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South Africa

Franchise regulation

The Consumer Protection Act 2008 (CPA) together with the regulations under it regulate franchising in South Africa.

Pre-contractual disclosure requirements

Pursuant to Regulation 3 of the CPA, a franchisor must provide a prospective franchisee with a disclosure document, dated and signed by an authorised officer of the franchisor, at least 14 days before signature of the agreement.

Regulation 3(1) sets out minimum information that must be included in the disclosure document, including:

  • a statement regarding the financial stability of the franchisor confirming that there have been no significant material changes in the franchisor’s financial position since the last accounting officer/audit certificate or certificate stating that the franchisor has reasonable grounds to believe it will be able to pay its debts when they fall due;
  • the number of individual outlets franchised by the franchisor;
  • the growth of the franchisor’s turnover, net profit and the number of individual outlets franchised by the franchisor for the previous financial year; and
  • written financial projections to give the franchisee an understanding of expected costs and return on investment.

Under Regulation 3(3) the disclosure document should be accompanied by a certificate from the accounting officer or auditor certifying that:

  • the franchisor’s business is a going concern;
  • the franchisor is able to meet its current and contingent liabilities to the best of their knowledge;
  • the franchisor is capable of meeting all financial commitments in the ordinary course of business as they fall due; and
  • the franchisor’s audited annual financial statements for the previous financial year have been drawn up in accordance with the various applicable standards and regulations (which should be specified).

Under Regulation 3(4) the disclosure document must also be accompanied by an organogram depicting the support system in place for franchisees and a list of current franchisees (if any) and outlets owned by the franchisor stating the following information in respect of any franchisee: (i) business name; (ii) representative name; (iii) physical address; (iv) email and phone number together with a statement that the prospective franchisee is entitled to contact the franchisees listed or visit their outlets.

Registration

No

Other issues

Regulation 2 of the CPA sets out over 50 points that should be included in a compliant franchise agreement.

Under Regulation 7(1) a franchise agreement must be in writing, signed by the franchisee and must be in “plain and understandable language”.

Under Regulation 7(2) of the CPA a franchisee must be afforded a 10 business day “cooling-off” period, during which they are entitled to cancel the agreement “without cost or penalty”. The wording of this section must appear on the front page of the franchise agreement.

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