The legal principles of franchising have been long established in South Africa and are based on common law principles. However with the commencement of the Consumer Protection Act 68 of 2008 and specifically the commencement of the Consumer Protection Regulations in 2011, the franchising landscape is set to chance. The Consumer Protection Act is aimed at protecting consumers, but will also affect the relationship between franchisees and their franchisors. According to the Franchise Regulations to the Act, there are very specific validity requirements to which franchise agreements should conform. The Consumer Protection Act also includes certain general principles, which the Franchise Agreements should incorporate. These principles are derived from the South African Constitution and include certain fundamental rights, which should be adhered to by the Franchise Agreement. The reality is that most large franchises in South Africa are based on very old Franchise Agreements. The effect of the Consumer Protection Act will be to render certain of these agreements invalid. It is therefore of utmost importance to revisit these Franchise Agreements to bring them in line with the provisions of the Consumer Protection Act.
Franchisee
The franchisee must carefully negotiate the license. The fees and training period must be fully disclosed and there should not be any hidden costs. The franchise start-up costs and working capital must be explained before the franchise license is granted. Franchise agreements must explain amongst others all particulars and criteria in respect of the business model, as well as which aspects will form part of the business system. A franchisee should understand its rights and obligations as specified in the franchise agreement. It is recommended that a franchise attorney assist the franchisee during negotiations.
Franchisor
The franchisor must also carefully negotiate the license. The franchise agreement should disclose the all aspects of running the business, from administration, placing orders and customer service. The franchisor will have certain obligations regarding the protection of the franchise trade mark and infringement on the rights of any of it’s franchises. It is recommended that a franchise attorney also assist the franchisor during negotiations.