If you plan to sell franchises, the franchise disclosure document is where your legal duties begin. South Africa is one of the few countries where franchising is written directly into consumer law. Since the Consumer Protection Act (CPA) came into force, franchisors have had specific legal duties. Ignoring them can let a franchisee walk away from a signed agreement.
This article is a practical overview, not legal advice. Always have your documents reviewed by a franchise attorney.
Franchise agreements are covered by the Act
The Consumer Protection Act treats a franchise agreement as a transaction it regulates, and section 7 sets out what a franchise agreement must contain. The detail sits in the regulations, and FASA publishes a useful extract of the franchise regulations.
The key obligations, including the franchise disclosure document
The agreement must be in writing and signed. It must meet the content requirements in the regulations, including clear terms on fees, territory, duration and termination.
A disclosure document must come first. The regulations require the franchisor to give a prospective franchisee a disclosure document at least 14 days before the agreement is signed. It covers matters such as the franchisor’s financial position and the number of outlets.
There is a cooling-off period. A franchisee may cancel a franchise agreement without cost or penalty within 10 business days after signing, by giving written notice.
Terms must be fair. The CPA’s general rules on unfair, unreasonable or unjust terms apply to your agreement as well.
Where franchisors get caught out
The most common problems we see are simple ones. A disclosure document is handed over on the day of signing. Financial statements are out of date. The agreement promises support that the franchisor is not actually set up to deliver. Or, most often, a generic template is used for a business it was never written for.
Each of these gives an unhappy franchisee an argument, and in a dispute that can be expensive.
Get the order of documents right
A sound franchise package usually follows this order: a prospectus that introduces the opportunity, the disclosure document, the franchise agreement, and the operations manual that the agreement refers to. When they are written together, they do not contradict each other.
Our Franchise Documentation service prepares the full set, and our Franchise Agreement work makes sure the agreement reflects how your business actually operates. If you are not sure whether you are ready to document the business yet, start with a Franchise Readiness Assessment.
