Instalment sale agreements: when can a seller cancel?
A recent decision handed down by the Constitutional Court in the matter of Amardien and Others v Registrar of Deeds and Others  ZACC 47 confirms the steps to be taken by a seller before he may unilaterally cancel an instalment sale agreement.
Recordal of the instalment sale agreement
In terms of Section 20(1)(a) of the Alienation of Land Act 68 of 1981 (“the ALA”), a seller is required to ensure that an instalment sale agreement (“ISA“) entered into with a purchaser is recorded against the title deed of the property with the Registrar of Deeds.
Section 26(1) of the ALA states further that a seller may not receive consideration in terms of an ISA (i.e. the purchase price) until the aforementioned recordal has been effected against the title deed.
In casu, the seller applied for the recordal of various ISAs some ten years after the agreements had been concluded, despite having actually received instalments from the purchasers during this period. When the purchasers stopped paying the instalments, the seller demanded settlement of the arrears and ultimately cancelled the ISAs.
The issue faced by the Court was whether the seller was entitled to recover the arrears despite the agreements not having been recorded at the time when the arrears accumulated.
On this question the Constitutional Court held that debts only become due when they are “immediately claimable and recoverable”. Therefore, for as long as the seller failed to have the agreements recorded, it was barred from claiming consideration in terms thereof and the instalments accordingly did not become due. The purchasers were therefore not at fault for failing to pay the instalments in terms of the agreements.
The Court confirmed that the obligation of a purchaser to pay instalments in terms of an ISA is not activated until the seller has complied with the recordal requirement as set out in Sections 20 and 26 of the ALA. Importantly, this means that a purchaser’s failure to pay instalments before recordal of the agreement is not considered a breach of contract.
Notice of recordal of the ISA
As the purchaser’s obligation to pay instalments is not activated until the agreement is recorded, it follows that the purchaser should be notified once recordal has taken place in order that he may effect payment as required by the agreement.
In the circumstances of the case, the seller informed the purchasers of the recordal of the agreements and the breach thereof in the same notice. The Constitutional Court held that this did not afford the purchasers sufficient opportunity to make the necessary payments, as this was the first time that they were made aware that their obligations under their respective agreements had become activated.
The Constitutional Court held therefore that a seller must notify the purchaser of the recordal of the instalment sale agreement once same has been effected and must further allow a reasonable time for payment before he may proceed to claim breach of the agreement.
In summary, failure on the part of a purchaser to pay instalments in terms of an ISA is not considered a breach of the agreement until the seller has (1) caused the agreement to be recorded by the Registrar; (2) has notified the purchaser of the recordal, and (3) has afforded the purchaser a reasonable time to make payment before moving to enforce or cancel the agreement.
Notice of breach of the ISA
In terms of Section 19(1) and (2) of the ALA, a seller is not entitled to enforce or cancel an ISA before the seller has:
- notified the purchaser in writing of the breach of contract, either by hand-delivery or registered post;
- demanded rectification of the breach within a period of at least 30 days from the date of delivery or postage of the notification; and
- provided the purchaser with an indication of the nature of the breach and the consequences failing rectification.
Sections 129(1) and 130(1) of the National Credit Act 34 of 2005 (“the NCA”) state that a credit provider may not terminate or enforce a credit agreement unless:
- the debtor has been in default for at least 20 business days;
- the credit provider has drawn the default to the notice of the debtor and proposed that the agreement be referred for review and dispute resolution; and
- at least 10 business days have elapsed since the aforementioned notice was delivered.
The Court a quo held that the provisions of the respective Acts are conflicting and that the NCA, being the later Act, prevails. The Constitutional Court held otherwise, emphasising that because the Acts serve different purposes and are capable of being read together, both Acts are applicable with respect to notices of breach of an ISA.
It is worth noting that the Constitutional Court ruled with respect to Section 129 NCA notices that the amount in arrears must be specified in the notice. As such, a notice to the purchaser of breach of an ISA must clearly stipulate the value of the arrears accumulated following the date of recordal of the agreement.
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Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.