The Supreme Court of Appeal has ruled against homeowners who said they intended to enter into a lease agreement with a loan company to obtain cash loans but subsequently lost their homes.
The homeowners earlier complained to the National Credit Regulator that their homes were fully paid up. They did not intend to sell their homes, but they simply needed cash and understood that their homes would serve as security for the cash. Next thing they knew, they were without their properties, they said.
The credit regulator initiated an investigation into the conduct of the appellant, Loans Acceptable Funding (Pty) Ltd., and found that it had been acting as an agent for the Cornelis Family Trust, of which the appellants are the trustees.
During its investigation, the regulator, in assessing the Trust’s business model concerning the complaint, found that the Trust would purchase an immovable property from third-party sellers and simultaneously conclude a lease with the seller at a monthly rental.
The lease agreement provided the seller with an option to repurchase the property from the Trust, subject to the monthly rental being timeously paid. In terms of the agreement, they had the option to repurchase the properties within a year from the date of the sale and lease agreements.
The two complainants' first applications for loans were refused by LAF, which then referred them to the Trust for an alternative solution. After negotiations with the Trust, the sale and lease agreements were concluded.
The regulator approached the National Consumer Tribunal after it received the complaints and contended that the agreements were credit agreements as defined in the National Credit Act (NCA) and that the Trust was not registered as a credit provider.
The tribunal found that the transactions constituted unlawful credit agreements. The Trust subsequently launched an appeal to the Gauteng High Court, Pretoria, which confirmed the findings of the tribunal.
The Trust now turned to the SCA in a bid to have the ruling overturned.
The SCA found that a review of the disputed transactions showed that they did not create, reflect, or suggest any legal obligation for the individuals to repay the property's purchase price to the Trust.
Instead, the transactions merely granted an option to purchase the property, which could be exercised by the individual if certain conditions are met.
Accordingly, the court found that there was no basis to conclude that any of the disputed transactions, on the face of it, were simulated and qualified as credit agreements as defined in the NCA.
In dealing with the issue of whether the transactions were disguised agreements, which were concluded on such terms to avoid the provisions of the NCA, the SCA found that there is nothing impermissible about arranging one’s affairs to evade the provisions of the NCA.
The SCA further held that for the court to determine the real intention of the parties and whether an agreement is simulated, it must first be satisfied that there was some unexpressed or tacit agreement between the parties, which was not reflected in the agreement.
In the case of a simulated agreement, such as that contended for by the regulator in the present matter, the parties to the transactions must both have agreed that their transaction is in reality a loan agreement and that they will disguise their transaction, to appear to be a sale and leaseback agreement, the SCA found.
It held that the regulator had failed to show that the agreements were disguised credit agreements and it, therefore, upheld the appeal.