FASA was honoured to have Mamodupi Mohlala, the National Consumer Commissioner address members at the FASA AGM held recently where she touched on the specific provisions that affect the franchise industry. With a R2 million threshold on juristic persons not applicable to franchise agreements, Section 7 of the CPA Act deals with franchise agreements and includes the following:
- the franchise agreement must be in writing, include prescribed information and be in plain and understandable language.
- Section 7 (2) allows a franchisee to cancel a franchise agreement without cost or penalty in writing within 10 business days after signing the agreement;
- it must contain provisions which prevent unreasonable or over-valuation of fees, unreasonable conduct relating to risks to be incurred by one party and unreasonable conduct not in the protection of legitimate interest of business.
- Prescribed information in Regulations 2 should include:
- the name and description of the type of goods and services which the franchise is entitled to provide as well as the description of the applicable franchise business system.
- outlines the obligations of both parties and gives detailed territorial rights and gives direct or indirect consideration payable by the franchisee to the franchisor.
- states the duration and the term of renewal of the agreement provided they are not inconsistent with the policy and purpose of the Act.
- Training obligations, financial obligations, initial fee payable, total investment, ongoing amounts payable to the franchisor and whether fixed or variable and dates and intervals they become due are also prescribed information.
- Every franchisor must provide a prospective franchisee with a disclosure document duly signed, at least 14 days prior to the signing of the agreement and must contain the number of individual outlets, the growth of the franchisor’s turnover/net profit for the financial year prior to receiving the disclosure documents, written projections iro levels of potential sales, income, gross or net profit and other financial projections and particular assumptions on which these presentations are made.
Complaints received by the NCC related to franchising related to disclosure documents not issued before the conclusion of the contract iro non performance, quality of goods and services, premature cancellation of contract and unconscionable conduct. The Commissioner disclosed three of the cases they have handled – those of Old Fashioned Fish and Chips in relation to a consent agreement signed and refunds; Primi Piatti in relation to a compliance notice and Gloria Jean Coffees in relation to a possible compliance notice – all resolved with satisfactory results. The commission has the responsibility to enforce the CPA Act by initiating complaints on issues, investigating those complains, issuing compliance notices, negotiating settlement of complaints, facilitating conclusion of consent orders and referring matters to the tribunal for adjudication and to the Equality Court. It will also accredit industry codes and industry ombud-schemes as well as consumer groups and ADR agents (of which FASA hopes to become one).