Study Unit 10:
Part II – Accountability to
consumers
Dr Tshepiso Ngoepe
[email protected]
Study material
Nagel et al (2019) paras 41.146-41.152
Delineation
S 1: Definitions of “franchise agreement” and
“consumer agreement”
S 7: Requirements of franchise agreements
S 120(1)(e)(ii): Regulations
Regulation 2 and 3 of the Consumer
Protection Regulations
SU 10: Franchise agreements
Intro:
No previous legislation prior to CPA to regulate franchise agreements, much exploitation of
franchisees
What is a franchise agreement?
• General: “A legal contract in which a well established business (franchisor) consents to
provide its brand, operational model and required support to another party (franchisee) for
them to set up and run a similar business in exchange for a fee and some share of the
income generated. The franchise agreement lays out the details of what duties each party
needs to perform and what compensation they can expect.” -
https://lawrato.com/legal-documents/corporate-business-legal-forms/franchise-agreement
-14
SU 10: Franchise agreements
Intro:
Top franchises in SA? Most in food and supermarket industry!
• KFC, Steers, Wimpy, Mcdonalds, Debonairs, SPAR, Nando’s (
http://www.franchisefinder.co.za/article%20archive/sas-top-ten-franchises.shtml)
Franchises in many business areas including: real estate, clothing, fitness, home
improvement, health & beauty (to name a few!)
Information requirements on franchisor nb! Franchisee must have clear picture of rights and
duties
SU 10: Franchise agreements
Restricted application to juristic persons? (Not applicable in the case of franchise
agreements)
Def “franchise agreement” s 1 (par 41.146 (a)-(c)).
Sections that apply to “consumer agreements” will NOT apply to franchise agreements.
This makes sense as not all consumer rights practical or relevant to franchise agreement.
(41.147)
Certain sections within CPA specifically exclude franchise agreements – see 41.152
What are the formal requirements for a franchise agreement? S 7(1) – 41.147
• In writing
• Signed by / obo franchisee
• Plain & understandable language (s 22)
• Must contained minimum prescribed information
SU 10: Franchise agreements
How does the cooling-off right of the franchisee work? S 7(2) – 41.147
• NOT same cooling-off right as ito s 16!
• Cancel without costs/penalty
• Within 10 buss days after signing
• Notice in writing to franchisor
There are two important stages in which franchisor MUST (in terms of CPA) provide:
• certain information
• in a certain way
• within a certain time
• to the franchisee
STAGE 1: Pre-disclosure documentation and information (Reg 3) – 41.148-41.149
STAGE 2: As part of franchise agreement (Reg 2) 41.150
SU 10: Franchise agreements
STAGE 1: Pre-disclosure documentation and information (Reg 3) – 41.148-41.149
WHEN? Franchisor must disclose 14 days (NOT business days!) prior to signing of
franchise agreement
• What kind of Info? (See Reg 3(1) / 41.148) – NB!
• Number of outlets;
• Growth of turnover, net profit of individual outlets
• NO material change in franchisor’s financial position
• Written projections: potential sales, income, profits etc
What else? Certification by financial officer/auditor stating (41.149):
• certifying certain information regarding the financial position of the franchisor
• information of the existing franchisees as going concern
SU 10: Franchise agreements
STAGE 2: Content requirements for franchise agreements, Reg 2- 41.150
(a)-(g) - (don’t leave out!)
Renewal of franchise agreements? 41.151
Will be regarded as NEW franchise agreement if renewed after general
effective date
Revision questions
1. Burger Queen is an established business operating as a franchise with many stores all
over the country. Asara is interested in opening a Burger Queen in Hatfield, Pretoria.
Accordingly, an offer is tabled by Burger Queen and negotiations commence between Asara and
Burger Queen. Based on the information given, answer the following questions.
1.1. Explain whether the negotiations between Azara and Burger Queen are regulated by
the CPA. (3 marks)
1.2. Assume that the CPA is applicable to this set of facts. Advise Asara on the information to
be provided by Burger Queen in the pre-disclosure document including when such
information is to be provided by referring to the relevant provisions in terms of the CPA. (6 marks)
1.3. Asara and Burger Queen concluded an agreement on 14 October for Asara to open a
branch in Hatfield Pretoria.
1.3.1 What are the formal requirements for such an agreement? (4 marks)
1.3.2. On 18 October Asara realised he is making a big mistake. Advise Asara on
whether or not he can cancel the agreement without committing breach of contract.
(3 marks)
