

Common features of residual value agreements

There are certain features which are common to all residual value agreements. The key common features are:

  1. an exercise date or window—the date on which, or the period of time within which, the beneficiary is entitled to make a claim

  2. a payment date—the date on which payment to the beneficiary will be made, assuming that the conditions to a valid claim are satisfied

  3. a cut-off date—the date on which the obligation to make a payment to the beneficiary will terminate if a valid claim has not been made

  4. conditions to a claim—those conditions that must be satisfied for the guarantor or insurer etc to make a payment, and

  5. termination events—those events and circumstances which will result in a termination of the residual value agreement

Mechanics of making a claim under a typical residual value guarantee

Residual value guarantees are the most commonly used type of residual value agreement in aviation finance. This section of the Practice Note explains the mechanics