Understanding Cession Agreements in South Africa: Legal Requirements and Key Considerations.
Cession agreements are a common form of legal agreement in South Africa, used to transfer or assign a debt or right from one party to another. In this article, we'll explore the legal requirements and key considerations for cession agreements in South Africa, including the purpose of cession agreements, the legal requirements for compliance and the potential benefits and risks associated with cession agreements.
What is a Cession?
A cession is a legal act of transferring a personal right from one person to another.
A cession deals with the transfer of personal rights (as opposed to real rights). A person’s estate is made up of real rights (ownership) and personal rights (claims to performance).
When real rights are transferred, transfer takes place by delivery. Personal rights have no corpus and cannot therefore be delivered. Accordingly the method of transfer of personal rights is by cession.
What is a Cession Agreement?
A cession agreement is an agreement which provides that one party (i.e. transferor or cedent) transfers a right to the other party (i.e. transferee or cessionary).
Since there can be no physical delivery of a personal right, cession is affected by mere agreement.
What is an Out & Out Cession?
An out and out cession is where a cedent divests and transfers its rights to the cessionary, so that the cessionary becomes the owner or holder of the rights. The cessionary becomes the new owner of the rights, the rights leave the cedent’s estate and vest in the cessionary’s estate.
What is a Cession in Securitatem Debiti?
A pledge and cession in securitatem debiti is where the cedent pledges or encumbers its personal rights and transfers such rights to the cessionary (ceded right(s)) to secure the fulfilment, by the cedent or a related party, of an obligation owed to the cessionary.
A cession in securitatem debiti is also known as a cession in security or a security cession.
Legal Requirements for Compliance
Cession agreements in South Africa are subject to legal requirements for compliance, including:
Written agreement: Cession agreements must be in writing and signed by both parties to be legally binding.
Notice requirements: The cedent must give notice to the debtor or other relevant parties of the cession, to ensure that the cessionary has legal rights to collect the debt or exercise the assigned right.
Registration: Some types of cession agreements, such as mortgage cessions, may require registration with the relevant authority.
Benefits and Risks of Cession Agreements
Cession agreements can offer several benefits for both the cedent and the cessionary, including:
Debt collection: Cession agreements can provide a way for the cedent to transfer the right to collect a debt to a party with more resources or expertise in debt collection.
Security: Cession agreements can provide a form of security for loans or other financial arrangements, as the cessionary can use the assigned right as collateral.
Business transactions: Cession agreements can facilitate business transactions by transferring rights and obligations between parties.
However, cession agreements also carry risks for both parties, including:
Legal obligations: The cessionary may become legally obligated to perform the obligations of the cedent, such as repayment of a loan.
Debt collection risk: The cessionary may face risks associated with debt collection, such as noncollectable debts or legal challenges to the cession agreement.
Contractual risks: Cession agreements may have complex contractual obligations and parties must ensure that they understand their legal rights and obligations before entering into a cession agreement.
Conclusion
Cession agreements are an important legal agreement in South Africa, used to transfer or assign a debt or right from one party to another. By understanding the legal requirements and potential benefits and risks associated with cession agreements, parties can make informed decisions and take proactive steps to protect their financial interests and ensure compliance with legal obligations.
Our commercial attorneys have extensive experience in dealing with cessions. If you would like to schedule a consultation with one of our specialist commercial attorneys, contact our offices today.
