Be careful when buying and selling property that you aren’t held to have lent more than R500,000 to the other party. As a recent High Court case illustrates, that will leave you with no contractual claim to your money.
The seller, the buyer, and the loans
- Having bought a property for R700,000, the buyer paid the seller in full and took occupation.
- He was however unable to take transfer when it emerged that a bondholder was owed money as a result of an unlawful transfer of the property to a third party.
- To enable the seller to pass transfer to him, the buyer lent the seller three amounts of money totalling R882,397. The seller signed an acknowledgment of debt for that amount and then repaid R250,000.
- When the seller failed to repay the balance, the buyer sued him.
The buyer’s summons, held the Court, was defective because it did not allege that the buyer had registered as a “credit provider” in terms of the NCA (National Credit Act). That, held the Court, was fatal to the buyer’s summons –
- The NCA requires you to register as a credit provider where either –
- You make more than 100 loans (other than “incidental credit agreements”), or
- The total amount you loan comes to more than the set threshold of R500,000.
- The total amount loaned by the buyer to the seller in this case being over the threshold, the buyer was obliged to be registered under the NCA as a “credit provider”.
- It is irrelevant if, as in this case, the loan is a “once-off” or if the lender doesn’t “frequently” provide credit. If the total amount loaned is over R500,000, registration is required. In other words, the NCA’s registration requirement doesn’t apply only to those who make a business of providing credit – it also applies to you and to me in our daily lives.
The trap (for all lenders, not just in property transactions) and the danger
If you lend money to anyone (as part of a property transaction or not) and if you are required to register as a credit provider but don’t, your loan agreement is unlawful and void. Your only chance of recovering your money then will be to sue for “unjustified enrichment” which has its own set of requirements for you to prove, and defences for the debtor to raise.
Don’t take a chance of falling into this little-known trap. If your property deal is structured in such a way that you may need to be registered as a credit provider, seek legal advice immediately, and certainly before you lend money to anyone.