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Contracts and the NCA

26 February 2009

"Is a 'contract' as defined in Section 1 the Alienation of Land Act (68 of 1981) deemed to be a credit agreement for purposes of the National Credit Act?"

To answer this question the following three alternatives must be considered:

  1. Where the consumer (purchaser/lessee) is a juristic person with an asset value or turnover below the threshold of R1 000 000,00 and the "contract" concluded is a large agreement (the purchase price/principle debt is higher than R250 000,00) the said agreement falls outside the ambit of the National Credit Act, Act 34 of 2005 (NCA), and is therefore not a credit agreement (section 4(1)(b) of the NCA). The definition of "contract" in section 1 of the Alienation of Land Act, Act 68 of 1981 (ALA) will, however, still apply and require that the purchase price be paid in more than two installments over a period longer than a year.

  2. Where the owner/seller of the immovable property concludes a "contract" with a buyer (natural or juristic person) and the purchase price is agreed upon (any amount), and the repayment of the purchase price only, is made in more than two installments over a period longer than a year as required by the ALA, the agreement is not a credit agreement as defined in the National Credit Act. As long as only the purchase price is payable and no additional finance charges/interest or other charges are levied the agreement is a so-called "cash transaction" which falls outside the ambit of the NCA.

    Note
    Where the parties collude and agree that the purchase price should be higher than the actual and reasonable market price it could be interpreted as simulation to avoid the consequences of the NCA.

  3. Where the owner/seller of the immovable property concludes a contract with a buyer (natural or juristic person) and the agreement is a small agreement (the purchase price/principal debt is less than R15 000,00), intermediate agreement (the purchase price/principal debt is more than R15 000,00 and less than R250 000,00) or large agreement (the purchase price/principal debt is more than R250 000,00), the parties agree that finance charges/interest is payable and the repayment is made in two or more installments over a period longer than a year as required by the ALA, the agreement is a credit agreement as defined in section 8 of the NCA and therefore governed by the said Act.

Section 172(1) also clearly states that where Chapter II of the ALA is in conflict with the NCA, the provisions of the NCA will prevail.

Note
The lease of an immovable property irrespective of the form of the agreement is not a credit agreement as defined by the NCA and falls outside the ambit of the Act (section 8(2)(b) of the NCA).

Note Also
Where the agreement is a credit agreement in terms of the NCA and governed by the said Act, the seller/credit provider need not be registered as credit provider, in terms of section 39(1) of the NCA where the person (owner/seller) operates within one province only.

Section 40(1)(a) and (b), however, stipulates that a seller/credit provider must be registered if that person is a credit provider who has concluded more than 100 credit agreements at any given time or the total principal debt owed to the credit provider under all outstanding credit agreements at any given time exceeds the threshold of R500 000,00.

Confusing, however, is the provisions of section 39 referred to supra which stipulates that section 40 does not apply to a credit provider operating within one province only.

From a Deeds Registration point of view, the answer is irrelevant, as a Registrar will record the contract, irrespective of whether the provisions of the NCA have been adhered to or not.

Readers' views will be appreciated



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