It often happens during a sale of immovable property that the parties agree to a deferred payment of the purchase price. The purchaser will then pay the purchase price in instalments and the seller will charge interest on the outstanding amount from time to time. Sometimes the parties even agree to the registration of a bond over the property to secure the payment of the purchase price.
But what the parties don’t keep in mind is that this agreement between the parties constitutes a credit transaction as defined in the National Credit Act (hereinafter called the Act) and that in certain circumstances the seller will have to register as a credit provider in terms of the Act.
To establish if the Act will be applicable and if the seller should register as a credit provider one should carefully consider the following:
- The Act will apply to all written credit agreements between parties dealing at arm’s length. This is to probably curb underhand dealings between family members at the peril of other third parties.
- Arm’s length transactions are not defined in the Act but they exclude, for example, transactions between family members who are dependent or co-dependent on each other and any arrangement where each party is not independent of the other and does not strive to obtain the utmost possible advantage out of the transaction.
- The Act does not apply where:
- The consumer is a juristic person whose annual turnover or asset value is more than a R1m;
- The purchaser is the State or an organ of the State;
- A large agreement (i.e. more than R250 000, such as a mortgage) is entered into with a juristic person whose asset value or turnover is less than R1m.
A credit agreement includes a credit facility, credit transaction and credit guarantee or a combination of these. The relevance is the following:
- A credit facility requires fees or interest to be paid;
- A credit transaction does not necessarily require interest or fees to be paid. An instalment agreement would suffice to qualify as a credit transaction.
An instalment agreement is defined and relates only to the sale of movable property.
A credit transaction also includes any other agreement where payment of an amount owed is deferred and interest or fees are charged.
A mortgage agreement qualifies as a credit transaction [Section 8(4)(d)] and the importance is that mortgage is defined in the Act as a pledge of immovable property that serves as security for a mortgage agreement.
Mortgage agreement is also defined as a credit agreement secured by a pledge of immovable property.
Section 40 of the Act requires one to register as a credit provider should you have at least 100 credit agreements as credit provider OR if the total principal debt under all credit agreements exceeds R500 000. Principal debt means the amount deferred and does not include interest or other fees.
It follows that if you sell your home to an individual in a private sale (i.e. where he does not get a bond from the bank) and you register a bond as security, you have to register as a credit provider UNLESS the principal debt is less than R500 000 or the buyer is a juristic person and the price is more than R250 000.
The implications for the seller could be far-reaching if he is not registered, as the agreement will be unlawful and void, and a court must order that:
1. The credit agreement is void as from the date the agreement was entered into;
2. The credit provider must refund to the purchaser any money paid by the purchaser under the credit agreement, together with interest;
3. All the purported rights of the credit provider under the credit agreement to recover any money paid or goods delivered to, or on behalf of the purchaser in terms of the agreement, are either cancelled or forfeited to the State.
The application form to register as a credit provider and also the calculation of the registration fee that is payable to the National Credit Regulator (NCR) can be found on the NCR’s website. If the seller has not registered by the time he enters into the loan agreement he may still register within 30 days after entering into the loan agreement.
Sellers, be careful when you enter into these types of agreements as non-compliance with the Act could be a costly exercise.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.