Instalment Sales Agreement - What You Need to Know

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Introduction

Under this economic climate in South Africa, many consumers opt to conclude Instalment Sale Agreements as a plausible way of purchasing goods or property. In terms of an Instalment Sale Agreement, ownership is reserved and payment is deferred and deferral must take place in that the Customer must pay the purchase price in instalments.

The monetary amount of the instalments is irrelevant. If instalments are not payable with deferral but by a lump sum on a specific date, then it is not an Instalment Agreement.

Characteristics of an Instalment Agreement

In order for an Agreement to constitute an Instalment Sale Agreement, there has to be:

  • Interest levied;

  • Possession and use of goods is provided to the Customer immediately;  

  • Transfer of ownership of the goods to the Customer only upon fulfilment of the Agreement;

  • Typical Instalment Sale Agreements will contain a clause reserving ownership until the final instalment is paid. This serves as security for payment of the purchase price.

An example of such a transaction is where a customer buys a car for say R500 000. He/she must pay the purchase price by means of instalments. Interest is levied, payment is deferred and ownership until final payment is reserved. The Customer will pay the R500 000 purchase price plus interest by means of instalments until the whole amount has been paid to the Seller to enable the transfer of ownership to take place.

If it happens that the Customer sells the goods or property to a third party before final instalment, the Seller can institute a Civil Action to reclaim the goods or/property because he/she/it is still the owner.

Conclusion

It is important to note that an Instalment Sale Agreement provides certain protection to the parties and may be the solution where one cannot afford to pay the purchase price of goods or property shortly after the Agreement is signed.

For access to high quality online legal documents and agreements, contact us at SchoemanLaw Inc.  

This article was written by SchoemanLaw, partners of Workshop17, for publication on the Workshop17 blog.