Rent-to-buy in South Africa: how it works and what to check

Rent-to-buy, also called rent-to-own, lets you move into a home and pay rent while you work towards buying it. It suits people who can't get a home loan yet, perhaps because they need time to save a deposit or build a credit record. It's legal in South Africa. The agreements vary a lot, though, so read yours closely.

The two main types of agreement

The first is a lease with an option to buy. You rent the home and get the right to buy it at an agreed price within a set period, but you don't have to. You usually pay an option fee, often 1% to 5% of the price. If you decide not to buy, you normally lose that fee and anything extra you paid.

The second is an instalment sale. Here you agree to buy the home now and pay for it in instalments while you live there. If you pay in more than two instalments over more than a year, the Alienation of Land Act applies. The agreement must then be in writing and signed by both of you, or it isn't valid. The home stays in the owner's name until you've paid in full or reached the amount the agreement sets.

How the money usually works

You agree a purchase price at the start. Each month you pay rent, and often an extra amount that counts towards your deposit or the price. The term usually runs one to five years. At the end, you apply for a home loan to pay the balance, or you finish paying under the instalment sale.

What can go wrong

The biggest risk is not getting a home loan when the term ends. If you can't pay the balance, you may lose the option fee and the extra amounts you paid.

The home also isn't yours yet. If the owner stops paying their own bond, the bank can repossess the property, even if you've paid every month.

Check who pays for repairs, rates and insurance, because the agreement doesn't always put these on the owner. And the price you agree today may be above market value by the time you buy.

What to check before you sign

• The full agreement is in writing: price, term, monthly amounts and how much counts towards buying.
• What happens to your money if you can't buy or need to move out early.
• The person you're dealing with is the registered owner.
• Whether the property has a bond, and whether the owner is up to date on it.
• For an instalment sale, ask a conveyancer about recording the agreement against the title deed. That protects you if the owner sells or gets into financial trouble.

Have an attorney or conveyancer read the agreement before you sign. Their fee is small next to the amount you're committing to.

If you're an owner

If you're open to rent-to-buy, say so in your listing description so the right tenants find you. Use a written agreement drawn up by an attorney, and spell out the price, the term and what happens if the tenant can't buy.

This guide is general information, not legal advice. Get professional advice on your own agreement.