What is a conditional sale agreement and when will they come into play?

Conditional Sale Agreement

A conditional sale agreement is an agreement which deals with the sale of goods to a consumer. On the outside it looks the same as any contract dealing with the sale of goods in the fact that a seller receives money for goods and a buyer receives the goods.

However, there is a key difference between a conditional sale agreement and any other completed contract for the sale of goods.

What is the difference with a conditional sale agreement?

The difference with a conditional sale agreement is that involves the situation whereby a seller will sell the goods to a consumer but the title of the goods will be withheld until all of the payments for the goods have been made.

How will this work in practice?

In practice this works with the retailer working as an agent on behalf of the creditor. The retailer or agent will supply the goods to the consumer but the title of the goods will be transferred to the creditor. The creditor will then pay the agent for the transfer of title. The consumer will be able to use the goods will they continue to make the periodic payments under the conditional sale agreement to the creditor. Once the final instalment has been paid by the consumer the title in the goods will pass from the creditor to the consumer.

Is the creation of conditional sale agreements governed by any legislation in England and Wales?

The creation of conditional sale agreements in England and Wales is covered by the Consumer Credit Act.

Does the Act lay down any requirements in relation to conditional sale agreements?

The Consumer Credit Act provides for strict requirements in relation to the form and contents of conditional sale agreements. Accordingly they must adhere to the following requirements:

  • The agreement must be in writing
  • The agreement must contain a statement that it is regulated by the Consumer Credit Act
  • The agreement must contain prescribed information including the following:
  •       – The Annual Percentage Rate of Interest (APR)

          – The amount of credit

          – The cash price

          – The dates and amount of installations

  •       The agreement must follow a set format
  • The agreement must give the debtor cancellation rights where the agreement is signed away from the trade     premises of the Creditor. The cancellation rights must be clearly set out in the actual agreement

    The agreement must be in more than one part in order to enable copies of the agreement to be given to the debtor

What is the difference between a conditional sale agreement and a hire purchase agreement?

In most cases conditional sale agreements have been regulated in parallel with hire purchase agreements – they are both covered by the Consumer Credit Act.

The main difference between them, however, is that under a hire purchase agreement the consumer is under no obligation to take title of the goods. Under a conditional sale agreement on the other hand the transfer of the title of the goods happens automatically following the completion of the condition. In most cases the condition under the conditional sale agreement is that the full amount is paid.

What is the difference between a conditional sale agreement and a credit sale agreement?

A credit sale agreement takes a similar legal form as a conditional sale agreement. However, there is one key difference. This difference is that under a credit sale agreement the buyer of the goods will immediately become the owner of them. This is often seen as a “buy now, pay later” situation whereby the buyer will take ownership of the goods and then pay the price by installments. This differs from the conditional sale agreement as the buyer will only take ownership under a conditional sale agreement when all payment conditions have been met.

What will happen if I can no longer afford to keep up with the payments under a conditional sale agreement?

When an individual enters into a conditional sale agreement or a hire purchase agreement they will be doing so under the belief that they will be able to meet all the payments. However, it does not always happen like this. If an individual falls behind on payments for a conditional sale or a hire purchase agreement then the creditor may be able to repossess the goods.

Does this depend upon how many payments I have already made?

If an individual has already paid more than a third of the total owed under the agreement then the creditor must go to court to be able to claim the goods back. They cannot simply call at the home of the individual and take the goods back.

If an individual has paid less than a third of the total owed under the agreement the creditor will still need an order from the court to remove the goods from “any premises” they are on.

What is meant by any premises?

Any premises is taken to mean a garage or a drive but does not include a car park or roadside.

Is it possible for me to be able to hold onto the goods?

It is possible to hold onto the goods. However, this will have to be done in accordance with a payment arrangement with the creditor. Accordingly an individual will have to make sure that they can meet the monthly payments and anything else which is left in arrears. Furthermore an individual will have to apply to the court for a time order.

What will happen if a conditional sale agreement comes to an end before all of the payments have been made?

If an individual decides to end a conditional sale agreement or a hire purchase agreement before the payments are completed then there are two options in relation to the goods: 

  • To return the goods
  • To allow the creditor to end the agreement and repossess the goods 

Often the amount the individual ends up owning following the end of the agreement in this manner will depend upon the way in which the agreement was ended.