If the supplier does not comply with this obligation, he is not only faced with the possibility of being sued by the consumer for damages, but also of being sanctioned by the corresponding administrative authority. In fact, in almost all jurisdictions, there is an administrative authority empowered to issue infringement notices, conduct investigations and impose fines39 and, perhaps more effectively, impose an obligation to publish details of paid infringement reports in a publicly accessible register. But that`s not all. Franchise agreements are very complex, and there are cases where a particular franchisor wants to extend its entrepreneurship beyond a certain limit, and to do this, the following third relationship may be required: The Consumer Protection Act 68 of 2008 (CPA), which was passed on the 1st. April, will affect existing and new franchise agreements and will have a significant impact on the franchise industry. Entrepreneurs generally see domestic or international franchise chains as a viable opportunity for the creation of successful start-ups. Until now, the franchisor traditionally held the bargaining power in the negotiation of franchise agreements and has sometimes been able to unfairly define the terms of the agreement. Imbalances of this type are regulated by the introduction of the CPA. The CPA defines franchisors as “suppliers” and franchisees as “consumers” (§ 5 para.
6 lit.b – e). Franchisee rights are included in the definition of “services” (Section 1). In addition to the franchisee`s rights to use trade names and logos, franchise agreements generally define the delivery of the goods. Therefore, the sections of the CPA relating to the consumer`s right to select, inspect and return goods, as well as the delivery of goods, apply to franchise agreements. A fundamental change affecting the franchise industry is that any franchise agreement within the meaning of the CPA must now include a termination clause. For the purposes of section 7 of the CPA, the franchisee only has to notify the franchisor in writing within 10 business days of signing the franchise agreement to terminate the contract without charge or penalties. Typically, a franchisor will spend certain capital costs before awarding a new franchise. For the purposes of the new rules, if the franchisee exercises his right to terminate the franchise agreement, the franchisor has no legal recourse to recover from the franchisee any damage suffered as a result of the termination of the contract.
It therefore seems likely that franchisors will become much more cautious in negotiating franchise agreements in the future, which could then have a detrimental effect on entrepreneurs. Two other sections of the CPA that will affect franchise agreements are: section 13, which governs a franchisee`s right to choose suppliers. Franchisors can now only dictate supply with respect to branded goods or goods that are reasonably related to branded goods or franchise service. If the unbranded product can replace the branded item without compromising the franchisee`s corporate profile, the franchisee cannot be forced to purchase the branded product. § 21, which prohibits the delivery of unsolicited goods. A franchisor risks losing ownership of the goods or services delivered that it has not specifically requested and that it does not pay. In addition to the specific sections of the CPA, the draft regulations published in November 2010 will significantly change the terms of franchise agreements and give the franchisee some authority. Although they are currently in draft form, it is unlikely that these regulations will be amended. Articles 7 and 51, read with Rule 2, explicitly identify the parameters of the clauses that must be included in a franchise agreement, as well as some that cannot be included. As far as settlement is concerned, each defined term must be included in each franchise agreement, and any missing basic clause will be deemed to be included in the contract.
(The complications that this regulation will cause are not discussed in this article). A franchise agreement must not contain clauses that cause franchisees to waive or deprive their rights or allow franchisors to avoid their obligations or obligations. Nor can it contain a provision contrary to the rules. These clauses are deemed null and void to the extent that they violate the PCA and/or its provisions. A major problem is the impact of the APC on existing franchise agreements. Annex 2 of the PCA provides that the PCA does not apply to transactions or agreements entered into before the general effective date. Unfortunately, the regulation contradicts the provisions of the annex. For the purposes of Rule 2(1)(f), the franchisor and franchisee have six months to sign an investment in the franchise agreement or, at the option of the franchisee, enter into a new agreement to ensure that the agreement governing their relationship meets the requirements of the PCA. If the proposed regulations are passed, franchisors will face an enormous administrative burden. Not only do you need to ensure that all future franchise agreements comply with the CPA and its regulations, but you also need to ensure that all franchise agreements in place at the time the new regulations come into force include the required schedule. Alternatively, they must enter into new franchise agreements with existing franchisees.
The regulation requires franchisors to provide a disclosure document to potential franchisees at least 14 days before entering into a franchise agreement. The specified minimum information to be included in the disclosure document includes a declaration of profitability in respect of the franchisor`s net profit and revenues, as well as a list of current franchisees […].