Simulated Agreements Explained: What the Recent SCA Judgment Means
- Feb 13
- 1 min read
A recent Supreme Court of Appeal decision, Uys N.O. v National Credit Regulator (2025), again highlighted an important principle in South African contract law — the concept of a simulated agreement.
A simulated agreement arises when parties deliberately structure a transaction to appear as one type of contract while secretly intending it to operate as another. Courts therefore do not only look at the wording of an agreement, but also at the true intention of the parties and the practical effect of the transaction.
In the case before the court, homeowners sold their properties to a trust, leased the properties back, and obtained an option to repurchase them later. The argument was raised that these arrangements were not genuine sales but rather disguised loan agreements, intended to avoid the application of the National Credit Act.
The SCA rejected this argument, finding that the parties genuinely intended the agreements to operate as sale-and-leaseback transactions. Importantly, there was no obligation on the sellers to repay a loan, which supported the conclusion that the transactions were not simulated.
The judgment confirms that a transaction will only be regarded as simulated where the substance of the agreement differs from its apparent form. Where the parties truly intend the agreement to operate as drafted, even if structured for commercial advantages, the agreement will generally be upheld.
This decision serves as a reminder that the legality of commercial structures depends on their true purpose and operation, not merely on how they are labelled.
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