Introduction
The National Credit Act, 2005 (“National Credit Act“) has widely been criticized as being one of the most confusing pieces of legislation in our law. In fact, in Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid A House CC and Another 2013 (3) SA 426 (SCA), in referring to the decision made by the court of first instance, Lewis JA stated “the [H]igh [C]ourt … held that the particular lease was not a lease. This may sound like a fragment of Alice in Wonderland. If that is so, it is because the [National Credit] Act itself could have been written by Lewis Carroll, so peculiar are some of its provisions“. So what is it about the way the National Credit Act deals with leases that is so peculiar?
What is a lease?
Most would agree that a lease can accurately be described as an agreement in terms of which one person (the lessor) gives another person (the lessee) temporary possession of property in exchange for the payment of rent. The word “temporary” assumes that the property must be returned by the lessee to the lessor at the end of the agreement.
The National Credit Act’s definition of a lease
The National Credit Act also defines a lease as an agreement in terms of which “temporary possession” of movable property is given to a lessee. However, the definition then goes on to specify that at the end of the agreement, ownership of the property in question passes to the lessee (rather than requiring possession to be returned by the lessee to the lessor).
This definition is clearly problematic. Not only does it run counter to the essential elements of a lease, but the reference to “temporary possession”, followed by the requirement for ownership of the property to pass to the lessee at the end of the lease, is illogical.
Conclusion
While the National Credit Act is commendable in its aim to protect consumers by promoting fair and responsible lending practices, it can be an intimidating piece of legislation, rife with obscurity. If you are in the business of leasing moveable property, be sure to investigate whether the National Credit Act applies to you.
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