Rent-to-Buy and the National Credit Act: When Does It Apply?

By Louise Fourie | Principal, Africa Estate

It depends on one thing: is a fee or interest charged on money paid later? Rent-to-buy is not automatically covered by the National Credit Act, and it is not automatically outside it either. The way the agreement is written decides.

Part of our Rent-to-Buy series. Start with the Rent-to-Buy Reality Check.

What the Act says

Section 8(4)(f) of the National Credit Act makes an agreement a credit agreement when payment of an amount owed by one person to another is deferred, and a charge, fee or interest is payable in respect of that deferral. Both parts must be there: the payment is put off, and something is charged for putting it off.

Renting a house is not a "lease" under the Act

The Act's own definition of a "lease" is about movable property, like a car or equipment. Renting a house is therefore not a credit agreement just because it is a rental. What matters is what else the rent-to-buy agreement contains.

When it can apply

• The purchase price is paid over time, and interest or a fee is added for paying it later.
• Part of the monthly payment is towards the price, and the seller charges for waiting for the rest.

An instalment sale of a home also falls under the Alienation of Land Act, which has its own rules. See Rent-to-Buy vs Instalment Sale.

Why it matters

If the Act applies, the seller is treated as a credit provider and takes on the duties that come with it. A buyer should know which protections apply to them.

That is not a reason to try this without advice. It is a reason to have an attorney draw up the agreement, and to be sure rent-to-buy can work for you before anyone draws up anything: take the Reality Check.

Source: National Credit Act 34 of 2005, sections 1 (definition of lease) and 8(4)(f). This article is general information, not legal advice.

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