Purchasers are increasingly finding it difficult to obtain financing for the purchase of farms, agricultural land, commercial and industrial property. There are many reasons for this of which banks’ so-called affirmative finance is only one of them. Banks see these types of properties also as “high risk” – or at least higher risk than normal home loans. Many sellers of these properties can consider granting the purchaser a bond for the purchase amount, to be paid off over a period of time. There is only one problem. The NCA requires the seller to register as an incidental credit provider even if it refers to only this one transaction and the seller might never intend to finance anyone ever again.
Some sellers, even with the advice of their attorneys accept an acknowledgement of indebtedness and consent to judgment as sufficient protection, prior to shaking hands and signing off the transfer documents. Before the NCA, the mere registration of the bond or the notice confirming the installment sale of a property registered at the Deeds Office was sufficient. Together with the required written agreement it constituted protection to the incidental money lender in the event of a defaulting purchaser.
The National Credit Act has changed all that. The Act provides, inter alia, that in any credit agreement where the credit amount exceeds R500 000 (five hundred thousand Rand), the lender must be registered as a credit provider. This includes the occasional private farm seller, commercial land owner et all, even if it is a one-off arrangement with no intention by the seller to provide credit to any other person ever again. Failure to register as a credit provider prior to a transaction that can be defined as a “credit transaction” is a transgression of the Act.
Should the credit provider not be registered and the purchaser defaults on the payment agreement, section 89(5) of the National Credit Act is unequivocally prescriptive on how the courts are to deal with such circumstances. A recent judgment in the Constitutional court regarding the right not to be arbitrarily deprived of property and the so-called Limitation clause. J van der Westhuizen delivered a majority judgement on 10 December 2012 which declared the arbitrary forfeiture of property to the state prescribed in section 89(5)(c) of the National Credit Act to be inconsistent with section 25(1) of the constitution, and thus invalid.
But this still leaves the prospective credit provider – in a case of default by the buyer – with the prospect of dealing with the NCA whose intention is to discourage the provision of credit outside the framework set by the legislature. There are other recourses for the seller – which I am not going to deal with here ( pursuance of such agreement must then be made in terms of unjustified enrichment, and specifically the conditio ob turpem vel iniustam causam.)
All this can be prevented by just registering with the NCR which in itself for the purpose of the deal is not a major train smash.
Although some of my learned friends differ on the point of selling of property utilizing “Hire Purchase”, which according to our interpretation is not governed by the NCA as no interest is charged and only an occupational rent is paid ( plus normally a deposit) and the transaction is noted on the title deed at the deeds office – There are other requirements that have to be met – like payment of the transfer duties or VAT if applicable has to be made within a certain period (it will attract penalties of not paid) But the transaction is 100% safe for both parties in that ownership will effectively pass only to the purchaser upon transfer and as the transaction is noted on the title deed, whatever happens to the seller does not negatively affect the buyer. Expert legal opinion has been obtained on this issue by writer hereof and contains amongst others the following reasoning behind the system:
1. The purchaser enter into a purchase agreement of land where the property is properly defined and priced
2. The payment of the purchase price is described as an amount having to be paid up front (a deposit) and the rest of the purchase price at a future determinable date.
3. No interest is charged on any future portion of the purchase price to be paid.
4. . Only monthly occupational rent is payable.
5. The transaction is logged on the title deed
Anyone requiring assistance with any of the above actions are welcome to contact writer hereof
For further reading see National Credit Regulator vs Fillippus Albertus Opperman and others, case number CCT34/12 [2012] ZACC 29 and case law quoted by both the majority judgement and descending judgment written by J Cameron.
