Vendor Finance and Licensing

If you've been following the Creative Forum for awhile you'll have noticed that I've been encouraging vendor financiers to get properly licensed for more than two years now.

A recent judgment in the WA Supreme Court has been talked about on this forum before and resulted in yesterday's edition of VFI News.  I post the contents of the newsletter here to supply vendor financiers and potential vendor financiers with more information about a issue that a lot of people in the industry have been trying to avoid for some time.

I would like to thank Mr Tony Cordato, Australia's most experienced vendor finance lawyer, for the following contribution to this issue of VFI News.

Licensing, as it applies to our vendor finance industry, has been a hot topic of discussion of late and with this in mind Tony writes, "I provide this commentary on where I see licensing intersecting with vendor finance –

VENDOR FINANCE & LICENSING – after the WA Supreme Court Judgment in [name withheld]

–  The fundamentals of real estate and other professional licensing is that a licence is necessary if the person is carrying on a business.  What carrying on a business means is a grey area. I have a letter from ASIC in the context of Credit Licensing that making a one-off credit contract is not carrying on a business.  But ASIC provide no guidance on how many a person can do – that is why I say a ‘handful’ of transactions can be done without a licence, particularly as an adjunct to another business.  The lesson to be drawn from the WA judgment is that WA Consumer Protection is looking closely at what constitutes a business.

–  Every vendor financier, rather than trying to figure out whether what they are doing is carrying on a business – should after doing their first transaction (which ASIC has clearly said is not a business), take steps to obtain a licence.  They should obtain a real estate licence for Rent to Own or an Australian Credit Licence for Instalment Contracts and Deposit Finance.  Once they start the licensing process (by lodging the application), they do not need to suspend their activities – they can continue to do transactions while their licence is pending, although I would recommend they become a Representative of either a Licensed Real Estate Agent or an Australian Credit Licensee while doing so.

–  Real Estate Agents Licensing does not apply and has never applied to owner sellers of real estate.  Why? – because owner sellers are principals not agents. Even if owners sell more than a handful, except in Qld, they are not required to hold a real estate licence because they are not acting as agents because they are selling their property, not someone else’s property.  Of course, if they sell on credit terms, they may need to hold an Australian Credit Licence, but not if they sell on standard terms or on a Rent to Own.

–  The position of Joint Venturers is a grey area.  It has been thought that their position is analogous to an owner seller, because the joint venture gives a joint venturer a financial interest in the property, which at law is called an equitable interest, which is protectable by caveat.  However, a recent decision in New Zealand has cast doubt upon this line of thinking, and it looks like their position is analogous to the carrying on of a business (as outlined) in the first two bullet points.  In other words, one-offs are permissible, but after that they enter into the licensing grey area, and should apply for a licence.

–  I would like a close look at the judgement before making any comments about misleading advertising because it is fact specific as to what constitutes misleading advertising and representations when selling with vendor finance."

[promotional material regarding the Vendor Finance Institute removed]

More information from ASIC regarding the issue of 'in the course of a business' is available by Clicking Here.

Considering today's article in The Age regarding Vendor Finance (CLICK HERE) it looks like it's time for sections of the industry to come to the realisation that Licensing of VF is here to stay.

Cheers,  Paul