Vendor Finance – Education Required Please

[Wezz]

Hi guys.

I am about to make an offer on a small commercial building.

The vendor has offered to leave in some Vendor Finance. The dollar amount and interest rate are unknown by me at this stage.

I have 3 questions to ask of you respected guru’s.

1) When buying a building with Vendor Finance, does a Vendor Finance Clause get inserted into the “Further Terms of Sale” area at the rear of the Sale and Purchase agreement, or is this dealt with in another way? I suspect that it does get included in the S&P Agreement in the “Further Terms of Sale” area, but having never purchased a commercial building with Vendor Finance before, I’m not 100% sure.

2) Also, are any of you able to help me with either a Vendor Finance Clause, (if it does get inserted into the S&P Agreement), or a Vendor Finance Document, that will help me facilitate the Vendor Finance negotiated with the vendor?

I would like to present my own wording on the Vendor Financing Clause or Document (whichever the case may be), rather than the vendor getting one made up, to more suit him. I’m hoping if I bring my own Vendor Finance Wording (that I’m happy with), he’ll just run with it. First in, first serve, kind of thing.

3) I know the world is your oyster and how long is a piece of string, with this next question, but any gauge from you would help me. What is considered “reasonable” when asking for Vendor Finance? 10%?, 20%?, 50%? I’d like to take up the offer, and get as much as I can, if the interest rate works for me, but I don’t want to ask for something that would be considered a joke either.

As always, I appreciate your help and extensive depths of wisdom.

Thanks and cheers – Pete.

[Dean@Massiveaction]

Hi Pete. Clause from my website HERE The 2 parties solicitors will sort out teh details as vendor finance is a legal agreement rather thana clause, but use this to get you going. Simply fill in the blanks and then let the solicitors sort it out.

Vendor Mortgage
($ insert amount) of the purchase price shall be satisfied by the purchaser executing and handing to the Vendor or Vendor's solicitor on the date of possession a registrable second mortgage of the said land to secure such sum (ranking after first mortgage securing a principal sum of not more than ($ insert amount ). The mortgage will secure repayment of such sum on the day ( # - insert number ) years after the date of possession and shall provide for payment of interest on such sum or the balance outstanding from time to time computed form the date of possession and payable quarterly thereafter such interest to be at the rate of ( # - insert number ) % per annum (reducible to (# - insert number ) % per annum if paid within 14 days of the due date and if the Purchaser does not default under any obligations under the mortgage). The mortgage will contain a right of repayment by payments of ($ insert amount) or any multiple thereof on any interest due date. The mortgage will not be transferable and will contain all other usual covenants, terms and conditions contained in mortgages of the like nature prepared by solicitors practising in Auckland Law Society District including the powers of sale and re-entry into possession upon default. The mortgage will be prepared, stamped, and registered by the vendor’s solicitors at the expense in all things of the purchaser. If the purchaser is an incorporated company the mortgage shall be personally guaranteed by the directors thereof ( and the purchaser undertakes to obtain execution of such guarantee by the directors on or before the date of possession) and shall contain a provision to prohibit the transfer or allotment of any shares in the existing or any increased capital of the company to any person, company or other body other than existing shareholders unless with the prior consent in writing of the Vendor. The Company will on settlement send to the Vendors solicitor duly completed its declarations or other documents as are required to enable compliance with all the relevant provisions of the Companies Act 1955 and its amendments such documents to be prepared by the Vendors solicitors and completed and registered at the expense in all things of the Purchaser.

[Wezz]

Wow - 178 view so far and you are the only one that was able to help me. Thanks yet once again Dean. I appreciate you helping so freely. Cheers - Pete.

[simoncoles]

Wezz

Relatively outside my area of expertise but an idea from a finance point of view. If the bank will finance 80% then ask for 20% vendor finance. If the bank will only finance 60% then 40%. Whichever way though you could structure to mean no money in the deal by you.

Simon