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No bond response

26 May 2011

 

He writes:
 
Dear Sirs,
 
With utmost respect to the substantial effort the author has put into No bond purchase?article, it is reckless advice.
 
The main reason for my view is that this article ignores the critical Consumer Protection Act and the Regulations under it.  As we know, they came into effect on the 1st April 2011.
 
Some of the vital aspects of the CPA which the author ignores are the following:
  1. Occupation granted prior to registration is even more dangerous than before.   Immoveable property has been included under the definition of Goods under the CPA.  Therefore,  for instance, the property can be       handed back, even after registration, within a period of  6 months in terms of sec 55(2)(c) of the CPA, in the event that the property is not "useable and durable ".   There is no existing judicial precedent for the interpretation of this phrase. Obviously,    this is a huge risk taken by the Sellers if an  Alienation of Land Act agreement is entered into.
  2. The Leases referred to in the article are fixed term agreements.  If both the Landlord and the Tenant are not juristic persons, the lease can be cancelled on any time on 20 business days notice by the Tenant, subject to a reasonable cancellation fee. A formula for the calculation of this fee is not set out.  Many Landlords are under  massive risk of being seriously financially prejudiced in this situation.

These fixed term agreements also cannot be longer than 2 years unless certain conditions apply in favour of the Purchaser.

 
The National Credit Act
As regards the aspects of the NCA, the article briefly alludes to the way in which you can avoid the agreement being within the scope of the NCA by ensuring that the purchaser is a juristic person. While the reference to the trust is accurate, the dangers of the agreement falling within the ambit of the NCA are considerable and must be stressed.  For example if the seller were to agree to an instalment sale over the sum of R500 000, failure to register as a credit provider with the National Credit Regulator would make the sale void - an extreme result by any standard.  Moreover, even if the purchase price of the property is below R500 000 that in itself only removes the requirement to register as a credit provider, but it does not remove the responsibility of the seller to ensure that the purchaser can afford the monthly repayment (i.e. an affordability assessment).
 
While credit should be given to the writer for considering innovative ways to assist purchasers with poor credit records, the solutions posted within the article should only be utilised by sophisticated purchasers who have access to an informed legal opinion.  As can be seen from the example above, failure to do so can have catastrophic results.
 
These Alienation of Land Act sales are to be treated with the very utmost caution, to say the least.
 
Gavin Gow
Gavin Gow Inc.
 

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