The current economic climate has placed many parties in the property market in a precarious position where they are either unable to obtain finance, or service their current financial obligations with their financial institutions. Therefore, prospective Sellers and Purchasers have become creative in finding alternate ways to finance immovable property.
The revival of the Instalment Sale assists parties in structuring a sales agreement that is beneficial to both the Seller and Purchaser over a period of time. This process is regulated by the Alienation of Land Act 68 of 1981 and the National Credit Act 34 of 2005.
The Alienation of Land Act regulates the instalment sale and places the following onus on the parties:
- sale of immovable property shall be for residential purposes;
- the purchase price is paid in two or more instalments over a period exceeding one year but limited to five years;
- the sale agreement shall be recorded against the holding title deed of the property within ninety days of signature of the sale agreement;
- the Seller shall, within thirty days after the conclusion of the agreement, send the Purchaser a statement from the relevant mortgagee recording the outstanding amount required to release the Seller’s mortgage bond, together with the applicable interest rate;
- transfer duty shall be paid within six months of signature of the sale agreement;
- in the case of breach, the Purchaser shall be given a minimum of thirty days to rectify the said breach of contract.
The National Credit Act regulates credit agreements that provide for a deferral of payment and/or a charge, levy or interest is payable as a result of this deferral. In instances where a sale agreement provides for a charge, fee or interest payable on the purchase price; or the inflation is above the market value, it would be deemed to be extending credit to the Purchaser. The National Credit Act would therefore be applicable, and the Seller would be required to register with the National Credit Regulator.
Sellers should avoid entering into this type of sale agreement as it can become onerous to register as a credit provider with the National Credit Regulator.
The National Credit Act would not apply to a sale agreement where there is only a deferral of payment of the capital amount and no further charges, levy or fees are charged on the purchase price; or the purchase price is not inflated above the market value.
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