Legal Articles

In certain circumstances, potential sellers and/or purchasers may make use of the installment sale agreement method to buy or sell immovable property in South Africa.

Installment Sale Agreement – What Does it Mean?

An installment sale agreement is defined as an agreement between a purchaser and seller where both parties agree that the purchase price of a property will be paid to the seller in two or more installments over a period spanning one to five years.

Installment Sale Agreement and the Alienation of Land Act South Africa

The following legislature regulates the process of installment sale agreements in South Africa:

• The Alienation Land Act 68 of 1981
• The Conventional Penalties Act 15 of 1962
• The National Credit Act 34 of 2005 (NCA)

It is, however, important to note that should conflict arise between the Alienation of Land Act and the NCA, the NCA will prevail.

The Alienation of Land Act makes provisions that are applicable to land that is intended for residential purposes, while the following categories of land are excluded:

• Land which is held in trust by the State or a Minister for any person
• Agricultural land as defined in the Subdivision of Agricultural Land Act 70 of 1970

The rights and obligations of the parties involved, as well as the details that should be included in the body of the contract can be found in Section 6 of the Alienation of Land Act.

According to Section 7, the seller has is obligated to send the purchaser a certificate drawn up by the relevant bank that states the outstanding amount required in order to discharge the seller’s mortgage bond as well as the applicable interest rate.

This certificate must be provided to the purchaser within 30 days after conclusion of the contract. Should the seller fail to provide the certificate to the purchaser, the purchaser may have the right to cancel the installment sale agreement.

Included in the Act is a set of guidelines for the calculation of interest as well as how to address invalid provisions, statements of account, penalties and more.

In the event of a breach of contract, the Act states that the purchaser is given a minimum grace period of 30 days to rectify the said breach.

Furthermore, the Act requires the seller to record the installment sale agreement against the property’s title deed. This must be done with the appropriate registrar of deeds within 90 days of the conclusion of the sale agreement.

If this is not done within the stipulated time frame, the purchaser may have the right to cancel the sale agreement.

The title deed must then be endorsed by the seller or the purchaser which protects the purchaser and prevents the seller from alienating the property to a third party. It’s not permissible to transfer the property to any person who is not the purchaser.

The National Credit Act 34 of 2005

Specific provisions related to installment agreements can be found in the NCA in the specific context of movable property. Immovable property generally falls within the scope of the NCA by applying the provisions related to mortgages.

Outside of these provisions, when a seller provides goods or services to a purchaser in terms of an agreement which allows the purchaser to pay the cost of the goods over a period of time in exchange for any additional fee or interest rate, then the seller and purchaser have entered into a credit agreement.

The NCA does not provide definitions for the terms “goods” and “services”. Instead, the Consumer Protection Act (CPA) provides the following definitions for these terms:

• Goods

Includes “a legal interest in land or any other immovable property.”

• Service

Includes “a right of occupancy of or power or privilege over or in connection with, any land or other immovable property, other than in terms of a rental.”

Should an installment sale agreement not require additional charges, fees or interest rate payable to the seller by the purchaser, it will not fall within the confines of the NCA.

According to Section 100(2) of the NCA, “a credit provider must not charge a consumer a higher price for any goods or services than the price charges by that credit provider for the same or substantially similar goods or services in the ordinary course of business on the basis of a cash transaction.”

In addition, sellers are not permitted to load the price of goods and services which are sold on credit as a way to avoid the provisions of the National Credit Act.

The NCA defines a “credit provider” as any person who provides credit to retail consumers who are:

• Natural persons
• Small juristic persons with an annual turnover or asset value of less than R1 million, provided that the small juristic person is not borrowing an amount of money exceeding R250 000.00.

Furthermore, the NCA will not apply in the following situations:

• Where the purchaser is a small juristic person borrowing more than R250 000.00, the NCA will not apply to the credit provider or the installment sale agreement
• Where the purchase is a large juristic person (annual turnover or asset value exceeding R1 million) irrespective of how much money is borrowed

For this reason, sellers should avoid using installment sale agreements with small companies or natural persons whereby a charge, fee or interest is payable to the seller. In such cases, the provisions in the NCA will apply to the seller as well as the actual sale agreement.

Van Deventer & Van Deventer Incorporated – Conveyancing Attorneys South Africa

In some cases, potential purchasers of immovable property may find it difficult to obtain bank finance to conclude their purchase.

Therefore, an installment sale agreement may make it possible for many consumers to buy property in South Africa.

For more information on installment sale agreements in South Africa, please don’t hesitate to contact our conveyancing attorneys in Johannesburg and Cape Town.