Is rent-to-own legal in South Africa?

The short answer

Rent-to-own is legal. It combines two ordinary contracts: a residential lease and an option to purchase. South African law recognises both.

What makes a rent-to-own deal safe isn't the idea, it's the paperwork. Done properly, it's drawn up by a conveyancing attorney, the price is in writing, and the right laws protect you at each stage. Done badly, on a handshake or a template from the internet, it can leave you exposed.

The lease: the Rental Housing Act

During the lease you're a tenant, with a tenant's rights under the Rental Housing Act. The most practical ones:

• Your deposit must be kept in an interest-bearing account, and the interest is yours.
• You and the landlord inspect the home together before you move in and again before you move out.
• If nothing needs fixing, your deposit and interest come back within 7 days of the lease ending; if repairs are needed, the balance comes back within 14 days of the repairs.

The option to purchase must be in writing

In South Africa, a sale of land is only valid if it's in writing and signed by both parties. That's the Alienation of Land Act's most basic rule. An option to buy should meet the same standard: the property, the price and the period during which you may buy, all written down and signed.

A verbal promise that “we'll sell it to you later” isn't worth the risk. If it isn't on paper, assume it doesn't exist.

Buying in instalments: extra protection

If you buy a home and pay the price in more than two instalments over more than a year, it's an instalment sale, and Chapter II of the Alienation of Land Act adds strong protections:

• The contract must be recorded against the title deed at the Deeds Office within 90 days, so the seller can't sell the home to someone else.
• If the home is bonded, the seller must give you a certificate from the bank showing what's owed.
• If you miss a payment, the seller must give you written notice and at least 30 days to put it right before cancelling.

Where the National Credit Act comes in

When a seller finances your purchase and charges interest, the arrangement is credit. That brings in the National Credit Act's consumer protections, including an affordability check, clear disclosure of the interest rate and costs, and rules about what can be charged.

It also means the debt review rules apply: if you're under debt review, you'll need your clearance certificate before any credit can be extended to you. Our guide on debt review explains how to use the waiting time.

Red flags in a rent-to-own deal

• No conveyancing attorney involved, or the seller won't let you use one.
• The seller can't show you the title deed in their name.
• The home is bonded and nobody has spoken to the bank.
• The purchase price isn't fixed in writing.
• The option fee doesn't come off the price when you buy.
• You're asked to pay large amounts in cash, or into a personal account.
• Pressure to sign today.

If you see any of these, walk away and get advice.

How Lease to Buy SA does it

• A conveyancing attorney drafts and records every lease and sale, and checks each transaction is legally sound.
• Your purchase price is fixed in writing on day one.
• Your option fee comes off the price in full when you buy, if you've kept to your lease.
• The homes are owned by Nine Stones Capital (Pty) Ltd, registration 2012/084151/07, the company you contract with.
• No penalties for buying early, settling early or selling.