APPLICABILITY OF THE NATIONAL CREDIT ACT TO PROPERTY INSTALMENT SALE AGREEMENTS

TO ALL ESTEEMED BUSINESS PARTNERS

Number

11/2017
From a conveyancing perspective it is of the utmost importance to ascertain whether a contract for the sale of immovable property in instalments is valid or not.

The two primary pieces of legislation that should be considered in determining the validity thereof are:
  • The Alienation of Land Act; and
  • The National Credit Act
The Alienation of Land Act regulates the requirements for the sale of immovable property where the purchaser agrees to pay the purchase price to the seller in more than two instalments over a period exceeding one year.

The National Credit Act regulates credit agreements, i.e agreements that provides for:
  • A deferral of payment; and
  • A charge, levy or interest that is payable as a result of the deferral of payment.
If an agreement therefore only provides for the deferment of the payment of capital, and no interest, fees or other charges are levied in respect thereof, then the National Credit Act does not apply to the sale agreement.

Inflation of the purchase price over and above the market value of the property can be viewed as a charge or a fee which may make the National Credit Act applicable.

If there is no charge or any interest, charges or fees on the purchase price, or the purchase price is not inflated above the market value, the National Credit Act will not apply.

However, the National Credit Act will apply where interest or fees are charged on the purchase price, or the purchase price is inflated above the market value.

The National Credit Act provides various forms of protection for consumers. In the context of an instalment sale agreement, the following then becomes relevant:
  • The seller will have to investigate the purchaser’s ability to service the ‘debt’ ie. the instalments, or run the risk of it being regarded as reckless lending should the purchaser not be able to repay the debt.
  • Also, even if the ‘credit’ was not recklessly provided, the purchaser may be able to access the remedies available to over-indebted persons under the National Credit Act, such as debt review where she cannot maintain the instalment payments.
Conclusion

In an instalment sale agreement,where interest or fees are charged on the purchase price, or the purchase price is inflated above the market value, the seller must register as a credit provider for the contract to be valid.

For any queries please contact our property law division at the details below:
Allen West

Tel: 012 425 3549

Daleen Loubser

Tel: 012 425 3489
dloubser@macrobert.co.za
Disclaimer: This newsflash is for general information only and should not be used as legal or professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance and any information therein