Franchise Agreements and Competition Act

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Many well known South Africa franchises are based on long running agreements between franchisors and franchisees.  Portions of these agreements or, in some cases, the full agreements may very soon be found to be invalid because they may be found to be contrary to current South African legislation.

More specifically, the Consumer Protection Act 68 of 2008 and the Competition Act 89 of 1998 contain specific provisions that are contrary to well established franchising principles.  Principles like fixed pricing structures and the definition of exclusive franchisee territories are contrary to the provisions in the Competition Act.  Similarly, principles like restrictive purchase conditions are contrary to the provisions in the Consumer Protection Act.

The Consumer Protection Regulations, which are referred to in the Consumer Protection Act will come into effect in the first half of 2011 and will then regulate the relationship between franchisors and their franchisees. Franchisors are therefore advised to review their franchise contracts in light of new legislation as a matter of urgency.