It is advised that a buyer / seller who lends money must be a registered credit provider and professional advice must be sought rather than going at it alone.
Lending an amount over R500 000 to a buyer or seller of a property is an unusual situation, but, says Annette Evans, regional general manager of the Institute of Estate Agents, Western Cape, consumers need to be aware of the implications of a contract before they structure it to allow the lending of money between the parties involved.
A recent court case highlighted by Bisset Boehmke McBlain Attorneys illustrates the intricacies of various legislation and how what seemed to have been a simple loan agreement between the buyer and seller changed the contractual claims on the money lent, because they did not consult a professional as to what the law dictates, said Evans.
In this particular case, the buyer bought the property from the seller for R700 000, paying the seller in full and taking occupation but he could not take transfer as it was discovered that a bondholder was owed money due to an illegal transfer of the property to a third party. To assist the seller in sorting out the matter and getting the property transferred, the buyer lent the seller an amount of R882 397, and the seller signed an acknowledgement of debt to that effect. The seller repaid R250 000 but failed to pay the rest which resulted in the buyer suing him for the difference.
The court found that the buyer was not a registered credit provider in terms of the National Credit Act which nullified the buyer’s summons to collect the outstanding amount. The NCA stipulates that if anyone lends an amount exceeding R500 000, even if it’s only a “one-off” transaction, he needs to be registered as a credit provider or the loan agreement will be found illegal and void.
While this sort of situation is unlikely to be a regular occurrence, said Evans, it is a strong reminder to all that if a property deal is structured in a way that money is lent for a time, whether to the buyer or seller, that the person lending it must be registered as a credit provider and that they must get professional advice instead of going it alone. This can be an expensive “mistake” if things go wrong and all the necessary paperwork has not been done by the book, she said.