Simulated contracts and the transfer of ownership as a form of real security in South African law

Abstract

Money lenders frequently use sale and lease back agreements as an alternative to other more conventional forms of security. These agreements are popular because they are simple and inexpensive to put in place. Unfortunately, South African courts give legal effect to the true intention of contracting parties. Sale and lease back agreements are often held to be simulated contracts and as such they are enforced as disguised pledges. One of the few alternative security options available to money lenders, is a notarial bond registered in terms of the Security By Means of Movable Property Act 57 of 1993. This act has been criticised for creating an ineffective form of security that is costly and cumbersome to put in place. It is suggested that the current security options available to money lenders are supplemented with the creation of a more user friendly public register for the registration of security interests.