Vendor Financing for Commercial Property in Alberta

1. Identify the actual structure

Distinguish a vendor take-back mortgage, agreement for sale, deferred purchase-price note, secured or unsecured promissory note, holdback and performance-based earnout. They differ in title, security, payment and enforcement.

State the legal borrower and lender, property and assets, principal, funding or set-off mechanics and relationship to cash consideration. Do not call every unpaid amount vendor financing.

• Principal
• Interest
• Amortization
• Maturity
• Security
• Priority

2. Underwrite the buyer as a creditor would

Review entity, authority, beneficial ownership, equity source, financial capacity, operating plan, property cash flow, existing debt, experience and material contingencies. A buyer able to post a deposit is not automatically able to service long-term debt.

Define current and ongoing financial reporting, permitted debt, distributions, leasing, capital work, sale or transfer and other covenants with counsel. Avoid collecting personal or financial information beyond the lawful, necessary process.

3. Model every payment term

Set principal, interest rate and calculation, payment frequency, amortization, maturity or balloon, compounding, prepayment rights, late interest, fees and application of payments. Model cash flow under vacancy, capital work and rate-sensitive senior debt.

Alberta's agricultural property sales guide similarly flags down payment, payment size and schedule, and interest terms as core vendor-financing decisions; a commercial transaction still requires property-specific advice and documents.

4. Resolve senior debt, consent and priority

Obtain current title, payout and lender requirements. An existing or new senior lender may prohibit subordinate financing, require postponement, cap payments, control enforcement or require specific disclosure and consent.

Do not assume a second mortgage will be registrable or acceptable. Counsel should establish priority, intercreditor terms, discharges and what happens when senior debt defaults, renews or refinances.

5. Build the security package

Real-property security can include a registered mortgage or other land interest. If equipment, inventory, accounts, shares or other personal property support the obligation, Alberta's Personal Property Registry may be relevant; a title search does not replace a PPR search.

Counsel should determine guarantees, general or specific security, assignments, insurance, rents, registrations, notices and renewal. Registration itself does not establish adequate value or a successful enforcement outcome.

6. Address default, enforcement and property protection

Define monetary and non-monetary default, notice, cure, acceleration, costs, enforcement, appointment rights and coordination with senior creditors. Model the time, legal cost and property risk of a failed loan rather than treating collateral as immediate cash.

Require appropriate insurance, tax payment, maintenance, environmental compliance, access to reports and notice of material events. The seller should understand its continuing exposure after closing.

7. Separate price, cash proceeds and tax

A vendor note may form part of sale consideration while producing cash over time. Seller proceeds analysis should separate cash at closing, principal outstanding, interest, collection risk and enforcement cost.

Accountants and tax counsel should review GST, capital gain, reserve eligibility, interest income, allocation and entity consequences. Commercially does not determine whether a capital-gains reserve or other tax treatment is available.

8. Coordinate conditions and closing deliverables

Align buyer diligence, financing, senior-lender approval, appraisal, title, security, insurance, corporate authority and tax review. Closing documents should reconcile the purchase agreement, note, mortgage or security, priority agreement and statement of adjustments.

Confirm who services payments, maintains records and issues statements or tax reporting. Preserve executed documents, registrations, proof of funds and the complete payment ledger.

9. Keep the brokerage role within scope

Commercially can help compare commercial structures, market the property, qualify interest and coordinate advisors. It does not lend money, arrange a mortgage as an unlicensed service, make a credit decision, prepare security documents or provide legal, tax, accounting or investment advice.

Use a qualified lawyer, accountant and appropriately authorized lender or mortgage professional for the transaction. Verify Alberta mortgage authorization through RECA ProCheck where applicable.