Where land, which is used mainly for residential purposes with the exclusion of agricultural land, is sold in more than two installments over a period of longer than one year, the burning question is whether the seller must register as a credit provider in terms of the National Credit Act?
The two primary pieces of legislation that must be considered are:
1. The Alienation of Land Act 68 of 1981; and
2. The National Credit Act 34 of 2005.
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.
Should no interest be charged and no additional fees be included in the purchase price or the purchase price is not inflated above the market value, the National Credit Act will not apply.
However, should one wish to add interest, charges or fees on the purchase price or inflate the purchase price above the market value the National Credit Act will apply. 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 the purchaser cannot maintain the instalment payments.
When a seller contemplates an instalment sale agreement containing interest charges, it is important that one takes careful note of the steps that have to be taken before concluding such an instalment sale agreement and accordingly conduct the necessary investigations into the buyer’s ability to repay the debt.
Please do not hesitate to contact me for further information.
TONKIN CLACEY PRETORIA
012 346 1278