The expressions “as is, where is” and “with all faults” frequently appear in aircraft sale and leasing agreements. Although often used interchangeably, the two phrases serve distinct functions. “As is, where is” addresses the physical state and location of the asset at the time of delivery, indicating that the buyer or lessee accepts the asset in its present condition without representations as to its state. By contrast, “with all faults” is directed more specifically at quality and latent defects, and is intended to disclaim liability for hidden defects and exclude implied warranties as to quality or fitness. In practice, the phrases are often used together to provide the broadest protection to a seller or lessor and to allocate the risk relating to the asset’s condition to the buyer or lessee.

However, these expressions should not be regarded as foolproof protection. Courts have expressed skepticism as to whether even this combined formulation is sufficient to exclude statutory implied terms or liability arising from fraud or misrepresentation.

Limitations

In Aquila WSA Aviation Opportunities II Ltd v Onur Air Tasimacilik AS, the Commercial Court held that an airline lessee bore the risk of defects in an aircraft engine that failed shortly after delivery. The lease provided that the engine was delivered on an “as is, where is” basis, and the airline had inspected and accepted the engine evidenced by an acceptance certificate. The court found that the contractual wording, together with the acceptance process, transferred the risk of the engine’s condition to the lessee.

Nevertheless, reliance on “as is” wording alone may not necessarily exclude all implied obligations relating to the quality of the asset. Under the Sale of Goods Act 1979 (“SOGA”), contracts for the sale of goods may include implied terms as to satisfactory quality and fitness for purpose. In Dalmare SpA v Union Maritime Ltd (The Union Power), a case concerning the sale of a motor tanker, the Commercial Court suggested (in obiter) that the words “as is” alone may not be sufficient to exclude the implied term as to satisfactory quality under section 14(2) of the SOGA. The court also noted a distinction between “as is, where is” and “with all faults”, although it declined to elaborate on the differences or determine whether “with all faults” wording could exclude section 14(2) altogether.

English case law has also long recognized limits to “with all faults” provisions. In Shepherd v Kain, the court held that a sale “with all faults” does not protect a seller where the goods fail to correspond with their contractual description. The clause only covers defects that are consistent with the goods being what they are described to be.

Taken together, these authorities demonstrate that while “as is, where is” and “with all faults” provisions are powerful tools for allocating condition risk, they do not operate as blanket exclusions of liability.

Key takeaways and practical considerations
In aircraft sale and leasing transactions, parties should carefully consider how condition risk is allocated under the contract to ensure there is no misunderstanding between the parties, notwithstanding whether there is an agreed delivery condition or not. We would recommend that parties: 

(a) include both “as is, where is” and “with all faults” language where the intention is to allocate the risk relating to the asset’s condition; and

(b) ensure exclusions or modification of implied terms relating to quality or fitness for purpose, to the extent permitted by law is clear – including ensuring that any carve-outs to disclaimer or warranty provisions do not inadvertently undermine the parties’ intended allocation of risk.

Given the high value and technical complexity of aviation assets, careful drafting of these provisions remains essential to minimize uncertainty in the allocation of risk between the parties.