FOR RETIRING FARMERS AND THEIR FAMILIES

What to ask your solicitor, accountant and bank before vendor finance

Here are the questions to take to your solicitor and your accountant, and, if you're the buyer, to your bank. You're not asking them to decide for you, you're asking them to pressure test something you already understand.

Nothing on this list is answered here.

Before you engage them at all

Ask your solicitor and your accountant this before you engage them: have you done a vendor finance transaction before?

Many haven't. That alone isn't a reason to walk away, but you need to know, because an adviser meeting the idea for the first time will price their uncertainty into their advice.

Plenty of these deals die in an accountant's office because a professional said no rather than said 'let me look into it'. If an adviser says no, that's the moment to ask what the problem is. If it's only that they haven't seen one before, find someone open minded enough to work toward an outcome for both parties.

For your solicitor

• Where does my security rank, and who is ahead of me?
• What exactly can I do if the other party defaults, and how long does it take?
• What happens if either of us dies, becomes ill, or separates during the term?
• Does the other party's bank need to consent to this, and have we asked them?
• Is this a transfer and mortgage back, or a terms contract where the seller keeps the title, and what does my state's law say about each?
• Is this credit under the National Credit Code, and does the seller need to do anything extra because of that?
• If we want a say in what happens to the land after the balance is repaid, can that be done, and what does it cost us?

For your accountant

• How is the interest treated for each of us?
• When does capital gains tax fall on a sale paid over years, and will I need cash for the tax before the buyer has paid me out?
• What does this do to my position if I need to borrow again during the term?
• Is there a structure that changes any of the above materially, and what does it cost to set up and run?

For your bank, if you are the buyer

• Will you lend against this property while a vendor mortgage sits over it?
• What would we need to look like in year 8 for you to refinance us out?

That last question matters more than it looks. If the agreement requires the buyer to refinance by year 10, the buyer wants to know now what the bank will expect then, not in year 9. If you're the seller, that's the buyer's question to put to their bank.

Read more: What has to be in a vendor finance agreement? and What kills a vendor finance deal?.

This is general information, not legal or tax advice.

The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.

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