Franchise is not defined in terms of the South African law. However, in terms of the Franchise Association of South Africa, “franchise” is defined as giving an individual the right to operate a business under specific conditions. South Africa is no stranger to franchises as there are both local and international franchises located in South Africa, a few examples of such franchises are –
- Nando’s; and
The Consumer Protection Act No. 68 of 2008 regulations (“CPA”) and common law regulate the offer and sale of franchises. The CPA specifically states certain requirements that need to be met, as well as certain information that must be disclosed prior to a franchise agreement being executed.
The CPA sets out the “minimum requirements” when drafting franchise agreements. These requirements, as set out in the regulations of the CPA, contain the terms that must be included.
The CPA requires that general information regarding the franchise agreement, for example, the description of the type of goods and services to which the franchise relates, the obligations of the franchisor and franchisee and any territorial rights, must be included in the franchise agreement.
The CPA stipulates that the franchisor should also provide certain minimum information to the franchisee in a disclosure document, which needs to be sent to the franchisee before the execution of the franchise agreement. This document contains information which provides the franchisee with enough information regarding the franchise, for example, the financial viability and potential business success so as to enable the franchisee to make an informed decision as to whether or not they wish to purchase the franchise.
The CPA provides that a franchisee can cancel the franchise agreement within 10 (ten) business days after signing the franchise agreement. The only formality required is to give written notice to the franchisor.
It is of the utmost importance that the provisions of franchise agreements comply with the CPA as clauses in a franchise agreement that are inconsistent with the CPA may be declared void.
27 November 2018