Is Vendor Finance Legal When You Sell a Motel?
Is Vendor Finance Legal in Australia? | Switchboard Finance
Accommodation Finance
Vendor Finance · Terms Contract · Going Concern
Is Vendor Finance Legal When You Sell a Motel?
The line that vendor finance is banned in Victoria gets repeated in motel and pub sale threads all the time. It confuses a narrow residential rule with a commercial going-concern carry. Here is what the law actually restricts, and why a business sale is treated differently.
Quick Answer
Vendor finance is legal in Australia, including Victoria, and a vendor carry on a going-concern business sale is not the product that got restricted. The rule people remember sits in Victoria's terms contract provisions for residential land. A carry on a motel, park or pub is a commercial vendor finance arrangement between the seller and the buyer.
Is vendor finance legal in Australia?
Vendor finance is legal in Australia, and that includes Victoria. The idea that it was banned traces back to a real change in the law, but the change was narrow and it was about homes, not businesses. When a seller funds part of a sale by letting the buyer pay over time, that is a vendor carry, and on a going-concern business sale it is an ordinary commercial arrangement.
When I take a seller through a going-concern motel sale, the first thing we separate is the residential terms contract from the commercial carry, because the two are governed by completely different parts of the law. Clear that up early and the legality question stops being scary. The carry is simply a tool that helps a willing buyer and a willing seller close the gap between the price and the buyer's funds, and it is one piece of the wider accommodation finance picture.
What the Sale of Land Act actually restricts
The restriction sits in the Sale of Land Act 1962 (Vic), and it applies to residential land. From 1 March 2020, a terms contract cannot be used to sell residential land priced under a prescribed threshold, originally set at $750,000. It is a consumer-protection measure aimed at rent-to-buy of houses, where a buyer pays a home off in instalments before the title transfers and can be left exposed if the deal falls over.
That is the rule, and it is a real one. What it is not is a ban on a business owner carrying part of the price when they sell a going concern. The split below sorts the two apart.
Not restricted: the business carry
- A business-purpose vendor carry on a going-concern motel, park or pub
- Commercial seller and commercial buyer, advised by their own solicitors
- Documented as a loan that sits second-ranking behind the senior lender
- Used to bridge the gap between the price and the buyer's funds
Restricted: residential terms contract
- A terms contract over residential land priced under the prescribed threshold
- Rent-to-buy of a home, where a consumer pays off a house over time
- Buyer takes possession and pays by instalments before title transfers
- The arrangement Victoria limited from 1 March 2020
Why a going-concern business carry is different
A vendor carry on a going-concern business sale is a business-purpose loan between two commercial parties, which is not the product that got restricted. The seller agrees to be paid part of the price over time, usually around 10 to 25 percent of the price, indicative and varies by deal, while the buyer funds the rest, often through an owner-occupier commercial property loan over the freehold. The carry typically sits second-ranking behind the senior lender and is repaid over a few years.
On the going-concern sales I help structure, the carry is written as a business-purpose loan and its priority against the senior debt is agreed up front through a deed between the lenders, so everyone knows where they stand. Because the buyer and seller are both running or buying a business, none of the consumer protections that govern a home sale are in play. For the mechanics of how a seller carries paper on a sale, see how a carry-back sale is structured.
What to confirm before you sign
Before you rely on a carry, confirm your own deal with your solicitor, because the line between a business sale and a residential one is what actually settles this question. A clean going-concern carry is documented as a business-purpose loan, names its priority against the senior lender through a deed, and spells out the repayment terms in plain figures. Your accountant can also walk through how a capital gain is treated when part of the price is paid by instalments, since that can change the year a gain falls into.
Timing matters too, though not in the way it used to. The instant asset write-off has been announced to become permanent from 1 July 2026, though that change is not yet law and the current write-off is legislated only to 30 June 2026. For a going-concern sale it is better to treat the 30 June deadline as a deal-closing and settlement question than an asset-purchase one. If a settlement date is tight, a short-term option such as a caveat loan can hold a position, rather than forcing the carry to do a job it was not built for. The legality of the carry itself, though, is settled: it is not the product that got restricted.
- 2,729,648 actively trading businesses were in the Australian economy at 30 June 2025, the market every going-concern sale sits inside. ABS Counts of Australian Businesses, as at 30 June 2025
- 1.2% growth in the number of Accommodation and Food Services businesses across 2024-25. ABS Counts of Australian Businesses, 2024-25
- 10 to 25% the share of the sale price a vendor carry commonly covers, indicative and varies by deal. Switchboard Finance, indicative range
Vendor finance is legal in Australia, and the Victorian rule people remember restricts residential terms contracts under a set price, not a business-purpose carry on a going-concern sale. A vendor carry on a motel, park or pub is a commercial loan between the seller and the buyer, second-ranking behind the senior lender, and it is not the product that got restricted. The legality is straightforward once the residential rule and the commercial carry are kept apart.
Key takeaway: a vendor carry on a going-concern business sale is a commercial arrangement, not the restricted residential terms contract, so structure it properly and confirm your own deal with your solicitor.Frequently Asked Questions
Vendor finance is not banned in Victoria. What changed is that certain residential terms contracts were restricted, and a terms contract cannot be used to sell a home priced under a set threshold. A business-purpose vendor carry on a going-concern sale is a different arrangement and is not the product that got restricted. You can read the rule in the Sale of Land Act 1962 (Vic) and confirm your own deal with your solicitor.
Vendor finance is legal in Australia, and that includes every state and territory. It is simply a sale where the seller funds part of the price and the buyer repays it over time, which is a normal commercial arrangement on a going-concern business sale. The only notable limit is Victoria's restriction on residential terms contracts under a set price, which does not apply to a commercial carry. For how a carry is set up on a sale, see how vendor finance works.
A terms contract is a way of selling land where the buyer takes possession and pays the price by instalments before the title transfers. Under the Sale of Land Act 1962 (Vic), a terms contract on residential land cannot be used where the price is under a prescribed threshold, which is the rule that gets mistaken for a ban on all vendor finance. On a going-concern business sale the carry is structured as a commercial loan instead. Your solicitor can confirm which form your sale takes.
You can use vendor finance to sell a motel as a going concern, and it is a common way to bridge the gap between the buyer's funds and the asking price. The seller carries part of the price, often around 10 to 25 percent, indicative and varies by deal, as a business-purpose vendor carry that sits second-ranking behind the senior lender. This is a commercial arrangement, not the residential product that Victoria restricted. See how a carry-back sale is structured for the mechanics.
A vendor carry is not the same as a second mortgage, though the two can look similar on a deal. A vendor carry is the seller agreeing to be paid part of the price over time, and it usually sits second-ranking behind the senior lender, which is where the comparison comes from. A second mortgage is a separate loan secured by a second-ranking charge over property. Both can form part of an exit strategy on a business sale.
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