Rent-to-Buy vs Instalment Sale: What Is the Difference?

By Louise Fourie | Principal, Africa Estate

Renting with a right to buy is not the same as buying in instalments. Both get called rent-to-buy, but the law treats them very differently. Which one you sign decides whether you are a tenant or a buyer, and which rights you have.

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

A lease with a right to buy

You rent the property and pay rent. Separately, you get a written right, often called an option, to buy it at an agreed price within an agreed time. Until you actually buy and the property is transferred, you are a tenant. If you do not buy in time, the right falls away. Whether any of your payments count towards the price depends only on what the agreement says.

An instalment sale

Here you buy the property now and pay the price over time. The Alienation of Land Act calls this a contract when land is sold against payment of the price in more than two instalments over a period of more than one year (section 1). For land used mainly for residential purposes, Chapter II of the Act then protects the buyer:

• The sale must be in writing and signed by the parties, as every sale of land must be (section 2).
• The seller must have the contract recorded at the Deeds Office (section 20).
• A buyer who has paid at least half the price can demand transfer, with a first mortgage bond registered in the seller's favour for the balance (section 27).

Agricultural land falls outside Chapter II. And if a fee or interest is charged on the part of the price that is paid later, another law can come into play: see Rent-to-Buy and the National Credit Act.

Why it matters to you

As a tenant with an option, you have a lease and a right to buy. As an instalment buyer, you have bought, with the protection of the Act. The same words, "rent-to-buy", can mean either. Read what you are signing, and have an attorney draw it up.

Before you get that far, make sure rent-to-buy can work for you at all: take the Reality Check.

Source: Alienation of Land Act 68 of 1981, sections 1, 2, 20 and 27. This article is general information, not legal advice.

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