The confusing definition of “instalment sale agreements” in the Act

In terms of the National Credit Act (“the Act”), an instalment agreement is defined as a sale of movable property. From the definition, it would seem that instalment sale agreements over immovable property are excluded from the Act; however, this is not the case.

What is a credit agreement?

A credit agreement is defined as an agreement where a credit provider undertakes to supply goods or services or to pay an amount and the consumer’s obligation to pay is deferred.

Specific agreements excluded from the operation of the Act

Section 8 of the Act excludes certain agreements from the operation of the Act, namely a lease of immovable property. From the above, it is clear that a lease of immovable property is specifically excluded from the operation of the Act, but the Act does not specifically exclude an instalment sale agreement over immovable property. 

When do I need to register as a credit provider if I conclude an instalment sale agreement? 

In terms of Section 40 of the Act, a seller party to an instalment sale agreement must apply to register as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreement, exceeds R500 000 (this amount is subject to change by the Minister of Trade and Industry by notice in the Government Gazette).

The effect of the Act on instalment sale agreements over immovable property

Although an instalment sale agreement is defined in the Act as an agreement over movable property, an instalment sale agreement over immovable property constitutes a credit transaction in terms of the Act. 

If an instalment sale agreement provides for a purchase price of more than R500 000, then the credit provider (the seller in terms of an instalment sale agreement) would need to register as a credit provider in terms of the Act. 

When dealing with instalment sale agreements, as well as any other agreement where payment is deferred, it is important to be mindful of the implications of the National Credit Act. To avoid confusion, the National Credit Act should be amended to include instalment sale agreements over immovable property in the definition section of the Act.