Wednesday, May 23, 2012

South Africa Sets Out Requirements for Franchise Agreements, Disclosure Documents

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

South Africa has adopted franchise regulations that became effective April 1, 2011. The regulations set out detailed requirements that must be contained in franchise agreements and in disclosure documents, which must be provided to a prospective franchisee at least 14 days prior to the signing of a franchise agreement.

Among the numerous requirements, “a franchise agreement must contain provisions which prevent: (i) unreasonable or overevaluation of fees, prices or other direct or indirect consideration; (ii) conduct which is unnecessary or unreasonable in relation to the risks to be incurred by one party; and (iii) conduct that is not reasonably necessary for the protection of the business interests of the franchisor, franchisee or franchise system.”

Numerous items of specific information are required, such as the obligations of each party, the duration of terms and renewal, and the particulars of the initial training and assistance to be provided the franchisee, among many others.

The disclosure document must contain the number of outlets franchised by the franchisor; the growth of the franchisor’s turnover, net profit, and the number of outlets franchised in the prior year; a statement on the franchisor’s financial position; and written projections of potential sales, income, or profits.

The regulations appear at CCH Business Franchise Guide ¶7246.

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