FOR RETIRING FARMERS AND THEIR FAMILIES
What kills a vendor finance deal?
By Sam Marwood
Vendor finance deals fail, and most of the failures are predictable, so these are the ones worth seeing before you start.
The seller's bank
This is the most common quiet killer. Everything is agreed, then you mention it to your bank manager, and the deal ends in a conversation the buyer wasn't in.
You can want that buyer on the place and still walk away once your bank explains the risk. If a bank already holds the first mortgage, your security ranks behind it.
A late change of price
There are months of alignment, the seller has seen the buyer's plan and progress, the lawyers are finally engaged, and then the asking price moves by an amount that kills viability.
That isn't hard negotiating. To the buyer, it's a signal to step back and work out whether they were ever a buyer, or whether they've been keeping a struggling business afloat while the seller waited for something better.
People, more than structure
Deals fall over because of the people far more often than because of the structure. In one case a large property attracted serious capital repeatedly and collapsed every time, and the sellers were eventually offered their own asking price and knocked it back.
If someone is impossible to deal with early, they don't become easier once money is on the table.
Nobody deciding what they actually want
Many sellers genuinely don't know whether they want a manager, a sharefarmer or a buyer. That isn't bad faith and it isn't a reason to walk away, but it does mean a template won't save you.
Work it out over several conversations, and settle the structure second.
The one nobody plans for
Vendor finance ends. On the day the last payment clears, the arrangement is over, the relationship has no formal shape, and the farm is an ordinary property again, available to whoever comes next.
If part of the reason for doing this was to keep the place in local hands, that deserves a conversation at the start, not a surprise at the end. If you want a say in who holds the farm after the balance is paid, can that be done, and what does it cost? That's a question for your solicitor at the start, because it can't be added later.
Where to take it
Your own bank should hear about the deal before it's treated as agreed. Whether the buyer's bank needs to consent, and whether anyone has asked them, is a question for your solicitor.
The full list of questions is here: What to ask your solicitor, accountant and bank before vendor finance.
Read more: What has to be in a vendor finance agreement? and When does vendor finance work, and when doesn't it?.
This is general information, not legal or tax advice.
The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.
You can build your own plan at cultivatefarms.com/plan.