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What Is Vendor Finance? Why QLD’s New 2023 Property Law Act Changes Everything
Vendor finance is a private funding arrangement where the seller (vendor) of an asset, usually a property or a business, allows the buyer to pay the purchase price over time rather than requiring the full amount at settlement. In Queensland, this is commonly used when a buyer cannot secure a standard 80% loan from a […]
What Is Vendor Finance? Why QLD’s New 2023 Property Law Act Changes Everything
Vendor finance is a private funding arrangement where the seller (vendor) of an asset, usually a property or a business, allows the buyer to pay the purchase price over time rather than requiring the full amount at settlement.
In Queensland, this is commonly used when a buyer cannot secure a standard 80% loan from a bank. However, Queensland law treats these deals very differently from other Australian states.
The Instalment Contract Trap (Property Law Act)
The most critical piece of information for any Queenslander is Section 71 of the Property Law Act.
In most states, a deposit is just a down payment. In Queensland, if a buyer makes any payment (other than a deposit not exceeding 10%) before they receive the title, the deal automatically becomes an Instalment Contract.
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Why does this matter?
Once a contract is classified as an Instalment Contract, the legal power shifts heavily toward the buyer:
- Restriction on Mortgages: Under Section 73, the seller cannot mortgage the land further without the buyer’s consent. If they do, the contract is voidable at the buyer’s option.
- Right to Demand Title: Under Section 75, once a buyer has paid one-third (33.3%) of the purchase price, they can demand that the seller transfer the title to them in exchange for a registered mortgage back to the seller.
- 30-Day Default Notices: Unlike standard contracts, where a 24-hour breach might end a deal, Section 72 requires the seller to give the buyer a full 30-day notice to rectify a payment default before they can terminate.
Business Sale Vendor Finance & the PPSR
When selling a business in QLD via vendor finance, the seller is effectively an unsecured creditor unless they take specific steps.
To protect your money, you must use the Personal Property Securities Register (PPSR). This is a national digital register where you record your Security Interest in the business assets (equipment, goodwill, stock).
Key Protections for Business Sellers:
- Retention of Title: Clauses that state the buyer doesn’t own the equipment until the final payment is made.
- General Security Agreements (GSA): A document giving the seller the right to appoint a receiver if the buyer defaults.
- Fixed and Floating Charges: This allows the seller to freeze the business assets if the buyer attempts to sell the equipment to another party before repaying the vendor.
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The National Credit Code (NCC) Warning
If you are a vendor providing finance for a residential property where the buyer intends to live in it, you might be accidentally breaking the National Consumer Credit Protection Act.
If the vendor is considered to be in the business of providing credit, they must hold an Australian Credit Licence. Failing to comply with the NCC can result in the interest being stripped from the loan or massive fines from ASIC.
Vendor Finance Strategies in QLD
There are three primary ways vendor finance is structured in the Queensland market:
1. The Wrap-Around Loan
The seller keeps their existing bank mortgage and wraps a second, higher-interest loan around it for the buyer.
- QLD Danger: Most bank mortgages have due on sale clauses. If the bank finds out you’ve sold the property on terms, they can demand the full loan be repaid immediately.
2. Rent-to-Buy (Lease Options)
The buyer signs a lease and a separate Option to Purchase.
- Legal Tip: From August 1, 2025, the new Property Law Act 2023 introduces stricter disclosure schemes. Sellers must now provide a mandatory Seller Disclosure Statement before the buyer signs an option agreement, or the buyer may have the right to terminate the agreement.
3. Assisted Deposit
The buyer gets 80% from a bank, and the seller loans the remaining 20%.
- Legal Tip: Banks usually require a Deed of Priority or a Subordination Agreement, meaning the seller agrees to be paid after the bank if everything goes wrong.
Common Questions About Vendor Finance
What is vendor finance in simple terms?
Vendor finance is when the seller lends money to the buyer to help complete a purchase. Instead of borrowing entirely from a bank, the buyer repays the seller over time under agreed terms, often with interest.
Can I sell my house with a 15% deposit in QLD?
Yes, but it will legally become an Instalment Contract. This means you cannot mortgage the property again without the buyer’s permission, and you lose the ability to terminate quickly if they miss a payment.
Does the seller pay Land Tax?
Yes. Until the title is transferred (the Conveyance), the seller remains the registered owner and is generally liable for Land Tax and Council Rates, though a well-drafted contract will require the buyer to reimburse these costs.
What is the one-third rule in QLD?
Under Section 75 of the Property Law Act, once a buyer pays 33.3% of the total price, they can require the seller to deliver the deed/title, provided the buyer gives the seller a mortgage for the remaining 66.7%.
How do I repossess a business if the buyer stops paying?
You must have a registered security interest on the PPSR. If you do, you can legally seize the assets. If you don’t, and the buyer has other debts, you may have to wait in line behind their bank and employees.
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Trust Aylward Game Solicitors to Navigate Your Legal Challenges
About Mark Game
Mark Game is the founding partner of Aylward Game Solicitors and a Queensland-admitted solicitor with extensive experience in banking, finance, property law and vendor finance. He is admitted to the Supreme Court of Queensland and the High Court of Australia.
Mark is recognised for his specialist knowledge in vendor finance arrangements, including instalment sales and rent-to-own structures. His background in commercial law and finance enables him to provide practical, risk-aware advice tailored to Queensland property and business transactions.
How to Proceed Safely with Aylward Game Solicitors
Because of the Property Law Act 1974 and the 2023 reforms, vendor finance in Queensland is not a DIY project.
At Aylward Game Solicitors, our founding partner, Mark Game, draws on his background as a former Senior Legal Counsel for a state finance corporation to bridge the gap between complex banking law and your private sale. We focus on drafting Instalment Sale Contracts and Lease Options that comply with the latest 2025 disclosures.
Would you like a legal audit of your proposed vendor finance terms to ensure you haven’t accidentally triggered an Instalment Contract?
Schedule a consultation or contact Aylward Game Solicitors:
Frequently Asked Questions (FAQs)
Is vendor finance safe for buyers in Queensland?
Vendor finance can be risky for buyers because legal title often remains with the seller. Without proper legal protections, buyers may lose payments made if they default or if the seller becomes insolvent.
Is vendor finance regulated in Australia?
Vendor finance is only partially regulated. Some arrangements fall outside the National Credit Code, meaning standard consumer protections may not apply. This makes independent legal advice critical before entering into any agreement.
Can a seller repossess property under vendor finance?
Yes. If the agreement allows it and the buyer defaults, the seller may terminate the contract and retain payments already made, depending on the agreement’s structure and wording.
Does vendor finance affect stamp duty in Queensland?
Stamp duty obligations can arise even if the title does not immediately transfer. Incorrect structuring may trigger unexpected tax consequences, so professional advice is essential.
Can vendor finance be used for business sales?
Yes. Vendor finance is commonly used in business sales where buyers cannot secure full bank funding. Security, guarantees, and PPSR registration are especially important in these cases.
What is the biggest mistake people make with vendor finance?
The most common mistake is signing agreements without understanding ownership, default consequences, or enforcement rights. Verbal assurances do not override written contracts.
Should both parties get separate legal advice?
Yes. Vendor finance creates competing interests. Independent legal advice protects both parties and reduces the risk of disputes or unenforceable agreements.
Get Ahead with Expert Legal Guidance
Trust Aylward Game Solicitors to Navigate Your Legal Challenges
Conclusion
Vendor finance can open doors, but it can also close them permanently if done incorrectly.
In Queensland, the legal structure matters more than the idea itself. Understanding who owns the asset, who bears the risk, and what happens in the event of default is essential before proceeding.
For anyone considering vendor finance, whether buying or selling, professional legal advice is not optional. It is the foundation of a safe and enforceable transaction.
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