Consumer Protection Act, Franchise Agreements
Franchisees were previously only afforded the protection provided in terms of the Common Law and as agreed in terms of the Franchise Agreement. Due to the uneven playing field between the parties, the Franchisee mostly entered into one sided agreements, which barely afforded any protection at all.
The legislator thus decided to codify certain protection measures with a view of providing the Franchisee with bargaining power, before and after the agreement had been reached.
The Consumer Protection Act specifically incorporates a franchisee within the definition of a consumer thereby affording it with the recourse and security provided in the Act, and an opportunity to participate in the decision-making processes concerning its interests.
Section 7 deals exclusively with the franchise agreement, and states that an agreement between the Franchisee and Franchisor must be:
- in writing, and
- signed by the Franchisee or its agent
The Franchisee is afforded a 10 (business) day cooling off period in which it may reflect on its purchase. Should the Franchisee believe that it had made a mistake in acquiring the Franchise, it may advise the Franchisor in writing that it cancels the agreement without fear of being penalised or forfeiting any monies paid in terms of the agreement.
Certain sections do however not apply as Franchisees are explicitly excluded from the protection provided by the Act. This includes:
- Section 33, states that a Franchisor does not have to provide its sales records or other prescribed information to a potential Franchisee when the latter wishes to purchase a franchise without inspecting the same prior to entering into an agreement.
- Section 38 prohibits Suppliers from inducing consumers to accept goods on the representation that the latter will receive commission if it furnishes the Supplier with names of other potential consumers, alternatively assist the Supplier in supplying its goods to other consumers. In this instance, the commission will only be payable to the consumer upon a further event occurring after agreement has been reached.
The Consumer Protection Act is the first piece of legislation providing protection for the Franchisee. Its provisions however have not yet been tested in court and its effectiveness is still to be proven.
Ian Mc Laren
