Monthly Archives: January 2014

Sale of immovable property and the National Credit Act

02_BIt 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:

  1. 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.
  2. 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.
  3. 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:

  1. A credit facility requires fees or interest to be paid;
  2. 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.

Tenant and landlord: What are your rights and obligations?

01_BSandra would like to move into her own place but like many people she is unsure what a lease is and what responsibilities it will place on her. A lease agreement is defined as the agreement entered into between the tenant and the landlord for the leasing of a property. The lease agreement regulates the rights and obligations of both parties and protects the parties mutually.

The Rental Housing Act No. 50/1999, as amended by the Rental Housing Amendment Act No. 43/2007, regulates the relationship between a tenant and a landlord, even before commencement of the lease agreement.

The Act determines that the landlord may not discriminate against the prospective tenant, his family or friends, including on grounds of race, sex, pregnancy or marital status. This applies as early as placing an ad for the leasing of a property or even during negotiations between prospective tenants and the landlord,

The lease itself does not have to be in writing to be binding on both parties and should a tenant request that an oral agreement be reduced to writing, the landlord may not refuse the request.

A written lease agreement must contain the following information:

  • The names of the parties, as well as their South African addresses;
  • A description of the property being leased;
  • The monthly rental payable and reasonable increases;
  • The deposit payable, if applicable;
  • The period for which the property will be leased.  Should the agreement not mention a specific period of lease, the agreement must indicate the notice period required should one of the parties wish to terminate the contract;
  • Any other consideration, besides the monthly rent, which may be payable;
  • A complete list of defects that are present at the time that the parties entered into the lease agreement.

If the property is situated in a complex that has its own rules, a copy of those rules should be attached to the lease agreement.

The landlord must ensure that he/she gives effect to the provisions contained in the lease agreement.

As mentioned, mutual rights and obligations are created for both parties in the lease agreement. These rights and obligations include the following:

Tenant’s rights:

  • To jointly inspect the property before the tenant moves in and record any defects or damage to the property.  This provision protects the tenant at the end of the lease period to ensure that the tenant will not be held liable for damages that already existed at the time the lease was entered into;
  • During the lease period, the tenant has the right to privacy and the tenant’s property, home or person may not be searched;
  • If the landlord fails to inspect the property upon expiry of the lease, the tenant can assume that the landlord acknowledges that no damage has been done to the property, and that the full deposit, together with interest thereon, must be refunded to the tenant.

Landlord’s rights:

  • To request a deposit, in the amount agreed upon between the parties, before the tenant takes occupation of the property;
  • To receive timeous payment of the monthly rent and also to collect overdue payments, after a court order or order from a Tribunal has been obtained;
  • To receive the property in a good condition upon termination of the lease;
  • To jointly inspect the property within three days before the lease expires and determine if any damage has been done to the property for which the tenant should be held liable;
  • To recover the cost of repairs, should the property be damaged, from the tenant;
  • Should the tenant not give access to the property for a joint inspection before expiry of the lease, the landlord should inspect the property within seven days after expiry of the lease and utilise the deposit for necessary repairs.  The balance of the deposit, if any, should be refunded to the tenant within twenty-one days.

Landlord’s obligations:

  • To invest the tenant’s deposit in an interest-bearing account at a financial institution, with an interest rate equal to or higher than the interest rate at that time earned on a savings account at such financial institution.  The tenant may request proof that the deposit is invested and the landlord may not withhold such evidence;
  • To furnish the tenant with a receipt for each payment made by the tenant, which receipt should clearly describe the property, be dated, and indicate in full what the payment is made for (eg Rent for the month of February 2013, or deposit);
  • To utilise the deposit to repair any damage to the property or to recover arrears rent after expiry of the lease, and to pay the balance together with interest earned thereon to the tenant within fourteen days after the expiry of the lease;
  • To keep all receipts in respect of repairs done to the property which were deducted from the tenant’s deposit, and make such receipts available to the tenant;
  • To refund the tenant’s deposit together with interest thereon, within seven days of the expiry of the lease, in the event that no repairs are to be made to the property.

Should a dispute arise between the parties, the Rental Housing Tribunal in the area where the dispute arises, can be contacted.

It is very important for both the tenant and the landlord to make sure that their intentions are clearly defined in the lease and that they understand the terms of the lease before the lease agreement is signed.  Also that all provisions, responsibilities and obligations are clearly set out in the agreement.  It is advisable to seek legal advice if any uncertainties arise, before the lease agreement is signed.

References:  Rental Housing Act No. 50/1999, as amended by Rental Housing Amendment Act No. 43/2007

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.