What are conditional sale agreements 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. A condition is usually included in the agreement which states that the goods don’t belong to the buyer until they have paid the final instalment. Title to the goods remains with the lender until then and they may be allowed to repossess the goods if the buyer falls behind on their payments.

Legislation covering conditional sale agreements

Under the Consumer Credit Act 1974 (CCA 1974), a conditional sale agreement must:

  • be in writing;
  • contain a statement that it is regulated by the Consumer Credit Act 1974;
  • contain prescribed information, including the:
    • identity and address of the buyer and seller;
    • duration of the agreement;
    • amount of credit to be provided under the agreement;
    • annual percentage rate of interest (APR);
    • statement indicating how and when the credit to be advanced under the agreement is to be drawn down;
    • total amount payable;
    • timing and amount of repayments;
    • details of any additional charges;
    • interest for late payment;
    • description of any contract of insurance the debtor is required to take out;
    • statement providing details of the debtor’s right under s 66A of CCA 1974 to withdraw from the agreement;
    • statement providing details of the debtor’s right of early repayment under s 94 of CCA 1974;
    • statement explaining how and when the debtor can terminate the agreement under s 99 of CCA 1974;
    • the debtor’s maximum liability under s 100 of CCA 1974;
    • statement explaining that the debtor has the right to complain to the Financial Ombudsman Service;
    • statement specifying that the Office of Fair Trading is the supervisory authority under CCA 1974.
  • follow a set format.

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

Under a hire purchase agreement the consumer is under no obligation to take title of the goods, whereas under a conditional sale agreement, 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, 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 instalments.

What happens if I can no longer afford to keep up with the payments?

If you fall behind on payments for a conditional sale agreement then the creditor may be able to repossess the goods.

If you have already paid more than a third of the total owed under the agreement, the creditor must go to court to be able to claim the goods back. If you have paid less than a third of the total owed under the agreement the creditor won’t need a court order to take back the goods, unless they are located on ‘any premises’. This means, if the goods are a car, for example, the creditor will need a court order if the car is parked in your garage or a driveway, but won’t need one if it is parked on the road or in a car park.

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. You will have to make sure you can meet the monthly payments and anything else which is left in arrears. You may also 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 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 owing following the end of the agreement will depend upon the way in which the agreement was ended.