Hire-Purchase Agreements
A hire-purchase agreement is a common form of financing. In a hire-purchase deal the seller transfers the object of the sale to the buyer, who pays the purchase price in two or more installments. The object of the sale is also the credit security. Either the seller or a financing company, to which the seller transfers the hire-purchase agreement concluded by the seller, acts as the financier.
In an hire-purchase deal, the seller or financier retains either the right to repossess the object if the buyer fails to fulfil his contractual obligation or the ownership of the object of the transaction, as a rule until the purchase price has been paid in full.
The Hire-Purchase Act is applicable to the hire-purchase agreement. The hire-purchase act does not apply to hire-purchase deals where the seller is a business and the buyer is a consumer. Credit granted by a business to a consumer is dealt with in Chapter 7 of the Consumer Protection Act.
When marketing goods the seller has to notify also a cash price of the goods, a hire-purchase price, number of installments and the length of the term of payment.
According to the Hire-Purchase Act a hire-purchase agreement must be made in writing in two copies and one copy has to be given to the buyer. The agreement must be dated and signed by both parties. If the formal requirements are not complied with, the agreement is valid as such, but the seller cannot use the goods as security, even though the customer defaulted on the payments. Compliance with the formal requirements is therefore in the seller’s favor.
A hire-purchase agreement has to include following information:
contracting parties
an object of the sale and delivery terms
a price and payment terms
information about the competent authority to settle the account between a seller and buyer for a hire-purchase
a clause that the seller has the ownership of the object of the sale until the purchase has been fully paid.
The seller’s right to reclaim the object of the sale or to demand an unaccrued installment exists where the unpaid installment has been delayed by fourteen days and equals at least a tenth of the purchase price. The same right exists, where several installments have not been paid when such installments equal at least one twentieth of the purchase price or the entire remaining purchase price.
If the seller wants to reclaim the object of the sale, an account between a seller and buyer for a hire-purchase has to be settled. The seller and the buyer may agree on the account. If they do not make an account agreement, the account shall be settled by a distraint officer. The seller may also with a written application request executive assistance by a distraint officer to repossess an object from the buyer, if the hire-purchase agreement has been made in accordance with the provisions of the law. In connection with the executive assistance the distraint officer settles also an account between the seller and the buyer.
Different rules apply to consumer sales which are regulated by Chapter 7 of the Consumer Protection Act. According to the Consumer Protection Act, the creditor has the right to take back the sold goods due to late payment by the consumer if: 1) the payment is overdue by at least one month and the overdue amount in a single credit is at least 10% or, if it includes more than one instalment, at least 5% of the original amount of the credit, or 2) the consumer's other breach of contract is material. In consumer sales, reclaiming the goods is not normally possible, if the reason for the late payment is illness, unemployment or another comparable reason.