30 Apr 2010

CPA Protects Franchisees

Business, Consumer Protection Act (CPA) 4 Comments

By Trishika Veeragudu (Attorney) @ Lucid Living

The Consumer Protection Act (“the CPA”) coming into full force and effect later this year will extend its protection to Franchise Agreements.  If you were thinking of entering into a franchise agreement now, it may be worth your while to wait.

Mariam purchases her “dream” franchise called Chips and Things from the franchisee who promises to market her franchise and signs further agreements with Mariam to purchase all her supplies for the franchise from Dealers Deal as a condition to selling her the franchise.

Mariam’s dream franchise business is short lived as she is forced to close down in a year.  She believes her downfall was as a result of her franchise not being marketed as promised by the franchisor and because she received no support after signed the franchise agreement.  She further evaluates her financial statements and realises that she was paying too much for goods purchased from Dealer Deal which she could have gotten cheaper.

In terms of our current law, there is no legislation that specifically protects a franchisee like Mariam.  The CPA offers the protection needed in South Africa by recognising franchisees as consumers deserving of good service from the franchisors.


•    Section 13 of the CPA gives the franchisee the right of choice

The franchisor can no longer compel a franchisee, to purchase stock from a sole supplier, as a condition of sale. You will therefore no longer be forced to purchase goods and service from the franchisor or enter into additional agreements with another supplier at the franchisor’s request.

However if the franchisor can prove their goods and services will bring economic benefit to the franchisee, then only is it regarded as lawful for the franchisor to make you sign additional agreements with their suppliers.

•    The CPA gives the franchisee the right to a “cooling off” period

You will have FIVE (5) days from signing the franchise agreement, in which to cancel it without incurring any penalty.

•    Franchisor will be required to be more transparent and take full responsibility for the quality of their product and their actions

Franchisors must provide all the information the franchisee needs to make an informed decision. It is therefore necessary for the franchisor to disclose certain information such as: performance of the group, expected sales, commission and profits, if they were forced to close down any franchise operations in the last three years and provide all existing franchisee’s contact details to you. The franchisor must also draw your attention to any limitation of liability.

•    The onus of proof will also shift once the CPA comes into effect

Previously the franchisee had to prove a misrepresentation on the part of the franchisor to cancel the franchise agreement.  However with the CPA, the franchisor is required to prove that all information was disclosed to the franchisee.  This will force the franchisor to be more discerning, regarding projections and forecasts.

•    Agreements reduced to writing

All franchise agreements must by law be in writing, signed by the franchisee and must comply with the provisions of the CPA.

•    You have the right to challenge a franchisor

Finally, a franchisor can now be challenged in terms of the CPA as the Act defines a consumer as including a franchisee.  Previously the law did not allow for challenging franchisors as the franchise industry was unregulated.  However in terms of the CPA you may now challenge a franchisor should you feel aggrieved by the franchise agreement or due to non fulfilment of promises made by the franchisor by filing complaints with an Alternate Dispute Resolution Agent, the National Consumer Commission, or the Tribunal

The CPA will come into effect on October 24, 2010 and will apply to a franchise agreement entered into after such date or renewed.  So it may be a good idea for you to wait for such time before entering into a franchise agreement.

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4 Responses to “CPA Protects Franchisees”

  1. Sally says:

    How far does the act protect a franchisee with regards to the franchisor granting another franchisee a site which will adversely affect your business. Can a franchisor forece you to expand even though you are not financially able to and refuses to grant you an extention. Then goes ahead and grants the business to another franchisee. Are you entitled to have a protetecte trade area

  2. RandolphLucid says:

    Good day

    You raise some very interesting issues, which are practical matters that franchisees face on an ongoing basis.

    The Consumer Protection Act (CPA) has positively influenced the Franchise industry and improved the legal protection of franchisees.

    The CPA addresses certain fundamental rights and obligations, but is not comprehensive and allows for certain aspects of the franchise relationship to be governed by contractual/agreement.
    The issues you have raised, will have to be assessed in respect of the franchise agreement you have entered into. If you have agreed to certain terms and conditions in the franchise agreement – provided those terms and conditions are not unlawful – you will be held to them, subject to the laws of contract and trade practices.

    You matter will need to be assessed by one of our attorneys – who will then advise you of your rights and the alternatives you have at your disposal.
    Please get in touch with us, so that we may assist you.

  3. Louise botha says:

    Which tribunal (adress) do you use to complain about an franchisor>

  4. RandolphLucid says:

    Good day

    You would lodge a complaint with the National Consumer Commission -
    Commissioner Ms Mamodupi Mohlala
    Share Call Number: 0860 266 786
    Fax 0861 515 259
    E-mail ncc@thedti.gov.za
    Website http://www.nccsa.org.za

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