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FASA TO TIGHTEN UP ITS CODE OF ETHICS RELATING TO THE REFUND OF DEPOSIT

Ahead of the Consumer Protection Act regulations that will reflect FASA’s Code of Ethics and as a result of some complaints received by the Franchise Association of South Africa (FASA), the question of the refund of deposits by prospective franchisees is being seriously reviewed by the association in view of a number of complaints that have been received.

With FASA’s primary role that of ensuring that all its members adhere to the franchise business principles adopted and accepted in the Code of Ethics and Business Practices, it is disturbing that reports of some franchisors, whether FASA members or not, have been taking deposits from prospective franchisees and then are stalling when it comes to refunding those deposits when potential franchisees are not accepted for whatever reason.

According to Ian Jacobsberg, of Eversheds, a FASA Council Member, “it is reasonable for a franchisor to ask for a deposit as a show of intent to purchase a franchise, given that the franchisor must incur expense in assessing the franchisee, carrying out credit checks and preparing the necessary paperwork, including the disclosure document and draft franchise agreement. FASA’s Code of Ethics and business practices requires a franchisor to deposit any monies received from a prospective franchisee into a separate bank account or attorney’s trust account and to refund the amount received if a franchise agreement is not concluded, less any reasonable out-of-pocket expenses that the franchisor may have incurred.  Too many franchisors deposit these monies into their own bank accounts, and use them to fund their businesses, with a result that, in some cases, the money is not available to be refunded if the transaction is not concluded.”

The executive committee of FASA intends to address this issue within their Code of Ethics and to take measures against any of its members who are guilty of transgressing the refund of deposits.  Steps are also being taken to alert the public, through FASA’s website, of companies who have fallen foul of this transgression.

According to Vera Valasis, FASA has been the guiding force of franchising in South Africa and the growth and stability of the sector is largely thanks to the work that FASA has done over the past 31 years as the industry’s representative body.  “Those who are members of FASA have voluntarily made a commitment to abide by the ethical standards laid down by FASA and the international franchise community.  That in itself is an indication of their commitment to operating a sound and ethical business.  In line with the Consumer Protection Act, we need to take steps to further protect the consumer who may be considering purchasing a franchise by making sure that our members are beyond reproach and that franchising’s credibility remains intact.”

Clause 9.15 of the FASA Code of Ethics reads as follows:

  1. “9.15   Where a Franchisor Member receives any moneys from any prospective Franchisee in contemplation of the conclusion of a franchise agreement, as referred to in paragraph 9.14 above, and, whether at the instance of the Franchisor Member or the prospective Franchisee, negotiations in connection with such contemplated agreement are terminated without an agreement being concluded: -
      1. The Franchisor Member shall refund the amount it has received forthwith, and not later than 30 (thirty) days after having received a written request from the prospective Franchisee;
      2. The Franchisor may not retain any part of the amount it has received, save to cover reasonable out-of pocket expenses that it has incurred in contemplation of the conclusion of a franchise agreement.
      3. The Franchisor Member shall provide the prospective Franchisee with documentary proof of all such expenses.”
 
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FASA TO TIGHTEN UP ITS CODE OF ETHICS RELATING TO THE REFUND OF DEPOSITS
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