Buying property in South Africa brings its own set of unique elements that buyers and sellers must navigate. It sometimes happens that the parties to an agreement choose alternative finance methods- two such options are the "kustingsbrief" (a type of mortgage agreement) and the Instalment Sale Agreement. Both are regulated by specific legislation, including the Alienation of Land Act 68 of 1981. This article aims to break down these terms, providing an easy-to-understand explanation of their nuances.
Deciphering the Kustingsbrief
A Kustingsbrief is not an instalment sale agreement as some might mistakenly believe, but rather a type of mortgage agreement registered over the property for the balance of the purchase price. In this setup, the seller provides credit to the buyer for part or all of the purchase price, secured by a mortgage bond registered over the property. The buyer then repays this mortgage to the seller over a specified period, akin to a traditional bank mortgage. It is quite possible that the National Credit Act, 2005 (the "NCA") may apply to these transactions if certain criteria are met. Unlike an instalment sale agreement, the property is transferred to the purchaser, and a mortgage bond for the balance of the purchase price is secured by simultaneous registration of the "kustingsbrief".
The Instalment Sale Agreement Explained
On the other hand, an Instalment Sale Agreement is a contract in which the buyer pays off the purchase price through regular instalments directly to the seller, without any mortgage bond registration, as transfer of the property is not registered in the name of the buyer until the property is repaid. The repayment needs to be due in "more than two instalments" and over a period of at least one year, but no more than five years. There are also limitations as to the type of property which can be purchased. It is however crucial that the contract be recorded at the relevant Deeds Registry within 90 (ninety) days of conclusion of the agreement, as this will protect the purchaser against the Seller possibly alienating or further encumbering the property. This structure is governed by the Alienation of Land Act 68 of 1981 (the "ALA"), which stipulates that the ownership of the property only transfers to the buyer once the full purchase price has been paid, although the ALA provides that the buyer can request that the property be transferred once at least fifty percent of the purchase price has been paid, subject to a mortgage bond (a "kustingsbrief") being registered simultaneously to secure the purchase price.
This kind of agreement often becomes the preferred choice for people who may not qualify for traditional mortgage loans. However, it's important to note that such agreements may fall under the purview of the NCA as well.
The National Credit Act and Its Implications
The National Credit Act is intended to protect consumers entering into credit agreements to prevent irresponsible lending and overwhelming debt. If an instalment sale agreement qualifies as a credit agreement under the NCA, it would need to adhere to the Act's strict provisions.
If the NCA applies, the seller would be considered a credit provider and would need to register as such and abide by the NCA's regulations. If the NCA applies, and the Seller fails to register as a credit provider at the time of entering into the agreement, the agreement is void ab initio (void from the beginning), amongst other implications.
Alienation of Land Act: An Important Pillar
The Alienation of Land Act, 68 of 1981, forms a critical part of the legal landscape around property sales in South Africa. It governs the sale of immovable property and the enforcement of the sale contracts. Most importantly for this discussion, it provides a legal basis for instalment sale agreements, outlining the specific rights and obligations of both buyer and seller.
Navigating Through the Agreement Components for an Instalment Sale
Understanding the following key components of a sale agreement whereby the payment of the purchase price in instalments, is essential:
1. Parties Involved: Both the buyer and seller must be correctly identified.
2. Property Description: The agreement must contain a detailed description of the property.
3. Payment Terms: The total purchase price, instalment amounts, payment frequency, and duration should be well-defined.
4. Ownership and Occupation: While occupation can happen earlier, ownership only transfers after full payment of the purchase price.
5. Rights and Responsibilities: Both parties' obligations must be outlined in the agreement.
6. Default Management: Consequences of defaulting on payments should be clearly stipulated.
The Kustingsbrief, the Instalment Sale Agreement, and the application of the Alienation of Land Act and the National Credit Act form a complex web of legal provisions that potential buyers and sellers must understand. Despite their potential advantages, these agreements come with intricacies that require professional legal advice. Remember, the information provided in this article is for general information purposes only- it is highly recommended that you always consult with a professional.
Spence Attorneys can provide advice on a case by case basis, and attend to the conveyancing aspects and regulatory aspects. Get in touch! firstname.lastname@example.org
Disclaimer: The information provided in this article is intended for informational purposes only and does not constitute legal advice. Always consult with an appropriately qualified legal professional. Spence Attorneys will not be held liable for any person acting or failing to act on the information contained herein.