The lease agreement may specify the amount of interest that is payable on arrear amounts. This amount must be reasonable
and not contravene the provisions of any applicable legislation.
When it comes to lease agreements, we recommend that the amount of interest chargeable on arrear rental amounts be specified
in the lease agreement as 2% per month, compounded, up to a maximum of 24% per annum. The reason for this is due to the
fact that, although lease agreements do not fall within the ambit of “incidental credit agreements” as defined in the
National Credit Act 34 of 2005 (“NCA”), they “mirror” incidental credit agreements in many respects. Thus, utilising
the maximum prescribed rate of interest set in respect of incidental credit agreements is a good benchmark when trying
to determine what is reasonable when charging interest on arrear rental amounts.
If the lease agreement is silent on the issue of interest chargeable on arrear rental, then the provisions of the Prescribed
Rate of Interest Act, No 55 of 1975 (“PROIA”) will apply. In terms of the PROIA, as of 8 January 2016, the maximum amount
of interest will no longer be a fixed rate but rather the repurchase rate, determined from time to time by the South
African Reserve Bank (SARB), plus 3,5%.
In a nutshell, therefore:
Your lease agreement may specify the amount of interest payable on arrear amounts, in which case we recommend a rate of 2%
per month up to a maximum of 24 % per annum. If your lease agreement is silent, the PROIA will apply.
Please see TPN's video on the Unfair Practises for more information.