Exclusion of immovable property leases and subsequent settlement agreements from NCA regulation

The National Credit Act, 34 of 2005 (NCA) may be regarded as consumer credit legislation, as it provides important regulations for businesses engaging in credit agreements, whether these are secured loans, hire purchase, mortgages, or goods and services sold on credit.

The ambit of the NCA excludes agreements to lease immovable property. If not for this exclusion, contracts such as rental housing agreements would be regarded as credit agreements where they aim to charge interest on late payments of rent. The NCA provides that leases of immovable property are not to be regarded as credit agreements, irrespective of its form. (s8(2)(b) of the NCA)

This article compares the leases excluded from regulation by the NCA to those that are made provision for in the NCA and further examines whether settlement arrangements for non-payment of rent could become regulated by the NCA as credit agreements.

Leases of immovable property and leases which are regulated by the National Credit Act.

Leases of immovable property excluded by the NCA are not to be confused with leases of movable property, which are provided for in the NCA (simply called ‘leases’ in the Act).

The NCA sets out three types of agreements which will be regarded as credit agreements and will thus be subject to the requirements of the Act, including the requirements of registration of the credit provider, pre-agreement disclosures, unlawfulness of certain provisions and measures that must be taken against reckless lending. These are credit facilities, guarantees and transactions, or any combination of the above.

The Act’s version of a ‘lease’ differs from the common-law lease concept. A common-law lease in its most essential form is an agreement that sees a lessor offer the temporary lease and enjoyment of their property in exchange for some form of consideration.

‘Leases’ as defined in the NCA are agreements whereby movable goods are let to the consumer, the consumer obtaining temporary possession of the goods, rental repayments are made in instalments or payment is otherwise deferred, and a fee, charge or interest is also payable by the consumer. At the end of the agreement, ownership passes to the consumer.

A ‘lease’ as described above, as per the NCA, is a type of credit transaction and thus is a credit agreement regulated by the NCA. A common-law lease, however, is not subject to the regulation of the NCA. The Supreme Court of Appeal in the case of Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid a House CC and Another [2013 (3) SA 426 (SCA)] found that a common-law lease as encountered in the case did not fall under the ‘lease’ definition in the NCA.

Settlement agreements arising from rental housing agreements and the National Credit Act

A major concern for landlords in rental housing markets is the possibility that tenants will indicate that they will no longer pay rent. In such cases, the landlord is entitled to cancel the rental agreement and pursue legal remedies for the repayment of rent owed and for the return of their property. If the tenant agrees, the landlord may conclude a settlement agreement for the payment of the outstanding rent.

The question then becomes, if rental housing agreements are exempt from the NCA, could a settlement agreement that follows a rental housing agreement be regarded as an incidental credit agreement, and thus subject the landlord to the requirements of the NCA? The answer comes from the case of Ratlou v MAN Financial Services [(1309/2017) [2019] ZASCA 49 (01 April 2019)], where a rental agreement concerning trucks and trailers was excluded from the NCA due to the nature of the agreement and the juristic parties involved.

The trial court had concluded that, despite the underlying agreement being excluded from the NCA, a settlement agreement concluded after cancellation of the contract had the characteristics of a credit transaction and thus was a credit agreement.

On appeal, the court found that this result could not have been the outcome envisaged by the legislature and that the subsequent settlement agreement would not be a credit agreement where the underlying agreement on which the parties are settling was excluded from being a credit agreement.

Accordingly, a settlement agreement relating to arrear rental under an immovable property lease will generally not constitute a credit agreement under the NCA where it merely restructures indebtedness arising from the underlying lease, which is itself excluded from the Act. However, each settlement agreement must be considered on its own terms, particularly where new credit obligations, finance charges, or novation may be introduced.

Although leases of immovable property are excluded from the NCA, residential leases may still be regulated by the Consumer Protection Act, the Rental Housing Act, and the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act.

Disclaimer: The above should not be accepted as legal advice, and you are encouraged to seek legal advice.

Prepared by Marc Deville.