Franflash: New franchise law in South Africa comes into force
23 April 2010
A new franchise law in South Africa is about to be
introduced by the Consumer Protection Act 68 of 2008 ("the
Act").
The main part of the Act is expected to come into force on 24th
October 2010 but because of certain ambiguities in the drafting of
the transitional provisions, franchisors should treat certain
initial provisions of the Act as being effective from tomorrow, 24
April 2010.
The key features of these initial provisions are:
- a mandatory ten (10) day "cooling off" period after signing a
franchise agreement within which the franchisee may withdraw from
the contract without incurring any liabilities; and
- a requirement that all franchise agreements must be in writing
and signed by franchisees
The Act defines "franchise agreement" very widely and will
include master franchise agreements as well as other arrangements
that are clearly not what would be regarded as franchise
relationships, for example, software distribution and reseller
agreements.
Until the ambiguity regarding the effective date for the
transitional provisions is resolved, franchisors should:
- wait until the cooling off period of ten business days has
expired before commencing any training or providing any information
regarding the franchise system or any confidential information to
the franchisee or where this is not practical ensure that the
franchisee has signed a separate confidentiality
agreement
- ensure that all franchisees have properly signed franchise
agreements in place.
It would be prudent for franchisors to update their franchise
agreements to deal with the introduction of the cooling off
period.
The main sections of the Act that will come into force later in
the year will treat franchisees as "consumers" and extend a number
of fundamental consumer rights to franchisees. Significantly, the
Act will also apply to franchise agreements entered into prior to
its commencement date. A further Franflash will follow soon
with a full explanation of these changes.
For further information, please contact Chris Wormald, Mark Abell or Babette-Marzheuser-Wood.