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In a recent overhaul of franchising and consumer Law in South Africa, franchisees now come under Consumer Law with severe penalties for breaches of Law and the potential for prosecution under Criminal Law.
The act required businesses to be more open about contracts. Failure to comply with the act and regulations could result in penalties of up to 10percent of turnover and potential civil damages. Candice Meyer, a partner at Webber Wentzel
Admittedly much of the reform relates to Disclosure.
The following is a list of some of the prescribed information every franchise agreement must contain, although this list is not exhaustive:
1 A notice on top of the first page of the agreement must refer to the 10- day cooling-off period franchisees are entitled to and state the relevant section of the Act.
2. As a minimum, the agreement must include:
2.1 the name and description of the goods/serves which the franchisee is to sell or provide;
2.2 the obligations of the franchisor;
2.3 the obligations of the franchisee;
2.4 the territorial rights granted to the franchisee described in detail;
2.5 a description of the products;
2.6 details relating to the advertising fund;
2.7 the effect of the termination or expiration of the franchise.
3 Information about the franchisor’s directors, members or equivalent officers.
4 Full particulars of the financial obligations that the franchisee incurs in terms of the franchise agreement or otherwise related to the franchised business.
5 Any direct or indirect benefit a franchisor stands to receive from prescribed suppliers due to supplying to its franchisees or the franchise system must be disclosed in writing with an explanation of how it will be applied. Clearly, franchisors are now required by law to disclose any rebates that they receive from suppliers and how they intend to apply them. Maria D'Amico
How this plays out for everyday franchising is a matter yet to be seen but no doubt there will be some nervous franchisors in South Africa where soon the cream will float to the top.
…by referring the matter to the National Prosecuting Authority, if the Commission alleges that a person has committed an offence in terms of this Act (for offences refer to 11 0). 16 The matter will be dealt with under the Criminal Procedure Act. Enforcement Guidelines P49
One thing is certain, South African franchising will currently be a goldmine for lawyers and the franchising industry will be traumatized.