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No bond purchase - II?

1 June 2011

Dear Sirs

After reading Mr Gow's response to my No Bond Purchase? article I would like to thank him for his views.

I do however think it prudent to address some of his reservations and put the minds of any other reader at ease.

With regards to suggestions that the impact of the Consumer Protection Act was ignored in the abovementioned article, I respectfully submit the following:



  1. Although it is true that section 55(2)(c) of the CPA makes occupation before transfer somewhat more risky, the section applies to ALL property transfers in general. I am therefore of the opinion that the use of the example that a property can be handed back up to 6 months after transfer is misplaced, as this can happen regardless of whether it is a Rent2buy transaction or not. Section 55(2)(c) applies to all transfers across the board and has no specific adverse effect when it comes to a Rent2buy transaction as opposed to a ordinary property sale and transfer. It is also rightly pointed out that there is no judicial interpretation for this section yet, so its impact on property transactions could well be varied.

    For more information in respect of and how to assist an "unhappy buyer", one can look at the pre-inspection reports as advocated by the Property Transaction Kit (http://www.propertytransactionkit.co.za), as well as an article published by Deneys Reitz on pre-inspection reports - see Denys Reitz article
     
  2. The same goes for the second "vital aspect" that was supposedly ignored in my article. The section dealing with fixed term agreements applies to ALL leases that fall within its ambit, and not merely leases that are connected to Rent2buy. This then means that each and every lease that falls within the ambit of the provision is risky, which basically means that almost all leases not between juristic persons and shorter than 24 months will fall into this category. Few Rent2but transactions exceed 18 months but are however nor limited to such.

    In order to counter the risks imposed by the CPA in this regard, rental insurance is proposed as mentioned in the first article. This insurance is underwritten by a national insurance company, which pays the rent on the first day of every month and guarantees the rent for 3 months should the lessee default. It also covers all legal costs in the case of an eviction. For more information visit http://www.irent2buy.co.za.

As far as concerns exist about the application of the National Credit Act, the following can be highlighted:

  1. Although it is argued that credit agreements are widely defined under the NCA, the NCA only applies to the following agreements:
    • Credit facility agreements;
    • Credit transactions agreements; and
    • Credit guarantee agreements.
    In terms of the definitions (provided by the NCA) of the above agreements, the Rent2Buy agreement does not constitute as a credit agreement and thus is not regulated/covered by the NCA.
  2. Furthermore, the NCA does not regulate the following;
    • Sale agreements where the purchase price is payable upon registration of transfer of the property in the name of the purchaser
    • Lease of immovable property
    • In relation to mortgage bonds, where a consumer is a company, close corporation or trust with more than two trustees.
  3. However, the NCA does regulate the following:
    Instalment sale agreements in terms of the Alienation of Land Act.

The Alienation of Land Act defines an installment agreement as being a sale of land in instalments as being a contract where land is sold against payment by the purchaser to the seller of an amount of money in more than two instalments over a period exceeding one year or as a suspensive sale where a seller is prepared to sell the property to the purchaser without receiving the full amount of cash upfront when transfer is registered. It allows for the purchaser to pay the purchase price directly to the seller in monthly instalments.

However, the Rent2Buy agreement is not covered by the above definition. In terms of the Rent2Buy scheme, when the purchaser exercises his option to buy the property in question, there is one purchase price which is payable by the purchaser to the seller.

The bottom line is that the "vital aspects" referred to in support of the view that the Rent2buy concept is reckless apply generally and may have the same effect on all the transactions to which it applies. I am of the opinion that general aspects like this, that have a sweeping impact on all the agreements in many fields cannot be used as indicators of the shortcomings of one product in particular as they do not have a impact that is specific to only this product due to the product's nature.

In essence, it is not the product or the advice relating to it that is reckless, it is the legislation that is inherently problematic. As was stated in the first article it is therefore advisable to use an attorney, a sophisticated attorney being able to assist the unsophisticated or/and sophisticated purchaser.

Meyer de Waal 

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